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The Impact of Brand Equity on Customer Acquisition, Retention, and Profit Margin

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Florian Stahl

Mark Heitmann

Donald R. Lehmann

Scott A. Neslin

UNC Next Generation Conference on Brands and Branding

Chapel Hill, NC

April 12-13

The Impact of Brand Equity on Customer

Acquisition, Retention, and Profit Margin

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Brand Equity and Customer Lifetime Value

Brand equity and CLV are two key marketing metrics . . .

. . . But the relationship between them has received

relatively little attention (Keller and Lehmann 2006; Rust,

Lemon, and Zeithaml 2004)

Customer Mindset • Awareness • Associations Customer Behavior • Acquisition • Retention

Brand Equity Customer Lifetime Value Marketing Actions

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Conceptual Framework

Marketing Actions • Advertising • Innovation • Promotions • Market presence • Price Brand Equity • Differentiation • Relevance • Esteem • Knowledge Behavior • Acquisition • Retention • Profit Contribution CLV
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Modeling CLV

Two primary models of CLV (Berger & Nasr 1998; Blattberg, Kim, and Neslin 2008):

• Simple retention model

• Markov migration model

Three components of the Markov migration model:

• Customer retention: probability the focal brand is bought in period t given the customer owns the focal brand in period t-1 and purchases a car in period t.

• Customer acquisition: probability the focal brand is bought in period t given the customer owns a competitive brand in period t-1 and purchases in period t.

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Data

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Data

Marketing Actions

• Advertising (TNS Media)

• Innovation (Wards Automobile)

• Promotions (Automotive News)

• Market Presence

• Number of dealers (Automotive News)

• Number of models offered (Wards Automobile)

• Retail Price (Power Information Network – PIN) Brand Equity

• Young and Rubicam’s Brand Asset Valuator (BAV)

• Differentiation, Relevance, Esteem, Knowledge Customer Behavior

• Total unit sales (PIN)

• Number of acquired customers (PIN)

• Number of retained customers (PIN)

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Conceptual Framework

Marketing Actions • Advertising • Innovation • Promotions • Market presence • Price Brand Equity • Differentiation • Relevance • Esteem • Knowledge Behavior • Acquisition • Retention • Profit Contribution CLV
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Analysis of Acquisition and Retention

• Differential Effects Multinomial Attraction Model (Cooper and Nakanishi 1988)

 

 

39 1 2 1 j r jrt irt irt

A

A

S





  4 1 5 1

exp

k m irt mt mit mr kt kit kr r r i i irt

F

AR

BE

BE

X

X

A

• Sirt = Unconditional probability of acquisition (r=1) or retention (r=2) for brand i

in period t.

• Fi = Dummy coding for fixed effect for brand i.

• ARr = Dummy coding for acquisition (r=1) vs. retention (r=2).

• BEkit = Value of brand equity component k of brand i in period t.

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Results: Brand Equity Impact on

Acquisition and Retention

Acquisition Retention

Variable Std. Coef. t-stat Std. Coef. t-stat

Brand Equity Differentiation Relevance Esteem Knowledge -0.058 0.089 -0.035 0.162 -2.16 1.94 -0.72 4.53 -0.127 -0.028 0.101 0.349 5.97 -0.61 2.10 9.76 Marketing Advertising Innovation Promotions Market Presence Price 0.099 0.009 0.042 0.288 -0.058 3.45 0.74 3.62 4.79 -1.50 0.066 -0.012 0.014 0.336 -0.014 2.31 -1.05 1.19 5.59 -0.35 R2 0.95

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Conceptual Framework

Marketing Actions • Advertising • Innovation • Promotions • Market presence • Price Brand Equity • Differentiation • Relevance • Esteem • Knowledge Behavior • Acquisition • Retention • Profit Contribution CLV
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Results: Impact of Brand Equity of

Profit Contribution

Variable Std. Coef. t-stat.

Brand Equity Differentiation Relevance Esteem Knowledge 0.36 0.17 -0.16 0.18 5.97 1.73 -1.52 2.13 Marketing Advertising Innovation Promotions Market presence -0.12 -0.01 0.01 0.32 -1.74 -0.56 0.34 2.69 R2 0.91

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Conceptual Framework

Marketing Actions • Advertising • Innovation • Promotions • Market presence • Price Brand Equity • Differentiation • Relevance • Esteem • Knowledge Behavior • Acquisition • Retention • Profit Contribution CLV
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Results: Marketing’s Impact on Brand

Equity

Differentiation Relevance Esteem Knowledge

Std. Coef. t-stat Std. Coef. t-stat Std. Coef. t-stat Std. Coef. t-stat Advertising Innovation Promotions Market Presence Price 0.28 -0.00 0.00 -0.34 -0.16 4.50 -0.01 0.18 -3.36 -1.61 0.22 0.00 0.01 0.40 0.02 4.79 0.03 0.51 5.30 0.32 0.21 -0.00 -0.01 0.13 -0.02 4.86 -0.10 -0.73 1.82 -0.23 0.03 -0.00 -0.00 0.51 0.04 0.69 -0.30 -0.24 7.07 0.51 R2 0.91 0.95 0.96 0.95

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Scenario Analysis: Impact of Increased

Market Presence on Brand Equity and CLV

Variable Base Case Increased Presence

Marketing Advertising Innovation Promotions Market Presence Price 41.2 -0.22 -12,423 0.38 $14,792 41.2 -0.22 -12,423 0.56 $14,792 Brand Equity Differentiation Relevance Esteem Knowledge 2.34 0.03 5.95 0.55 2.24 0.05 5.87 0.58 Components of CLV Acquisition Retention Profit Contribution 1.49% 45.69% $19,643 1.55% 48.61% $19,880 CLV ROI $29,036 $29,846 $0.78

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Summary and Implications

Summary

Brand equity and CLV are inextricably linked.

Differentiation is a double-edged sword.

Brand knowledge has strong positive impact on all three elements of CLV.

Marketing drives equity as well as CLV.

The impact is managerially meaningful.

Implications

Brand management and customer management are inter-related and

must be coordinated.

Linking marketing, brand equity, and CLV helps diagnose as well as

quantify return on marketing.

Linking marketing, brand equity, and CLV enhances the brand planning

process.

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References

• Berger, Paul D., and Nada I. Nasr (1998), “Customer Lifetime Value: Marketing Models and Applications,” Journal of Interactive Marketing, 12 (1), 17-30.

• Blattberg, Robert C., Byung-Do Kim, and Scott A. Neslin (2008), Database Marketing: Analyzing and Managing Customers, New York: Springer.

• Cooper, Lee G., and Masao Nakanishi (1988), Market Share Analysis: Evaluating Competitive Marketing Effectiveness, Boston: Kluwer Academic Publishers.

• Keller, Kevin L., and Donald R. Lehmann (2006), “Brands and Branding:

Research Findings and Future Priorities,” Marketing Science, 25 (6), 740-759.

• Rust, Roland T., Katherine N. Lemon, and Valerie Zeithaml (2004), “Return on Marketing: Using Customer Equity to Focus Marketing Strategy,” Journal of Marketing, 68 (1), 107-127.

References

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