Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

LITERATURE REVIEW 
Customer equity has been defined by Blattberg and Deighton (1996) as “the measure of each customer’s 
expected contribution toward offsetting the company’s fixed costs over the expected lack of that customer. In their 
article, they suggest that companies ask the following question when determining new products or services, “Will it 
increase customer equity?” If it will, the marketing effort is justified. If not, then it will not benefit the company or 
the customer and should not be implemented.
Hansotia (2004) explains why companies should learn to manage customer equity. First, companies should 
consider the financial ramifications of understanding and implementing customer equity strategies. Financial theory 
tells us that the net present value (NPV) of its projected cash flow may estimate the value of the company (Van 
Horne, 2001). Second, companies should also determine which marketing programs will increase cash flow and 
evaluate those programs to maximize the utility. One of the most straight forward explanations of customer equity is 
presented in Rust, Zeithaml, and Lemon’s (2002) book, 
Driving Customer Equity
. They identify the drivers of 
customer equity as being, value equity, brand equity, and retention equity. Value is important to all customers 
because their choice to select the product or service is influenced by their perceptions of value the organization or 
the firm has to offer.
Value equity represents the customer’s objective evaluation of what the organization or firm has to offer. 
Value equity is defined as “the customer’s objective assessment of the utility of a brand based on perceptions of 
Value
Equity 
Brand
Equity 
Relationship 
Equity 
Customer 
Equity 

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