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Cover Story
 
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Increasing Shareholder value through Building Customer and Brand Equity
Under Pressure to Fulfill short term goals, The Management is giving in to The Practice of Myopic Management. But The Need of the hour is to stay away from such Practices and Concentrate on Long Term Strategic Issues
Issue Date - 26/05/2011
 
This outcome was also supported by Rust et al (2004) in an analysis of the airline industry. The customer equity valuation for American Airlines was calculated at $7.3billion, whereas the market capitalisation at the time was $9.7billion.

The difference could be explained due to the exclusion of international customers and nonflight sources of income in the customer equity calculation.

Ambler (2003), utilising 2001 data to compare market capitalisation and Interbrand Brand Valuations of the top 10 brands, found that the brand represented between 18% and 68 % of the market value of the firm. A simple weighted average of the data gives a brand valuation as 23% of the market value, which compares favourably to the 25% typically used by Brand Finance. Thus brand equity is a less inclusive indicator of the value of the organisation compared to customer equity, where the latter provides an approximation to the market value. The reasoning for this is supported by Keller and Lehmann (2005), who conclude that “under one set of assumptions, the value of a customer to the firm (i.e. customer equity) can be shown to be the sum of the profit from selling equivalent generic products and the additional value from selling branded goods (i.e. brand equity).”

Conclusions on brand equity and customer equity
Based on the above discussions, there are certain similarities and differences between the two concepts.

Clearly both are drivers of shareholder value, although their focuses are different. While Brand Equity metrics are relatively well established, Customer Equity metrics are still gaining acceptance.

The key differences are particularly in the focus of these two concepts: brand equity is a more product-focused driver of shareholder value, while customer equity is a more customer-focused driver of shareholder value.

In summary, it is unclear exactly how Brand Equity and Customer Equity are different, are subsets, or influence each other . Leone et al (2006) have proposed a preliminary model for relating brand equity to customer equity, but further research is advocated to test how brand equity and customer equity are related, and how investments in these are related to shareholder value.

In conclusion, it would appear that the brand equity proponents have a “head start”, with more organisations providing commercial brand valuations (e.g. Interbrand, Brand Finance, Equitrend, BrandMetrics, BrandEconomics, etc), and with further progress with the accounting fraternity in recognition of the brand’s intangible asset on financial statements.

Nevertheless, the customer equity proponents’ ranks are swelling, as more scholars advocate a customer focus to manage the organisation’s marketing programmes.
 

          

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