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4 Tactics to Increase Customer Equity to Earn Customer Loyalty

4 Tactics to Increase Customer Equity to Earn Customer Loyalty

logo Shubham Rajpara
July 27, 2021 | 8 Min Read

Have you ever thought about the one thing every brand has in common? They all have loyal customers who leave other businesses every time and come to them. And that is because of Customer Equity.

Does this happen on its own? Certainly not. These brands invest their time and money to retain customers. They have a team that specifically looks into customer retention, one of the most important metrics in a business. 

All the top brands understand that one of the key aspects of customer retention is customer equity, and therefore they work hard towards achieving greater customer equity.

Do you know you can measure customer equity? Have you ever measured it? Well, if you have not so far, it is high time to do so now. . You may be a small company or a big company, and you will certainly have loyal customers. Your goal as a business owner should be to increase customer equity. One easy way to achieve this is by working towards customer retention. 

This article will talk about consumer equity and how we can increase it to earn customer loyalty. So let us get started.

What is Customer Equity?

Customer equity is the outcome of customer relationship management. The better the custom relationship management the better the customer equity. It is the total combined customer lifetime values of all of the company’s customers. Customer lifetime value is the probable amount a customer spends on a business across their lifetime.

In other words, the higher the customer loyalty, the higher is the customer equity.

Customer equity tells you the value that current and future potential customers will provide to your company during the total lifespan of their relationship with you. 

Customer Equity is an important indicator that tells how valuable business is in the customers' minds and the markets. As a business owner, you should keep an eye on this parameter to develop the effective and right marketing strategies to promote your products and increase your revenue and profits by attracting new customers. 

It also helps the company allocate marketing budgets and other initiatives that can help them retain customers for a longer period. Following this approach, you as a business owner save on unnecessary marketing costs, which can be utilized for other marketing projects.

Many companies, such as McDonald's, Apple, and Facebook, have very high levels of customer equity, which is one of the reasons for their great and sustainable competitive advantage.

3 Main Components of Customer Equity

Customer Equity is made up of the following three components, each having a different equity equation. To better understand consumer equity, let us look at three main components.

  • Value Equity 

Based on your quality, price and perceived convenience, customers assess your brand value through Value Equity. 

If all the above aspects match customer's expectations, you are running a company with high-value equity and improving your equity marketing initiatives.

Usually, in marketing, "Value for Money" is referred to as "VFM." Therefore, value equity is the customer's judgment of quality, price, and convenience. A firm with high-value equity is said to be one whose products are compatible with the customer's needs.

Nike and Rebook have high value equity and they are perceived as the leaders in sport's shoes. Many customers are willing to go to extraordinary lengths to get an Adidas or a Reebok shoe. 

  • Brand Equity 

This component measures your customers' subjective perception of your brand beyond its objectively perceived value. When you have high brand equity, it means your customers' perceive your brand highly.

You might have to pay a few dollars for a shirt from a not-so-famous brand. In contrast, if the shirt is made by Versace, you would be prepared to spend more money even if the non branded shirt has no difference from the Versace one. Thus, brand equity is determined largely by perception, and perception plays an essential role in defining customer equity.

  • Relationship equity 

Relationship equity- Harley Davidson
Source

This is the important component that creates customer loyalty to your brand, thus directly relating to consumer equity. When you have excellent customer relationships, you end up having good relationship equity. When you have this component, customers do not just buy from you out of habit or any other factor but also due to the relationship that is created between your brand and them.

One of the best examples of a company with high relationship equity is Harley Davidson. The customer stays with a company because of habit or inertia if they have good personal relationships.

Why is Customer Equity Important?

Team Work
Source

A business must concentrate on developing Customer Equity. This can be done by focusing on the individual equity equation. 

We live in a competitive world, and monopolies no longer exist, so your business has customers who have the power to choose. 

You can only compete and win with your competitors if you can increase customer equity.

It helps you estimate the financial profit you can obtain from all your customers during the total relationship period. With customer equity, you can make sound financial decisions regarding retention, acquisitions, and up-selling.

It also focuses on every customer and uses the interactions you have with consumers to strengthen communication. The higher the number of your loyal customers, the higher is your success. 

According to Yopto, an e-commerce marketing platform, 55.3% of consumers stick with a brand because they love their products. One of the essential aspects of customer loyalty is the quality of the product and customer service. To have loyal customers, you need to have customer equity. 

How to Calculate Customer Equity?

You will find several complicated customer equity equations out there but here is a simple equation that you need to know: 

Customer equity=sum of all customer lifetime values of the current and future customers.

To understand it better, here is an example. Let us assume you have a customer base of 1000 at the start of the year, and you acquired 100 new customers (without marketing). You lost 400 customers and so the customer base at the end of the year would be 700. The average customer number would be 850 (customer at start+customers at the end)/2.

Assume you make a profit of $2000 per annum. It means your gross profit contribution for the average customer number is $1,700,000. Since we have not assumed any marketing cost, this is also the net profit. We have also considered a 10% discounting rate, so the discounted net profit will be $1,545,455. This amount is the customer equity for the first year.

Similarly, you can calculate your customer equity for future years.

How Can You Improve Customer Equity?

Now that you have a good enough understanding of customer equity let us talk about how you can improve your customer equity: 

  • Building Brand Image 

The obvious question is how to build the brand. Building brands means managing perceptions about your brand. You will have to ensure the perceptions your customers have gets better with time. When you have a good brand image, it means your customers value your brand, and they won't mind paying extra to get your company's product.

  • Increasing Trust 

The foundation of any business's success is trust. Establishing deep trust with customers is imperative. Customers will only purchase from you if they trust you. Trust is not built overnight, and you should be continuously working towards it. You should have a team (PR) that works to create trust among customers, and the team should be part of your customer equity strategy.

  • Advertising 

Most businesses ignore advertising because it is heavy on the pockets. However, you cannot grow as a business without it. It helps in building trust and also increases brand awareness. Studies have shown, people will also buy products or take services from a company they know well. So if you are not reaching your potential customers, you cannot improve customer equity. Hence, always advertise, so you make potential customers familiar with the brand.

  • Building Customer Relationships 

You have to build profitable customer relationships. Before that, you need to evaluate which kind of customers are profitable and then direct forces in building strong relationships with them. There are four types of customers - profitable, loyal, both, and neither. Your focus should be on those customers that are both. Those who are neither should not be in your focus.

4 Tactics to Increase Customer Equity to Earn Customer Loyalty

1. Always appreciate your customers  

You should regularly improve your brand to keep loyal customers. If you have any product or want to implement any innovations, it is always better to check your clients' wants than just introducing something at random. 

You can achieve this by creating a poll. In the poll, you can create some of the ideas you have and reach out to all your customers through different channels and get customers' suggestions and allow them to share their ideas. 

You can appreciate and thank all the customers who have participated by giving them a small gift. The process will benefit you in two ways – first, your customers will feel privileged that their opinions matter to you, and second their efforts are appreciated by the company.

2. Don't Compromise with Quality 

You may do everything to increase customer equity, but if you don't satisfy your customers by giving them quality products, you will not be successful. 

Every business focuses on profits, but profits will only come if you have customer equity and customer loyalty. You can never achieve it with sub-par quality products. No business has been successful unless they focus on quality. You should never make any compromise on the quality of your products and services. 

You can only create good relationships with your customers and create customer equity with quality products. A customer buys products even at a higher price just because they know they are getting better quality. You can create that feel among your customers.

3. Focus on Astonishing Customer Service 

Another way you can increase customer loyalty is by delivering the highest quality customer service. If your customer service is not up to the mark, your customers have strong reasons to switch to your competitor even if you have high-quality products to offer them. 

You can give your customers excellent customer service by giving them 24*7 customer support. When customers know their issues/problems can get solved any time and week, they feel great being associated with that brand. Also, some customers are looking for instant solutions, so you should have a live chat option where you can respond to their queries in real-time and resolve them much faster. You should have multiple channels of customer service. Your customers should be able to reach you from every possible channel they can access.

4. Give Customers Something Your Competitors Aren't 

At the end of the day, customers will only come to you if you have something to offer them which they can't find elsewhere. You should create a USP and promote your brand's unique and desirable qualities that make it stand out in the crowd. If there is something that none of your competitors are doing, you should waste no time in offering that to your customers. It could be anything to give you an edge - if timely delivery of products is an issue in your business, you should focus more on that and ensure every customer receives a product on time, every time.

Conclusion

A doctor can only tell you how you can improve your health by looking at the reports. Similarly, you can improve the health of your business by calculating customer equity. Once you have this data, you can determine the marketing initiatives to bring meaningful results.

Your goal as a business owner should be to get new customers and retain the maximum possible existing customers. We hope that steps and tactics mentioned here will help you increase customer equity. 

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