1. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Introduction to Customer Equity Helsinki Summer School 2009 Hanken School of Economics

2. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Andreas Persson »M.Sc. (Econ.) 2004. I wrote my master’s thesis in cooperation with one of the leading banks in Finland. The thesis investigated the effect of a relationship marketing strategy on the bank’s customer profitability »Doctoral candidate at CERS. My research is focused on customer equity in the retail banking sector »Leisure interests: Still trying to learn Finnish properly! (I have lived in Finland for more than 7 years already..)

3. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Who are you and why are you here?

4. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi

5. This morning’s agenda »What is customer equity and customer asset management? »Syllabus »Objective »Literature »Schedule »Examination »Exercises »Final exam »Questions?

6. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi What is marketing? »”Marketing is therefore precisely what you want it to be, and thereby everything or nothing.” (West et al., 2006, p. 31) ???

7. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Kotler’s definitions of marketing »Marketing is a social process through which individuals or groups acquire what they need or want (through creating, offering, and freely exchanging products and services of value with others) »The task of marketing is to create and offer products or services to satisfy existing needs. »Marketing is the art of finding, developing, and profitably exploiting opportunities »Marketing is the science and art of finding, keeping, and making profitable customers grow

8. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi American Marketing Association’s definition of marketing »Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals (1985) Marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. (2004)

9. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi American Marketing Association’s definition of marketing »Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners and society at large. (2007)

10. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi What is strategy? »The word ’strategy’ is originally an ancient military term »It is derived from the Greek word ’strategos’, which means a general in command of an army »formed by ’stratos’, which means army and ’ag’, which means to lead »The term ’strategy’ was used for the first time in business literature by William Newman (1952)

11. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi The concept ’strategy’ »Within the military »a plan of attack to win »a plan to defeat the opponent »Within companies and other organizations »a plan to reach the organization’s objectives »a plan to ensure the firm of competitive advantage on a given market

12. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi What is the goal of marketing strategy? »“Firms seek to attract and retain customers who will purchase goods and services from them at a rate that enables the firm to grow profitably over the long term.” (Rust et al., 2005, p. 2) »Marketing strategy is, at its core, customer strategy

13. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi What is customer equity? »“The total of the discounted lifetime values summed over all of the firm’s current and potential customers.” (Rust et al., 2005, p. 2) »In other words, the value of the customer base..

14. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi What is customer equity management? »“A comprehensive management approach that focuses the efforts of the firm on increasing the lifetime value of individual customers (i.e., the firm’s customer assets) in a way that maximizes customer equity.” (Hogan et al., 2002, p. 5)

15. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi What about customer asset management? »The terms “customer asset management” and “customer equity management” are used interchangeably in the literature »Essentially we are referring to the analogy of the customer (or customer relationship) as a strategic asset. These customer ‘assets’ should thus be managed in order to increase their lifetime value to the firm, thereby maximizing customer equity

16. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi The customer equity management process »Analyze the customers »Analyze the firm and its key competitors »Design and develop marketing strategy »Measure, monitor, and evaluate the strategy

17. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi The objective of the course »To study how firms can manage their customer relationships as valuable assets in order to increase their value to the firm, i.e. increase the customer equity. Students will learn how to measure customer equity and how to develop strategies for the profitable management of different types of customer relationships based on the driving forces of customer equity. The course will also explore how the adoption of a customer equity perspective changes the role of marketing within the firm.

18. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Course literature »Rust, R.T., Lemon, K.N. & Narayandas, D. (2004/2005) Customer Equity Management. Pearson Education, Inc. »32 articles

19. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Course homepage »On the course homepage and on the Extranet you will find information about the course and all the articles in pdf. format »www.helsinkisummerschool.fi

20. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Schedule »5.8Introduction to CAM (Chapter 1) Customer equity and customer management (Chapter 2) »6.8Customer equity analysis (Chapter 3) Measuring customer equity (Chapter 4) »7.8Case session 1 (Case 4-2: Aqualisa Quartz) Customer selection (Chapter 5) »10.8Brand equity (Chapter 6) Value equity; word-of-mouth (Chapter 7) »11.8Relationship equity (Chapter 8) Customer portfolios (Guest lecture by Suvi Nenonen) »12.8Case session 2 (Case 8-2: Arrow Electronics, Inc.) Multi-channel marketing; strategic implementation (Chapters 9 & 10) »13.8Customer equity in industrial markets (Chapter 11) Marketing metrics & accountability (Chapter 12) »17.8Case session 3 (Case 13-1: RBC Financial Group) Consequences of a customer equity perspective: the changing role of marketing (Chapter 13) »18.8Presentations of final reports »20.8Final exam and course wrap-up

21. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Examination Written assignments and a final exam. In addition, the ability and willingness to participate in class discussions has an impact on the final grade. To pass the course, you need to receive at least 50% of the total number of points. The assignments comprise 50% and the final exam comprises 50% of the final grade. The points for the assignments are distributed in the following way: 2 individual key learning notes: max. 5 points per learning note, i.e. max. 10 points in total. 3 group case write-ups: max. 5 points per write-up, i.e. max. 15 points in total. 1 group project paper: max. 25 points.

22. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Examination Grading scale »0 - 49%0 »50 - 59%1 »60 - 69%2 »70 - 79%3 »80 - 89%4 »90 - 100%5

23. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Key learning notes »One-page analysis of two of the articles from the literature list. »The assessment (grading) of the key learning note will be based on the quality of the student’s reasoning, inclusion of relevant references to the articles (and possibly other sources), as well as the ability to formulate own opinions with connection to the articles. »Deadline for the second key learning note is Tuesday, the 11th of August, at 11.55 p.m. »The note should be submitted by e-mail to andreas.persson[a]hanken.fi

24. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Case write-ups »Summarizing discussion and critical analysis of the case, comprising approx. 2-3 pages. »The case write-ups are done in groups of 3-5 people. »Deadlines: »Case write-up 1: Monday, the 10th of August at 23.55 p.m. »Case write-up 2: Thursday, the 13th of August, same time. »Case write-up 3: Tuesday, the 18th of August, same time. »Should be submitted by e-mail by the given deadline.

25. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Project paper »The goal of the project paper is to deepen your grasp of a particular area related to Customer Equity. »The length of the project paper should be approximately 15 pages. »You are graded based on how well you demonstrate your understanding of the topic and whether or not you are able to relate the information provided during the lectures, other sessions, and in the reading materials to other related fields of study and practical application areas. »The project papers are done in groups of 3-5 people.

26. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Project paper »The following are examples of project paper topics, but you are more than welcome to suggest your own topics for approval as well: »Using CLV to optimize investments in customer acquisition and customer retention. »Investing in customers – ways to approach this. »IFRS 3 – the valuation of customer bases according to new accounting standards. »How to get customer issues on the CEO’s agenda / into the boardroom. »Using customer portfolios to manage customers as assets. »Deadline for the project paper is Sunday, the 16th of August, at 11.55 p.m. Should be submitted by e-mail.

27. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Project paper presentation »The project papers will be presented to the class and discussed on Tuesday, the 18th of August. »The presentations should be approx. 15 minutes in length. »All group members should participate in the presentation.

28. Hanken Svenska handelshögskolan / Hanken School of Economics www.hanken.fi Final exam »You can receive max. 50 points from the final exam. »The exam will comprise 2 essay questions. »The time limit for the exam is 2½ hours. »You can only take the exam once. »The exam is closed-book and will be given on Thursday, the 2oth of August, 9:30-12:00.