As a result, questions in recent literature have been raised as to how better to measure and manage the customer asset. With regard to measurement, customers unlike products, are intangible assets and calculating a precise value to each and every component that goes into making-up this asset is difficult to establish fully (Gupta and Lehmann, 2003). Assessing customers financially is only part of the equation and where most of the literature is focused (Rust, Lemon and Zeithaml, 2004), but customer equity (CE) research is regarded as advancing the well-known area of customer lifetime value (CLV). Consequently, the management of customer
equity is where the literature is suggesting much work needs to be done (Bell et al., 2002; Hogan, Lemon and Rust, 2002; Kumar and George, 2007). The program of research in this thesis therefore intends using two streams of research evident in the literature.
Under one major stream of research for measuring customer equity (Berger and Nasr, 1998; Blattberg, Getz and Thomas, 2001; Gupta and Lehmann, 2003; Rust, Lemon and Zeithaml, 2004; Rust, Lemon and Zeithaml, 2006), firms use segment or firm-level data to compute the average lifetime value of a customer, which is then multiplied by the number of customers, to arrive at the customer equity. Consequently, individual lifetime value is not available for all customers in this top- down management approach, which is referred to as an aggregate-level approach (Kumar and Petersen, 2005).
Under a second stream that has emerged (Kumar and George, 2007; Venkatesan and Kumar, 2004), each customer’s value to the firm is computed individually for all existing customers. Consequently, customer equity is then calculated by summing the lifetime values of all the customers. Where customer equity is derived from individual-level customer lifetime values in a bottom-up approach, it is referred to as a disaggregate-level approach.
This research intends to examine both streams noted above with a view to advancing the field of CEM research. Whilst much in-depth research has been undertaken in the area of customer equity through the propositions of aggregate and disaggregate frameworks, there remains confusion and complexity about the specific contribution and managerial applications of each approach, and strategies contained therein. Inherent in the two respective types of customer data (aggregate and disaggregate) is an assumption about expected outcomes and ‘maximisation’ efforts. To date, selection appears to be made by data availability that focuses on measuring and maximising customer equity through targeting customers, rather than by the objectives approach (Kumar and Petersen, 2005; Kumar, Venkatesan and Reinartz, 2006). For example, an objectives approach to CE data management requires a constant revisit to the objectives of the strategy, the firm’s current resources and
other constraints, market demand and revenue estimates, determinants of costs, volume and profit relationships, and then utilisation of the appropriate data collection techniques to target the right customers (Kumar and George, 2007).
The marketing strategies that drive consumption (from here-on called the strategy drivers), are used for this research. They include the following strategies: (i) customer acquisition and (ii) customer retention (Blattberg and Deighton, 1996; Rust, Lemon and Zeithaml, 2004; Thomas 2001); (iii) resource allocation and costs, (Bowman and Narayandus, 2004; Cobb-Walgren, Ruble and Donthu, 1995; Simester, Hauser, Wernerfelt and Rust, 2000; Venkatesan and Kumar, 2004) and (iv) customer segmentation (Kumar, Venkatesan and Reinartz, 2006; Reinartz and Kumar, 2002; 2003). Besides strategies, there are two customer data types that require examination. They are (v) aggregate customer data and (vi) disaggregate customer data. All of these strategy drivers and data types have been shown to contribute to CE outcomes success, but at this time are managed separately and discretely and not in any unified way (Kumar and George, 2007). There has been no attempt to synthesise these disparate elements in order to achieve greater outcomes success for the firm. To test the efficacy of a synthesised approach to CE outcomes, it intended to explore these six strategies with CE managers who have responsibilities for obtaining equity outcomes through the firm’s customers.
1.2.1 Justification for the research undertaking
The case study approach is regarded as the preferred approach when ‘how’ or ‘why’ questions are being posed as is the situation in this research program, particularly when the investigator has little control over the events and when the focus is on a contemporary phenomenon with some real-life context (Yin, 2003a; 2006). In this case, it is holistic real-life events of CEM practice. The research also has the advantage of an exploratory survey for the purposes of finding out the ‘what’ aspects of the research. In all, there are expectations of significantly advancing the field of CEM in Australia. There were several other points of justification for undertaking the program of research as follows.
Justification is made on the basis of building on the significant advances already made in the area of CRM and CLV in service firms. Consequently, the
models and concepts developed in this research program have been designed to test for ways to obtain value from the firm’s customers through advanced models in CE Management. There is also justification based on the extent of customer equity and customer management research efforts. Whilst this research is not a replication study, most notable to date is customer equity research in service firms. There are very few empirical studies in customer equity management, with none found in Australia. This research intends to address this void.
Firms operating in the services sector differ greatly in their offering to their customers. Activities or benefits for sale are intangible, that is, the customer cannot see, touch or feel the goods in advance of purchase, are inseparable from the consumer in that production and consumption occur simultaneously, are perishable in that they are consumed immediately and cannot be inventoried, and above all, are experiential and do not result in ownership of anything (Kotler, Brown, Adam, Burton and Armstrong, 2007). As services differ substantially from manufactured goods, they require a distinctive approach to marketing strategy and other management functions. The distinctiveness of the service sector offering, the marketing strategies used in managing customer equity and the database management practices, add to the challenge CE managers have in producing outcomes for the firm. This research intends to meet this challenge.
In justifying the context for this research in the services sector, accommodation hotels were chosen for their commonality of purpose, as well as their complexity with regard to their size, type, structure, location differences and business outcomes. With accommodation hotels, segmentation variables are likely to show, for example domestic and international travel considerations, executive, business class and economy travellers, city versus suburban hotels, special demand events, such as olympic games and seasonal fluctuations, which impact on all hotel types. The brand name of a specific service provider could also be influential.
The call for more CEM research within a business to consumer setting, that contains both aggregate as well as disaggregate level customer data was signalled by Bell et al., (2002); Hogan, Lemon and Rust, (2002); and Kumar and George (2007).
In this research, it is anticipated the findings will capture insights into hotels that derive their income sources in a contractual business to business and non-contractual business to consumer setting.