Intangible assets are those that a company normally does not enter on its balance sheet. In recent years, many companies have invested heavily in marketing programs, and minor amounts in fixed productive assets (which are entered on the books in the form of depreciation). The book value of a company does not take this value or equity into account. The most common intangible assets are the following:
Brand equity. This refers to the value of a brand’s image.
Trade acceptance. This consists of the numeric and weighted distribution and of how easy or quickly new products can be introduced in to the market.
Patents, generally linked to products or processes for making those products.
Patents, generally linked to products or processes for making those products.
Customer equity, or the value of the customer base. This is the possibility that clients have of continuing to allow a company to prosper in the long term (the sum of the lifetime value of each one of the clients of the company).
All of these intangible assets mean there is a difference between the book value of a company and its market value, and that is what interests investors: creating future value.
The following graph shows the impact of marketing investment on the value of a stock (in other words, market value)
The more investors believe that intangible assets can ensure a positive and growing cash flow, the higher the market value of the stock compared to its traditional book value.
The long term value of a company is determined by the value of its intangible assets, which are usually produced by the company’s marketing activities. The most important value comes from the relations a company has with its clients or consumers, which translates into the value of the company’s clientele, or the sum of the lifetime value of all of its clients at present value.
2. Customer equity
Customer equity is made of three pillars, as shown below:
Each of these pillars is a driver or engine (causal relationship) of customer equity, which is established progressively. Let us look at each component and its drivers:
If any of these three factors (or others that the company considers critical to its value proposal) does not meet its customers or clients’ expectations, there will be no value proposal, and thus no customer equity will be gained. The three factors exemplified here comprise this value, and refers primarily to the attributes or characteristics of the products or services, their perceived quality, appropriate pricing, ease of access or exclusivity.
These drivers in turn may depend on other drivers: for example, in order for a product to have quality, it must be differentiated through constant innovation (cutting-edge technology). It is fundamental to have trade acceptance for products to rapidly reach the points of sale, in order to take advantage of other investments like advertising, and create cash flows as quickly as possible.
If a client does not know the brand, he or she will not take it into account when making a choice. That is why brand awareness is so important.
Brand image is the set of associations created about the brand in the mind of the customer. These associations should be strong, positive and unique, because image is a basic element for leveraging consumer confidence: if there is not enough brand awareness, or if the image is not positive, there will be no brand value, and again, no customer equity will be created.
As in the previous case, these drivers may have their own drivers. For example, in the case of brand awareness, having a media program, which requires a great deal of repetition, or creating a positive image through commercials that are new and tasteful, or presenting the company as a socially responsible enterprise.
The last driver, relationship value, consists basically of placing customer relationship management (CRM) at the center of the business model.
These components, which are examples, have their own drivers: for example, loyalty programs that work with loyalty cards (like airline miles). Depending on what the company wants to achieve, it can offer points for purchases, or for referrals, etc.
The causal system establishes that if any of these elements is missing, there will be no relationship value, and therefore, there will be no solid customer base for the future.
Conclusion
In this article, we have shown that a company’s brand value is determined by its capacity to retain and grow its customer base.
Every company should apply the model we have presented, taking into account its specific realities, its strengths and abilities, its own drivers or engines, and its market, but above all, it must place the client or customer at the center of its reflections, both strategic and operating.?
Customer Equity, or the Value of Customers
By: Philippe Bisson
ITAM
1. Intangible assets
Intangible assets are those that a company normally does not enter on its balance sheet. In recent years, many companies have invested heavily in marketing programs, and minor amounts in fixed productive assets (which are entered on the books in the form of depreciation). The book value of a company does not take this value or equity into account. The most common intangible assets are the following:
All of these intangible assets mean there is a difference between the book value of a company and its market value, and that is what interests investors: creating future value.
The following graph shows the impact of marketing investment on the value of a stock (in other words, market value)
The more investors believe that intangible assets can ensure a positive and growing cash flow, the higher the market value of the stock compared to its traditional book value.
The long term value of a company is determined by the value of its intangible assets, which are usually produced by the company’s marketing activities. The most important value comes from the relations a company has with its clients or consumers, which translates into the value of the company’s clientele, or the sum of the lifetime value of all of its clients at present value.
2. Customer equity
Customer equity is made of three pillars, as shown below:
Each of these pillars is a driver or engine (causal relationship) of customer equity, which is established progressively. Let us look at each component and its drivers:
If any of these three factors (or others that the company considers critical to its value proposal) does not meet its customers or clients’ expectations, there will be no value proposal, and thus no customer equity will be gained. The three factors exemplified here comprise this value, and refers primarily to the attributes or characteristics of the products or services, their perceived quality, appropriate pricing, ease of access or exclusivity.
These drivers in turn may depend on other drivers: for example, in order for a product to have quality, it must be differentiated through constant innovation (cutting-edge technology). It is fundamental to have trade acceptance for products to rapidly reach the points of sale, in order to take advantage of other investments like advertising, and create cash flows as quickly as possible.
If a client does not know the brand, he or she will not take it into account when making a choice. That is why brand awareness is so important.
Brand image is the set of associations created about the brand in the mind of the customer. These associations should be strong, positive and unique, because image is a basic element for leveraging consumer confidence: if there is not enough brand awareness, or if the image is not positive, there will be no brand value, and again, no customer equity will be created.
As in the previous case, these drivers may have their own drivers. For example, in the case of brand awareness, having a media program, which requires a great deal of repetition, or creating a positive image through commercials that are new and tasteful, or presenting the company as a socially responsible enterprise.
The last driver, relationship value, consists basically of placing customer relationship management (CRM) at the center of the business model.
These components, which are examples, have their own drivers: for example, loyalty programs that work with loyalty cards (like airline miles). Depending on what the company wants to achieve, it can offer points for purchases, or for referrals, etc.
The causal system establishes that if any of these elements is missing, there will be no relationship value, and therefore, there will be no solid customer base for the future.
Conclusion
In this article, we have shown that a company’s brand value is determined by its capacity to retain and grow its customer base.
Every company should apply the model we have presented, taking into account its specific realities, its strengths and abilities, its own drivers or engines, and its market, but above all, it must place the client or customer at the center of its reflections, both strategic and operating.?
References:
Rust, Zeithaml, Lemon. Driving customer equity, Free Press.
Joan Koon Cannie. Keeping Customers for life.
Bisson Ph. Apuntes del curso de CRM.