Wednesday, June 18, 2008

Measuring the effectiveness of marketing investments to increase customer equity.

Marketing When Customer Equity Matters.Find More Like This
Hanssens, Dominique M
Thorpe, Daniel
Finkbeiner, Carl
Harvard Business Review; May2008, Vol. 86 Issue 5, p117-123

Measuring the effectiveness of marketing investments can be frustrating -- especially if a company focuses on a long-term outcome like increasing customer equity.

Wachovia has created a model that helps it make customer-equity-driven marketing-mix decisions. The model's architects are Hanssens, a professor at UCLA; Thorpe, a senior vice president at Wachovia; and Finkbeiner, an executive VP at TNS.

Wachovia has grown mainly through mergers and acquisitions. With 122,000 employees, it is the fourth-largest bank-holding company in the United States based on assets ($782.9 billion) and the third-largest U.S. full-service brokerage firm based on client assets.

During one very significant merger, the 2001 merger of First Union and Wachovia, management decided to invest substantially in building the brand of the newly combined entity. It was to go by the name Wachovia, even though Wachovia had been a fairly small regional bank, known only in five southeastern states, while First Union had been a national and, in many ways, international player. By embarking on a major brand-building initiative, management hoped to prevent the attrition and the dip in customer satisfaction scores that commonly follow when companies integrate their systems and processes.

Building a Model That Captured Reality

Gathering data and creating the models. The team's work began in earnest with the design and development of a comprehensive historical marketing database.

Estimating the marketing impact. With the data on marketing activities and customer equity outcomes in hand, the quest began to discover just how the former increased the latter. The team built models that estimated the incremental impact that each marketing variable - ad spending, news coverage, and so on - had on customer acquisition, customer attrition, and revenue, and its follow-on effect on the customer base and profits.

Using the Models to Guide Decisions Managers at Wachovia were satisfied that the market-response models, based on historical data, accurately depicted what had happened in the past. But did they have the power to predict effects under different conditions?

Marketing at Wachovia has come a long way in a short time. As recently as the year 2000, marketing expenditures had been treated as costs, not investments, and were spread across four revenue-generating lines of business.

Today, executives at Wachovia have the comprehensive view, the data, and the models to make fact-based managerial decisions that will benefit the long-term health of the company.

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