Customer equity: What is it and how to cultivate it
Find out more about the three types of customer equity: value, brand, and relationship equity.
Customer equity is a critical concept for businesses to understand in order to achieve long-term success. It refers to the total value a company derives from customer relationships over their lifetime. When an organization strives to improve its customer equity, they do so by enhancing customer satisfaction and refining customer experiences.
With higher customer equity, businesses report long-term profitability, increased loyalty, and high rates of customer satisfaction. In this article, we explore what customer equity is, the pillars that contribute to it, how to measure it, and how to improve customer equity in your organization.
What is customer equity?
Customer equity represents the sum of your customers' lifetime values. As customers return to purchase with your brand over time, their overall equity increases. Therefore, high rates of customer loyalty equal high customer equity.
There are three main types of customer equity (which we cover below), each contributing to a loyal and active customer base.
Why is customer equity important?
Customer equity is directly tied to customer experience (CX) since customer equity reflects customer satisfaction, engagement, and loyalty. So, when your business has an effective CX strategy to enhance your relationship with customers, they’re more likely to stay with your company longer, building equity.
Increasing customer equity indicates that your efforts to reduce customer churn and improve customer experiences are working. By monitoring customer equity, you can gain a more comprehensive understanding of the success of your customer experience program or identify where improvements to CX are needed.
High customer equity has the following benefits for an organization:
- Increased revenue: Companies with high equity have customers that are willing to return again and again. As customers return, they increase their lifetime value and enhance profits.
- Reduced acquisition cost: High equity signifies high customer retention rates, which translates into lower acquisition costs per customer on average.
- Higher satisfaction: High equity also indicates that customers are satisfied with your brand beyond just your products and services; they’ve developed a deep connection and trust with your brand.
- More predictable revenue: Having a stable base of customers makes it easier to forecast future sales more accurately.
- Promoters to market your business: Happier customers are more likely to recommend your company to friends or colleagues through word-of-mouth marketing, contributing to higher Net Promoter Score (NPS®) as well.
Measuring customer equity not only provides insight into how satisfied and engaged your customers feel, but it can also be a powerful indicator of how your employees feel. By regularly measuring customer equity, you’ll be able to gauge just how positive the experiences have been between customers and employees. A high customer equity score often reflects a motivated, engaged, and customer-centric workforce that delivers exceptional experiences, while a low score may indicate a need for employee training, support, or a realignment of company culture to prioritize customer satisfaction.
What are the three types of customer equity?
To fully understand the concept of customer equity, it’s essential to explore its three main components: value, brand, and relationship equity. Each type contributes to customer perception, experience, and loyalty, ultimately contributing to the overall measure of customer equity.
Value equity
Value equity refers to what customers perceive they get from your business. When they pay for your products or services, what do they get in return? This form of equity focuses on the quality of what you offer and whether customers see value in the benefits you provide to them.
Building value equity involves refining the following areas:
- Price: The overall price you charge for your products or services is the most important factor when it comes to customer perceptions.
- Quality: The second most important aspect of value equity is quality. When you deliver quality products or services, your customers will perceive your brand and what you offer as more valuable.
- Offerings: The range of features or the comprehensiveness of your services will also impact how customers see your brand.
By reducing your prices while keeping quality high across several products or services, you can increase customers' perception of your value equity.
Brand equity
Brand equity is the total value that your brand offers to a customer relationship. The public perception of your brand, its legacy, and the extent to which people recognize it all influence brand equity.
When a brand has high equity, customers will have a more positive perception of the company from the beginning. Starting from this positive disposition can help create stronger relationships and build loyalty more quickly.
Building brand equity involves refining the following areas:
- Brand awareness: Increasing the public awareness of your brand and what you offer will enhance brand equity.
- Brand mission: Supporting certain causes or working toward a mission that aligns with your target audience can improve the perception customers have of your brand.
- Loyalty: Loyal customers are more likely to recommend your business to others, bringing in new customers and enhancing your brand reputation.
While brand equity is difficult to build, it can be incredibly powerful and help drive customer equity.
Relationship equity
Relationship equity is the total net positive a customer takes away from the relationship between them and your brand. How well you interact with customers, fulfill their requests, and create meaningful relationships will all influence this form of equity.
When your company offers a high degree of relationship equity, your customers will naturally feel more disposed to continue working with your business.
Relationship equity involves refining the following areas:
- Customer service: Your customer service agents are the front lines of customer communication. Great experiences with customer service will translate into happier customers and higher relationship equity.
- Loyalty programs: Creating a loyalty program will help your company retain customers over time and enhance your business relationships.
- Build a community: Building community experiences and bringing together your customers can foster a sense of belonging that enhances relationship equity.
Relationship equity represents everything that customers take away from your relationships. The more that you provide and enhance customer touchpoint interactions, the better.
How do you measure customer equity?
Measuring customer equity is vital to generating data on how your customers feel and how you could improve their experiences. By monitoring customer equity over time, you can benchmark it in your organization and strive to increase it.
Here are different methods and metrics your business can use to measure customer equity.
Customer experience and satisfaction metrics
Customer experience and satisfaction are key drivers of customer equity. When customers have positive experiences and feel satisfied with your brand, they are more likely to remain loyal over time, and your customer equity increases.
Here are three of the most widely used customer experience metrics (see other vital CX metrics):
- Net Promoter Score® (NPS): NPS is a metric that allows businesses to measure customer loyalty. It provides a clear indication of overall customer loyalty and helps identify areas of improvement to boost customer advocacy.
- Customer Satisfaction Score (CSAT): CSAT is a straightforward metric used to gauge satisfaction with specific products, services, or interactions. By regularly monitoring CSAT, you can identify trends, pinpoint areas of strength or weakness, and take action.
- Customer Effort Score (CES): CES measures the relative friction that customers encounter with your business, such as seeking support, navigating your website, or making a purchase. With CES, you can streamline your customer journey by identifying any touchpoints that could be improved.
Related reading: The ultimate guide to running a customer feedback program.
Combining CX metrics with financial metrics
Customer experience and satisfaction metrics are instrumental in understanding customer sentiment and perception of your brand. However, to gain a more comprehensive understanding of customer equity, it’s important to combine these metrics with financial data gathered using financial metrics. The financial metrics listed below leverage transactional and quantitative data to reflect customer satisfaction and loyalty in more financial terms.
Here are three financial metrics to measure with customer equity in mind:
- Customer Lifetime Value (CLV): CLV is the total revenue that you generate from a customer throughout their entire relationship. It takes into account factors such as average order value, purchase frequency, and customer lifespan.
- Customer retention rate (CRR): Customer loyalty and retention allow a business to determine how successful they are at keeping customers over a long period of time. Enhancing retention is a strong way to improve customer equity.
- Customer churn rate: Customer churn measures the total number of customers who leave your business over a period of time, typically calculated on a monthly, quarterly, or annual basis. This metric provides valuable insights into the health of your customer relationships and the effectiveness of your customer retention efforts.
Leveraging unsolicited feedback to improve customer equity
Another powerful method to improve customer equity is to collect unsolicited customer feedback across various channels. By proactively seeking customer opinions wherever they may be, you can uncover valuable insights to help explain why your metrics are at their current levels.
Here are three forums you can use to collect feedback from your customers:
- Customer interviews and focus groups: Focus groups provide an opportunity to delve into specific topics, uncover pain points, and gather detailed suggestions for improvement. This will allow your business to comprehensively improve or refine your customer experience based on the feedback.
- Social media listening: Monitoring social media platforms will help you find out who is talking about your brand and what they’re saying. You can use social listening tools to conduct an analysis along wide customer segments to identify trends, track competitor mentions, and gauge overall brand sentiment, helping you make informed decisions that can improve customer equity.
- Online reviews and testimonials: Like social listening, direct reviews and testimonials contain information you can use to identify potential reasons that customers are churning from your business and how their sentiments about your brand.
Don’t overlook the power of feedback. Building your own customer feedback program is a vital way of understanding your customers and creating a more desirable customer experience. By actively seeking out and leveraging feedback, you can gain valuable insights to drive continuous improvement in your customer experience efforts.
How to improve value, brand, and relationship equity?
Now that you understand the building blocks of customer equity—value, brand, and relationship equity—it’s important to explore strategies for improving each of these areas. While they function individually, they work together to create a strong foundation for high customer equity.
Improving value equity
If value equity is how customers perceive the quality of what you offer for the price,, then product quality and value for price are the two main pillars to improve.
To enhance your value equity, you should continually assess customer feedback to improve the quality of your products or services to make sure they exceed expectations. By collecting information on customer sentiments, ideas, and recommendations, you can optimize your pricing strategy to ensure that customers perceive your offerings as good value for the money.
Making small, iterative improvements to your products and then soliciting more feedback will demonstrate your commitment to customer satisfaction and create positive feedback loops. When a customer takes the time to leave feedback, it’s imperative to close the loop by responding to their comments and outlining the specific actions you will be taking.
When customers see that their input directly contributes to product or service improvements, they feel heard, valued, and more invested in your brand.
Related reading: Easily gather actionable customer feedback.
Improving brand equity
Out of the three pillars of customer equity, the slowest and most challenging to improve is brand equity. That’s because shifting public perceptions can take time and requires a consistent, multi-faceted approach. Building a strong, positive brand image involves a combination of strategic marketing, exceptional customer experiences, and a genuine commitment to your brand's values and mission.
Here’s how to improve brand equity in your organization:
- Improve brand awareness: Launching targeted brand awareness campaigns to increase the general public’s knowledge of your brand and what it stands for. At the same time, investing in market research and launching top-of-funnel (TOFU) content marketing campaigns will help attract new customers, educating them about your brand and its unique value proposition
- Strengthen brand loyalty: Launching loyalty programs will incentivize customers to stay with your company over time. Actively seek out and act upon customer feedback, demonstrating that you value their opinions and are committed to continuously improving their experience with your brand.
- Build effective marketing campaigns: Create marketing and content marketing campaigns that effectively communicate your brand's message, values, and unique selling points. To do this, you must understand your audience and create campaigns that resonate with them.
Related reading: How to measure and improve your brand awareness.
Improving relationship equity
Finally, improving relationship equity is all about showing your customers that you genuinely care about their needs, preferences, and experiences. Striving to build effective and long-lasting relationships with your customers won’t happen overnight, but you can implement several strategies to maximize your opportunities to impress and delight customers.
- Build advocacy programs: Create structured advocacy programs to better understand customer perspectives and learn from their unique experiences with your brand. Use customer advocacy survey templates to identify areas where you can enhance customer perceptions and strengthen relationships.
- Enhance the customer experience: Regularly survey your customers and collect feedback to identify pain points, preferences, and opportunities for improvement in the customer journey. As you implement feedback-driven changes to deliver exceptional experiences, you'll strengthen customers' perceptions and emotional connection with your company.
- Develop a customer-centric culture: Building a customer-centric culture ensures
that the customer's needs and preferences are at the forefront of every business decision. By aligning all employees around a shared vision of customer-centricity, you'll create a consistent, positive experience across all touchpoints, enhancing relationship equity.
- Invest in employee training and engagement: Investing in employee training equips your employees with the skills, knowledge, and tools they need to effectively manage customer interactions and deliver exceptional service. Provide ongoing coaching, feedback, and support to help employees continually refine their customer service skills and adapt to evolving customer needs.
Related reading: 6 tips to improve your team’s customer service skills.
Elevate customer equity with SurveyMonkey
In a rapidly changing business world, customer equity stands out as a vital metric that encapsulates the customer experience. By gauging customer satisfaction, loyalty, and the overall value your customers bring to your organization, customer equity provides a comprehensive view of your brand's health and success.
Working to improve customer equity is a journey of continuous improvement. Take the first step by putting customers at the heart of your business. Get started with SurveyMonkey.
Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
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