Customer Equity thru Retention Marketing

Customer Equity is a very difficult asset to measure. That's right I said asset. First let me explain what customer equity is. It is the combined present value of current customers and potential customers (not prospects). This equity grows with loyal (repeat buying) profitable customers.

Many marketing professionals and experts profess that customer equity is a much better measure of effective marketing (through retention marketing) than revenue and sales units. The logic behind this school of thought is that sales is a measure of past performance while customer equity is a measure of current and future performance.

One of the most important characteristics that improve customer equity is current customer age. A loyal younger customer will have a longer time to repeat buy than an older customer. Thus the younger customer has more life time purchasing power than an older customer. So looking at brands that have a loyal yet older customer base have a lower customer equity than a one with younger customers.

Now before you go and stop paying attention to your older customers...think again. Older customers tend to have more disposable income. They also tend to be trusted by their children and grandchildren. They in essence will become advocates for your product.

So what is the lesson. Keep your young customers happy forever until they become senior citizens and continue to bring in those potential new, especially younger, customers. In other words have a complete product portfolio that meets the needs and attracts the young and the old customer segments with different products of course.