A new study shows the extended value of customer equity when it comes to maximizing profits from marketing investment. Published recently in the journal Tourism Management, “Calculating tourists’ customer equity and maximizing the hotel’s ROI” reveals something marketing professionals in any sector can learn from customer equity research done in the tourism and hospitality sector.
Based on data-oriented results from focus groups and an online survey of tourists, the study took a deeper look at the key drivers of customer equity and their financial impact. By differentiating CE drivers and relating them to CE market segments and hotel choices, the researchers calculated changes in CE over time.
With this CE approach to tourism and hospitality, insights were gained into the importance of analyzing customer-based market segments and product choices (in this case, hotels, from budget to luxury) when developing marketing strategies to maximize ROI. Here we’ll lay out the study’s main findings.
What customer equity means in big-picture marketing
Customer equity is an asset that correlates directly to customers’ attitudes and behaviors. It’s typically defined as the customer lifetime value (CLV) produced by present and potential customers within a certain time period. More particularly, the CE approach to enhancing marketing efforts uses individual customer data to build a stronger long-term customer-company relationship. As such, CE contributes to both a company’s growth and to ROI. It goes beyond calculating the value of customer transactions and purchases to calculating the value of customers themselves.
The study’s approach—including CLV estimations—hinges on marketing strategies that are intentionally designed to acquire and retain customers, recognize individual customers’ purchasing patterns and predict their future purchasing behavior. Here, CLV was estimated by: 1) increasing the availability of customer transaction data by gathering and analyzing feedback from focus groups and an online survey, 2) and using that data to calculate CE value in relation to industry-specific CE market segments, that is, the main qualities customers seek in a product or service. Researchers found that different CLV estimations could be calculated depending on CE market segments and the hotel types chosen by customers. From there, links to profitable CE drivers could be determined and ROI projected.
After finding that customer equity increases the more tourists feel connected to a certain tourism offering, the researchers’ findings suggest that tourism and hotel companies increase their CE value through longer-term marketing strategies that connect sector-specific CE drivers with CE segments. This will not only lead to a better use of marketing budgets, but will broaden a company’s knowledge about its overall customer management.
Beyond brand equity: Identifying the key CE drivers
Brand equity, with its visibility, benchmarking and measurements of revenue, web and social media analytics, often overshadows the bigger picture—how to grow customer equity. Three key actionable drivers need to work together to really boost CE: value equity, relationship equity and brand equity. Value equity relates to the customer’s objective assessment of the brand in terms of quality, price and convenience. Relationship equity is about customer loyalty beyond objective and subjective assessments, and is often accessed in loyalty reward programs and other programs focused on creating emotional connection. Brand equity is more subjective and less tangible, and involves brand awareness, attitude towards the brand and even corporate ethics. Together, these three drivers inform strategies for responding to customer needs as they change over time.
Linking CE drivers and CE segments to boost ROI through marketing
The study found that for the tourism and hospitality sector, all three key CE drivers interacted to boost CE, yet value equity (specifically, the sub-drivers of convenience, quality and price) was the leading driver when it came to how customers choose a product. Their experiences of convenience, quality and price—and the financial impact of these sub-drivers—corresponded with five CE-based segments: Relationship-Seeking Customer Segment, Convenience-Seeking Customer Segment, Quality-Seeking Customer Segment, Brand Image-Seeking Customer Segment and Price-Seeking Customer Segment.
This connection between CE drivers, CE market segments and product choice, according to the study, suggests that marketing managers in the tourism and hotel industry craft marketing strategies that take into account which CE market segments customers fall into. Furthermore, the researchers projected ROI by comparing customer lifetime value in terms of which CE drivers were more profitable as they related to different CE segments and hotel choices.
The relationship between each CE driver and customers’ responses to marketing also proved significant, with one of the study’s standout findings showing that convenience influences customers’ decisions when choosing among mid-price hotels, and brand image influences their decisions when deciding which high-end hotel to book.
The upshot of this study is that to strategically maximize ROI from investments in marketing campaigns and promoting offerings, marketers need to consider undertaking an in-depth and data-informed analysis of the connections between CE drivers and CE-based market segments.