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Loyal customers are a common trait among successful businesses. To keep the most customers, businesses spend plenty of time and money on their customer relationships. They also ensure their users have a pleasant experience that makes them stay with the brand. What you can learn from those brands is their way of managing their relationship with customers. 

But how do you know if you are doing it right or just throwing your money out the window? This is when you need to calculate your customer equity. 

Don’t worry if you have no idea what customer equity is. In this article, you can find all you need to know about it.

What is Customer Equity?

Customer equity refers to the total customer lifetime values of a company’s current and future customers. It is also known as customer capital. The more loyal customers you have, the higher your customer equity is, and the more profit you generate. Same as any other asset, a company needs to manage, maximise, and evaluate it. 

It is also a metric for the overall performance. Customer relationships directly affect purchasing decisions. Therefore, the index gives you a more accurate indication of your marketing efforts. By knowing the value of a specific customer segment, you know where to focus. You can tailor the marketing strategy and budget to acquire or retain customers for a longer time.

What Are the Components of Customer Equity?

Customer equity is based on brand equity, relationship equity and value equity. To know how to calculate or increase customer equity, you need to understand these factors first.

  • Brand Equity: the value of a brand that is generated by customers’ opinions and attitudes towards the brand. It is based on their response to the image a company established, rather than objective attributes. The drivers of brand equity are brand awareness, brand association, brand loyalty, and perceived value.
  • Relationship Equity: the sum of all relationships between an organisation and its customers. A real relationship is what makes people stay with a specific brand even when competitors offer something similar. It is achieved by cultivating personal relationships and customer experience. Users remain loyal through habit and inertia. 
  • Value Equity: the customers’ objective assessments of what a firm has to offer in the market. It depends on the evaluation of convenience, pricing and quality of a product or service. If all three factors agree with the user, then the value is high.

These drivers help you increase your customer equity and turn people into loyal customers. 

How to Calculate Customer Equity

You can calculate your customer equity with the following formula:

Customer Equity = Viral Coefficient x Customer Lifetime Value – [Acquisition + Retention]

The Viral Coefficient equals the amount of referrals a customer can generate. The number tells you a customer’s worth during the lifetime of your relationship. 

Customer Lifetime Value is the sum of money you expect to generate from a customer. You need to consider the sales in a lifecycle and the amount of money spent on acquiring and retaining that customer.

Acquisition refers to the cost of acquiring a new customer. 

Retention indicates the rate of retaining your customers over the course of a year. 

How to Increase Customer Equity

 High customer equity means having more customers who bring profits to your company. Thus, you need to work on nurturing your customer relationships. Customer satisfaction and experience are the way to turn people into lifelong users of your brand. Here, you can find out how to boost your customer equity with five tactics. 

Task 1: Value Your Customers

To generate positive feelings from your customers, you need to make them feel appreciated and valued. After all, nobody likes to be taken for granted or unattended. They would switch to your competitors who offer a better experience. Here, you can find some ways to show the users you value them:

  • Understanding Your Customers. Before you employ marketing strategies to attract customers, you need to understand them first. What are their preferences, goals, and needs? How can your products or services help them? How do they feel about your brand? What needs improvements?

There are various methods to gain insights from your customers. A persona is a great choice, for instance. You can use it to get your clients’ demographics and understand their goals, pain points, expectations and environment. Another way to delve into your customers’ minds is with an empathy canvas. Once you understand their thoughts, feelings, and behaviour, you know how to target them right in the heart. 

Other methods include surveys, polls, and interviews. They are the most direct ways to get information, and perhaps the most accurate. Even if you still can’t tend to them on a personal level, as long as you put in efforts to understand your clients, they would know you care. 

  • Offering a Loyalty Programme. If someone purchases your products or services frequently, you should show them your appreciation. Why don’t you give them something just for them? Perhaps a discount code alongside a “Thank You” note. A surprising act of appreciation works as well as a normal loyalty card. You can use both to reward your loyal customers. Even a small benefit can make someone’s day, so don’t miss out on chances to show your love and gratitude.

Task 2: Be Attentive and Helpful

Have you ever encountered a problem with a brand and had to call their customer service? They put you on hold for ages and didn’t even provide  solutions. That surely wasn’t pleasant at all, which is why you should always be mindful and empathetic. 

  • A self-service portal and multiple channels. It usually takes customers five minutes to contact customer service through calls before being put on hold. Sometimes they are still not able to be connected with the right representative to solve their problems. Therefore, having a self-service portal or software application is essential. You can provide features such as text messages or support requests. With these platforms, users can inform the customer service centre about common troubles with one click. 

The customer service representatives can be classified into groups. Each focuses on one dimension of problems. If needed, the right representatives can then contact customers through the portal.

  • Facilitating communication and information transmission. Many companies think they perform good service when the feedback from customers tells otherwise. The information gap is predominantly due to managers not knowing what the customers experience. Therefore, you need to learn how to listen to customers’ needs and act upon them. 

You can do this by spending more time with the staff who deal with customers directly. Sometimes it’s not because your staff are lazy or inconsiderate, so you need to understand the situation first. Once you know about your employees’ and consumers’ predicaments, you can develop a better system that works with both sides. 

  • Responding proactively. Always be ready to solve problems and communicate. Even if your customer support group doesn’t have a solution yet, you still need to notify troubled customers. Contacting your customers shortly after support requests and keeping them updated leave a positive impression. Because the most crucial attribute of a pleasant experience in customer service is a fast response time. Proactively sending customers updates on the situation can reduce their effort in contacting customer service. It also increases the sense of being valued. 

Task 3: Be More Convenient

Convenience is a vital attribute to customer and value equity. You need to make sure buyers can access your products or services without obstacles. If people find your company difficult to navigate, they are unlikely to stay with you. Use the following tactics to be more convenient than your competitors:

  • Tailoring the customer journey. With a journey map, you can see what your customers go through and expect throughout a purchase cycle. It helps you ensure your users move smoothly from the awareness stage to the advocacy stage. Map out the journey, so you can bridge gaps between stages or eliminate unnecessary touchpoints. Thus, delivering a fast cycle and positive customer experience. After all, a complicated and laborious purchasing process discourages people from buying again.
  • Having multiple channels. Some people prefer to contact or receive information through social media. Others might  prefer emails or calls. Therefore, you need to make sure communications travel through all available channels. It’s not easy to manage different channels all at once, but it has its fair share of benefits. You can connect with broader demographics, communicate with buyers easily, and increase customer engagement. Start with one or two channels first and expand your platforms as you grow your customer base. 

Task 4: Maintain High Quality and Lower Your Pricing

Once the quality goes down, your users start to reconsider their choices. Also, when your competitors offer something similar but cheaper, your users try out their products or services. It is a dilemma where you need to lower your pricing without compromising the quality. You can partner with suppliers to lower the production costs. 

If you just started a business, here are ways to maintain quality on a low budget. You can start with meticulous quality control, improvements on a smaller scale, or offering something unique. When the perceived value is high, nobody would question your pricing. 

Quality is achieved when the products or services meet or exceed expectations. Therefore, another way is to manage expectations. Don’t make promises you cannot keep or guarantees you cannot fulfil. Be genuine and honest. 

Conclusion

Customer equity is a valuable asset to an organisation. It is a prerequisite to a successful business and a useful capital metric. The figure helps you indicate your company’s performance and  make practical investment decisions. The three drivers of it are: brand equity, relationship equity, and value equity. Therefore, to increase brand equity you need to perform the four tasks mentioned-above. Remember, content customers are the key to customer equity. 

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