Research Handbooks in Business and Management series
Edited by V. Kumar and Denish Shah
Chapter 8: Word-of-mouth and marketing effects on customer equity
Companies can acquire and grow customers in many ways, and different strategies will bring very different results to the firm. Many chief marketing officers (CMOs) rely on short-term metrics such as quarterly sales and earnings to assess their return on marketing. Inasfar as good marketing creates and cements customer relationships with the firm, these short-term metrics risk underestimating the true impact of their efforts. Customer equity has emerged as a powerful paradigm to monitor and measure the long-term financial impact of marketing spending and of word-of-mouth, not only in inherently relationship-oriented sectors (such as insurance) but also in transactions-dominated sectors (such as consumer packaged goods). We start this chapter by proposing that managers improve the measurement of their customer acquisition efforts. Some believe that customer equity management should focus on already-acquired customers. This reasoning is flawed, because a firm acquiring the wrong customers will have serious difficulties in trying to retain and grow them later on.
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