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


Stahl, Florian; Heitmann, Mark; Lehmann, Donald R; Neslin, Scott (2012). Impact of Brand Equity on Customer Acquisition, Retention, and Profit Margin. Journal of Marketing, 76(4):44-63.

Abstract

This paper examines the relationship between brand equity and customer acquisition, retention, and profit margin, the key components of customer lifetime value (CLV). We examine a unique database from the U.S. automobile market that combines 10 years of acquisition rate, retention rate, and customer profitability data with measures of brand equity from Young & Rubicam’s Brand Asset Valuator (BAV) over the same time period. We hypothesize and find that BAV brand equity is significantly associated with the components of CLV in expected and meaningful ways. For example, customer Knowledge of a brand has an especially strong positive relationship with all three components of CLV. Interestingly, however, Differentiation is a double-edged sword. While it is associated with higher customer profitability, it is also associated with lower acquisition and retention rates. We also find that marketing efforts exert indirect impacts on CLV through brand equity. Simulations show that changes in marketing, or exogenous changes in brand equity, can exert important effects on CLV. Overall, the findings suggest the “soft” and “hard” sides of marketing need to be managed in a coordinated fashion. We discuss these and other implications for researchers and practitioners.

Abstract

This paper examines the relationship between brand equity and customer acquisition, retention, and profit margin, the key components of customer lifetime value (CLV). We examine a unique database from the U.S. automobile market that combines 10 years of acquisition rate, retention rate, and customer profitability data with measures of brand equity from Young & Rubicam’s Brand Asset Valuator (BAV) over the same time period. We hypothesize and find that BAV brand equity is significantly associated with the components of CLV in expected and meaningful ways. For example, customer Knowledge of a brand has an especially strong positive relationship with all three components of CLV. Interestingly, however, Differentiation is a double-edged sword. While it is associated with higher customer profitability, it is also associated with lower acquisition and retention rates. We also find that marketing efforts exert indirect impacts on CLV through brand equity. Simulations show that changes in marketing, or exogenous changes in brand equity, can exert important effects on CLV. Overall, the findings suggest the “soft” and “hard” sides of marketing need to be managed in a coordinated fashion. We discuss these and other implications for researchers and practitioners.

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Citations

61 citations in Web of Science®
77 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:2012
Deposited On:20 Feb 2012 15:32
Last Modified:05 Apr 2016 15:23
Publisher:American Marketing Association
ISSN:0022-2429
Publisher DOI:https://doi.org/10.1509/jm.10.0522
Other Identification Number:merlin-id:6412

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