Although brand equity and customer equity are two of the most important topics to academic researchers and practitioners (Leone et al. 2006), so far little is known about the relationship between these two concepts (e.g., Berger et al. 2006; Kumar, Lemon and Parasuraman 2006). A better understanding on how customer equity is affected by changes in customer mindset is important, as it enables firms to influence key drivers of customer lifetime value and allows them to anticipate customer behavior changes before they occur. Furthermore, investments in branding could be directly linked to customer value. Such knowledge would help marketing managers to justify their marketing spending and quantify the return on marketing investment.
In our paper we model the influence of customer-based brand equity on customer acquisition and retention rates following the brand equity framework of Keller (1993) and an extension of the customer valuation model of Gupta, Lehmann and Stuart (2004). We test our model empirically on a sample of ten major automobile brands in the largest European economy, Germany, and provide evidence about the multifarious impact of customer mindset on customer equity. Using customer perceptions data provided by Young & Rubicam’s Brand Asset Valuator model, the results show that high brand familiarity combined with a set of positive and unique brand associations has an effect on customer acquisition, whereas our brand attitude measure has a strong impact on customer retention. The empirical insights into the relationship between brand equity and customer equity help managers to quantify the return on marketing investment and to enhance the productivity and effectiveness of advertising campaigns. Thus, our research findings enable firms to initiate marketing actions that will help to build and maximize customer equity and thereby shareholder value.