Comparing alternative approaches to estimate customer equity

Abstract

Purpose The purpose of this paper is to explore the differences and similarities between two methods/models for estimating customer equity (CE): one using behavior-based data and one using market-based data. Design/methodology/approach Two separate analyses of the same market scenario (telecom industry) were conducted, by applying the CE estimation method from Rust et al. (2004) and the CE model from Gupta et al. (2004). Findings Different methods/models can produce similar estimates, which corroborates the defense of an integrated multi-method approach to evaluating CE. In addition, they each provide different benefits. The behavioral data model provides identification of CE drivers and assists in the task of marketing resource allocation, the market-based data model is simple and easy to implement and is recommended in cases when CE is used as a financial indicator. Originality/value This paper contributes to the CE literature in the following ways. First, it demonstrates the possibility of obtaining similar estimates of CE using distinct types of data and data collection procedures, and with two different estimation methods/models. Second, it confirms that either model allows firms to compute the expected market capitalization at any given time using customer and financial information. Third, it demonstrates the convergent validity of these two methods/models for estimating CE for either public or private companies, thus legitimizing the comparison of their respective CE values, regardless of the type of source data or estimation formula used.