Journal of the Academy of Marketing Science

, Volume 35, Issue 2, pp 157–171 | Cite as

Measuring and maximizing customer equity: a critical analysis

  • V. Kumar
  • Morris George


Customer equity, the asset value of customers, can be measured using different aggregate- and disaggregate-level approaches. The authors compare how customer equity is measured and maximized under various approaches. We find that, in the disaggregate-level approach, customer lifetime value is maximized by implementing customer-level strategies such as optimal resource allocation, purchase sequence analysis and balancing acquisition and retention spending. At the aggregate-level, improving the drivers of customer equity maximizes customer equity. A comparison of different aggregate approaches shows that, while an emphasis on retention is a common feature across approaches, conceptual differences in terms of accounting for existing customers and prospects, acquisition, and the projection period exist across the different approaches. The authors propose a hybrid approach, which addresses the issues and challenges in existing approaches and helps firms to measure and manage customer equity.


Customer equity Customer lifetime value Aggregate-level approach Disaggregate-level approach 



The authors thank the participants at the New York University Marketing Research Conference and the University of Maryland Marketing Research Conference for their valuable suggestions in an earlier version of this manuscript. The authors thank Renu for copyediting the manuscript. The authors thank the editor and the reviewers for their valuable comments on an earlier version of the manuscript.


  1. Bell, D., Deighton, J., Reinartz, W. J., Rust, R. T., & Swartz, G. (2002). Seven barriers to customer equity management. Journal of Service Research, 5(1), 77–85.CrossRefGoogle Scholar
  2. Berger, P. D., & Nasr, N. I. (1998). Customer lifetime value: Marketing models and applications. Journal of Interactive Marketing, 12, 17–30 (Winter).CrossRefGoogle Scholar
  3. Blattberg, R., & Deighton, J. (1996). Manage marketing by the customer equity test. Harvard Business Review, 74(4), 136–144.Google Scholar
  4. Blattberg, R., Getz, G., & Thomas, J. S. (2001). Customer equity: Building and managing relationships as valuable assets. Boston, MA: Harvard Business School Press.Google Scholar
  5. Brady, D. (2000). Why service stinks. Business Week, 23, 118–128 (October).Google Scholar
  6. Gupta, S., & Lehmann, D. R. (2003). Customer as assets. Journal of Interactive Marketing, 17(1), 9–24.CrossRefGoogle Scholar
  7. Gupta, S., Lehmann, D. R., & Stuart, J. A. (2004). Valuing customers. Journal of Marketing Research, 41(1), 7–18.CrossRefGoogle Scholar
  8. Hogan, J. E., Lemon, K. N., & Rust, R. T. (2002). Customer equity management: Charting new directions for the future of marketing. Journal of Service Research, 5, 4–12 (August).CrossRefGoogle Scholar
  9. Keller, K. L., & Lehmann, D. R. (2003). How do brands create value? Marketing Management, 12(3), 26–31.Google Scholar
  10. Kumar, V., Ramani, G., & Bohling, T. (2004). Customer lifetime value approaches and best practice applications. Journal of Interactive Marketing, 18, 60–72 (Summer).CrossRefGoogle Scholar
  11. Kumar, V., Venkatesan, R., & Reinartz, W. (2006). Knowing what to sell when to whom? Harvard Business Review, 131–137 (March).Google Scholar
  12. Lemon, K. N., Rust, R. T., & Zeithaml, V. A. (2001). What drives customer equity? Marketing Management, 10, 20–25 (Spring).Google Scholar
  13. Reinartz, W. J., & Kumar, V. (2000). On the profitability of long-life customers in a non-contractual setting: An empirical investigation and implications for marketing. Journal of Marketing, 64, 17–35 (October).CrossRefGoogle Scholar
  14. Reinartz, W. J., & Kumar, V. (2002). The mismanagement of customer loyalty. Harvard Business Review, 1–13 (July).Google Scholar
  15. Reinartz, W. J., & Kumar, V. (2003). The impact of customer relationship characteristics on profitable lifetime duration. Journal of Marketing, 67, 77–99 (January).CrossRefGoogle Scholar
  16. Reinartz, W. J., Thomas, J. S., & Kumar, V. (2005). Balancing acquisition and retention resources to maximize customer profitability. Journal of Marketing, 69, 63–79 (January).CrossRefGoogle Scholar
  17. Rust, R. T., Lemon, K. N., & Zeithaml, V. A. (2004). Return on marketing: Using customer equity to focus marketing strategy. Journal of Marketing, 68, 109–127 (January).CrossRefGoogle Scholar
  18. Rust, R. T., Zeithaml, V. A., & Lemon, K. N. (2000). Driving customer equity: How customer lifetime value is reshaping corporate strategy. New York: The Free Press.Google Scholar
  19. Thomas, J. S., Reinartz, W., & Kumar, V. (2004). Getting the most out of all your customer. Harvard Business Review, 1–8 (July–August).Google Scholar
  20. Venkatesan, R., & Kumar V. (2004). A customer lifetime value framework for customer selection and optimal resource allocation strategy. Journal of Marketing, 68, 106–125 (October).CrossRefGoogle Scholar
  21. Verhoef, P. C., & Donkers, B. (2001). Predicting customer potential value: An application in the insurance industry. Decision Support Systems, 32, 189–199.CrossRefGoogle Scholar

Copyright information

© Academy of Marketing Science 2007

Authors and Affiliations

  1. 1.School of Business Administration, Department of MarketingING Center for Financial Services at the University of ConnecticutStorrsUSA
  2. 2.School of Business AdministrationUniversity of ConnecticutStorrsUSA

Personalised recommendations