Posted: May 25th, 2022

EWOM Communication and Brand Trust

EWOM Communication and Brand Trust

Brand Trust and Customer Equity

EWOM Communication and Customer Equity

Brand Equity Drivers and Customer Equity

Relationship of Equity Drivers on Customer Equity

Value Equity Drivers

Brand-Related, Relationship-Related and Value-Related Drivers

Developing eWOM Campaigns

Things Not to Do with eWOM

Considerations for Consumer Online Reviews

Comparison of WOM Campaigns

Customer Equity (Villanueva, Yoo & Hanssens 2006, Introduction Section, 1).

CLV: Consumers’ lifetime value (Villanueva, Yoo & Hanssens 2006, Introduction, 1).

UGC: User-Generated Content (Cheong & Morrison 2008, 1).

HOW ELECTRONIC WORD-of-MOUTH (EWOM)

AFFECTS BRAND TRUST and CUSTOMER EQUITY

CHAPTER II

LITERATURE REVIEW

“[C]onsumer reviews and ratings are the most accessible and prevalent form of eWOM”

(Hopken, Gretzel, & Law 2009, p. 38).

eWOM

In the literal world, word of mouth (WOM) proves pervasive as well as reportedly more persuasive than offline written information. In the book, Consumer Behavior, Wayne D. Hoyer, director of the Center for Customer Insight in the McCombs School of Business at the University of Texas at Austin, and Deborah J. Macinnis (2008), professor of Marketing at the University of Southern California in Los Angeles assert that word-of-mouth can and regularly does dramatically affect the consumer’s perceptions of products as well as the performance of the marketplace offering the product. One study found WOM “seven times more effective than print media, twice as effective as broadcast media, and four times more effective than salespeople in affecting brand switching” (Hoyer & Macinnis, p. 408). WOM has also been shown to depict the primary source affecting consumer decisions regarding food and household products they purchase.

Through electronic word of mouth (eWOM), by just clicking a mouse, consumers can inform even more individuals online of their positive or negative experiences than literal WOM could ever do (Ibid.). During the literature review, a formal survey of professional literature, the researcher examines a number of literary sources to depict a comprehensive description of the research relating to how eWOM affects brand trust and customer equity. Ultimately, the researcher uses this information from the literature with data retrieved by other research tools to test and explain the effect of customer generated online reviews on the mediating role of brand trust, and the three factors that constitute customer equity and contribute to shareholder value. These factors include:

1. Relationship Drivers,

2. brand drivers, and

3. value drivers.

This literature review for the study focusing on components of eWOM as well as factors that contribute to ways eWOM affects brand trust and customer equity, like any successful literature review, began with the researcher’s interest and inquiry. The researcher then began to relate his idea and inquiry to the investigation of a particular problem or issue, eWOM. In the book, the Literature Review: Six Steps to Success,” Lawrence a. Machi and Brenda T. McEvoy state that literature review proffers the most relevant, significant sources the reader needs to understand the research. Machi and McEvoy state that after the researcher decides what topic (specific problem or issue) to investigate, the following six successive steps can serve to guide the researcher in writing the literature review:

1. Explore available literature for related, credible information;

2. develop the argument for the study;

3. review the literature;

4. evaluate the literature to determine relevant information to include;

5. create the literature review (Machi & McEvoy 2008).

Karen Smith, Malcolm Todd, and Julia Waldman (2009) explain in the book, Doing Your Social Science Dissertation: A Practical Guide for Undergraduates, that the researcher typically uses one of three common approaches to develop his literature review: 1) a chronologically organized review; 2) a thematically organized literature review; 3) the methodologically organized review. For the current study which spotlights eWOM, the researcher utilizes the thematic design to simultaneously relate findings other researchers have discovered and address the study’s seven research questions presented in the study’s introduction. To organize the literature review, the researcher developed the following seven themes which evolved from the study’s research questions to depict the literature review’s subsections.

1. eWOM Communication and Brand Trust

2. Brand Trust and Customer Equity

3. Ewom Communication and Customer Equity

4. Brand Equity Drivers and Customer Equity

5. Relationship of Equity Drivers on Customer Equity

6. Value Equity Drivers

7. Brand-Related, Relationship-Related and Value-Related Drivers

eWOM Communication and Brand Trust

Numerous forms of contemporary information technology, particularly internet websites, present new opportunities for consumers to communicate how they rank or grade products and services. Yubo Chen, Eller College of Management, University of Arizona, and Jinhong Xie Warrington (2008), College of Business, University of Florida, assert in the journal publication, “Online Consumer Review: Word-of-Mouth as a New Element of Marketing Communication Mix,” that Amazon.com initially offered consumers the opportunity to post their comments regarding products on its website in 1995. According to the New York Times report in 2004: Amazon.com had approximately “10 million consumer reviews on all its product categories, [with] these reviewsregarded as one of the most popular and successful features of Amazon” (New York Times as cited in Chen & Xie 2008, p. 477). In time, other companies like circuitcity.com, GameStop.com and wine.com, followed in Amazon’s footsteps and have allowed consumers to communicate online comments relating to the quality of products, customer service, and personal shopping experiences.

Some companies allow third party corporations, such as Epinion.com, to post consumers’ feeling regarding personal shopping experiences and evaluations on their websites. Chen and Xie (2008) explain that “online consumer reviews are common for many product categories such as books, electronics, games, videos, music, beverages, and wine. Recent evidence suggests that consumer reviews have become very important for consumer purchase decisions and product sales” (p. 477). A study Forrester Research conducted found that comments consumers posted strongly influenced the decisions of half of the consumers who assessed and read them as to whether or not to purchase certain products.

Chen and Xie (2008) also report that a number of experienced researchers including Dellarocas, Wilson and Sherrel, have examined consumer information posted on corporations websites to evaluate and analyze the credibility of the information consumers post and numerous studies conducted by experienced researchers, “Consumer-created information is likely to be more credible than seller-created information because credibility of information is often positively related to the trustworthiness of the information source” (Dellarocas, Wilson & Sherrell as cited in Chen & Xie 2008, p. 479). Mayzlin also conducted a study relating to credibility of promo messages posted in chat rooms online as well as to whether the messages pitched affected the company’s profits. A 2007 study Fay, Xie, Xie and Gestner conducted found that information consumers create online may or may not prove to be credible, but that it may, when credible, allow a corporation to develop and achieve specific marketing strategies, including probabilistic selling. Studies such as these prove profitable as they enhance not only consumers’ understanding but also the corporations’ perceptions.

Communications consumers create and convey, including online reviews, may prove more pertinent to consumers than messages the corporation selling products develop and post. Information the seller creates may be more product associated, often because the seller describes in detail certain attributes of a product such as technical specifications, standards and product performance. “The consumer-created product information is, by definition, user oriented. It often describes product attributes in terms of usage situations and measures product performance from a user’s perspective” (Bickart & Schindler as cited in Chen & Xie 2008, p. 481). Because consumers possess varying capabilities and understanding regarding certain product information, depending on their expertise, product information the corporation or seller creates may prove more useful to consumers more knowledgeable of particular products. On the other hand, for consumers without technical terminology understanding or knowledge regarding a certain product, information other consumers post may prove more beneficial and help them choose a product to best match their needs.

Some corporations are often thankful for consumers who post communications of product information as they perceive them as free “sales assistants” for their corporation. Chen and Xie (2008) explain that these free “sales assistants,” albeit, may not necessarily come without cost to the corporation or seller. “By allowing consumers to post their own product evaluations, the seller creates a new information channel for consumers, which eliminates the seller’s capability to control the supply of product information” (Chen & Xie 2008, p. 489). Table 1 presents several critical considerations for corporations or sellers regarding decisions relating to online postings by consumers.

Table 1: Considerations for Consumer Online Reviews (adated from Chen & Xie 2008).

Consumer Reviews

A type of independent information regarding a product may affect marketing strategies, especially from third-party reviews of a product. The corporation or seller should create strategic responses to contend with information consumers provide.

Seller Response to Consumer Reviews

A corporation or seller response may vary for different products.

For example, to gain a greater consumer review, the seller might highly promote lower cost products and emphasize those products’ attributes. In regards to higher priced products, the seller may decrease the consumer reviews.

Seller Response to College Students

For vanity products and stimulating products targeted to younger more talkative adults, the seller may create a proactive response. The corporation or seller could benefit by developing marketing strategies prior to consumer reviews being available online.

Seller Response to Novice and Expert Consumers

Before allowing consumers to post product reviews on a corporations or sellers website, the seller should consider the size of the segments of expert consumers and novice consumers. For example, the seller may benefit from selling certain products if a significant number of expert consumers exist, especially for technology driven products. On the other hand, the seller may damage sales if the expert consumers’ segment overshadows that of the novice consumers.

Unknown or Less Popular Stores Online Seller Response

Relatively unknown corporations should be overly cautious when allowing consumers to post comments on their websites. If brand marketers fail to attract enough consumers to post reviews, the corporation may damage its reputation. these corporations might consider hiring a well-known, popular third-party source to handle consumer reviews.

Seller Should Consider the Timing of Consumer Reviews on Websites

Timing for the introduction of a product on a website may be a crucial factor for a corporation or seller. When introducing a certain product, the seller should consider whether or not to delay consumer reviews for that particular product. If the segment containing the expert consumer is rather large and the product cost is low, delaying online reviews may prove beneficial for the corporation or the seller.

David Godes, Associate Professor in the Graduate School of Business Administration, Harvard University, and Dina Mayzlin (2007), Associate Professor in the School of Management, Yale University, assert in the journal article, “Firm-Created Word-of-Mouth Communication: Evidence from a Field Test,” as with other media, a WOM campaign might impact outcomes by affecting either (a) awareness and/or (b) preference. That is, exposure to a WOM episode might make someone aware of a product they had not been aware of before or it might persuade them by changing the expected utility they had assigned to that product. Interestingly, there may be an inherent tension between achieving these two objectives. Those disseminators that may be most persuasive may not be the ones that will help the firm achieve maximal awareness. The literature on influence has strong predictions on how decision makers are affected by their peers. For example, Reingen et al. (1984) show that consumers’ brand choices within a social group are often congruent (p. 4).

However, the characteristics of WOM that are typically associated with higher persuasiveness may, on the other hand, be associated ultimately with less breadth of awareness of the message. Granovetter (1973) showed that it is essential to distinguish between “strong ties” and “weak ties” in understanding the flow of interpersonal information. An important argument in this work is that weak ties form the bridges between otherwise isolated strong-tie networks. Since those in the same social networks are likely to have similar information, it is often information communicated via a weak tie that results in a greater increase in the number of new people that are informed. Goldenberg et al. (2001) use cellular automata to investigate the relative macro-level impact of strong and weak ties and find that the latter may have a bigger impact even though the former are activated more frequently. A fundamental implication of this research is that information transmitted between acquaintances or strangers should ultimately reach more people — i.e., lead to higher awareness — than if it had been transmitted between friends or relatives. While the effectiveness of WOM may depend on the strength of the tie across which a message is communicated, this is not easily managed by the firm within the context of a WOM marketing campaign. However, the same critical dimension — the extent to which WOM reaches previously-uninformed customers — may also be related to more-easily identifiable customer characteristics as well (Godes & Mayzlin 2007, p. 5). Table 2 depicts several example of companies utilizing WOM and how their campaigns helped or hurt their corporations.

Table 2: Comparison of WOM Campaigns (adapted from Godes & Mayzlin 2007, p. 5).

Corporation and Date

Campaign utilizing WOM

Outcome of Campaign

In September 2005, NBC launched the second season of its reality show about weight loss, “The Biggest Loser.”

In preparation for the new season, NBC ran ads in early August asking viewers to fill out a survey at a Web site.

NBC used self-reporting.

Out of all the applicants, 1,000 “biggest” fans were chosen to throw parties during an advanced screening of the show’s premiere. The hope was that this, along with the resulting word of mouth (WOM), would generate interest in the show.

In 2001, Lee Dungarees wanted to improve its image with teen boys.

Their agency identified 200,000 “influential’s” from online communities devoted to video games. The firm then emailed each a series of short films from unknown characters who turned out to be protagonists in a video game commissioned by the firm.

Lee Dungarees used observational methods. On average, these films were forwarded to about six people each. To play the game, however, one had to go to a retail store and get a code from a pair of Lee jeans.

In March of 2006, WD-40 hired Proctor and Gamble to promote their new product extension, the “No-Mess” pen.

The product was promoted through P&G’s Vocal point, a panel of influential moms who were pre-selected via a survey based on their ability to be “connectors.”

WD-40 found a fit between their product and the Vocalpoint panel.

Hasbro in 2001 launched a new handheld video game called POX.

To do so, they ran surveys in Chicago area elementary schools to find the “coolest” kids in each school. Once 1,600 kids were chosen, they were each armed with a backpack filled with samples of the game to be handed out to their friends.

Hasbro used a combination of sociometry and self-reporting.

There are several common threads among these examples. First, the firms in these cases tried to “engineer” WOM among their customers. That is, rather than hoping that satisfied customers would tell people about their products, these firms took actions to increase the number of conversations that were taking place. Second, they each attempted to identify who the “key influencers” would be in their respective situations.

For each firm, the implementation of their WOM campaign played a primary role in their marketing effort during the respective time period. One notable difference is in the approaches undertaken by the marketers of the two mature products, NBC and Lee Dungarees. While NBC recruited the most loyal users for its campaign, Lee Dungarees instead focused its efforts on influential’s, regardless of their existing relationship to the product. The past several years have witnessed a marked increase in attention paid to “buzz” in the popular and managerial press. Moreover, marketing managers are increasingly interested in taking actions in order to influence, directly or indirectly, WOM. Hence, we can think of firm-created WOM as a hybrid between traditional advertising and consumer word of mouth in that the former is firm-initiated and firm-implemented while the latter is customer-initiated and customer-implemented. WOM marketing, on the other hand, may be characterized as being firm-initiated but customer implemented. (Godes & Mayzlin 2007, p. 5)

This article discusses WOM on and off line

The journal article, “Word-of-mouth marketing will change your business: Word-of-mouth (WOM) marketing is no longer merely “nice to have.” The convergence of communication speed with the vast array of social media options is making WOM a driving force behind every brand,” written by Sarah Chung, CEO of Periscope Solutions and Tina Hedges (2009), co-president of TWIST new.brand. venture, explain undoubtedly, word-of-mouth (WOM) marketing gives brands a powerful and influential way to engage their target audience — many of whom are already VIP members of vast information sharing, brand advocate-building communities. For those who began their career on the beauty retail floor, it is has long been known that consumers are vocal with their opinions, but now more than ever, consumers are opinion-publishing moguls — increasingly broadcasting their point-of-view across numerous mediums and finding enjoyment in being the self-appointed “expert” doling out advice and converting their friends and family along the way ( 1).

A projected 72 million U.S. adults will regularly give WOM advice about products or services in 2011, up from 65 million in 2006, according to eMarketer. There are 3.5 billion WOM conversations occurring daily in the U.S., according to the Keller Fay Group, the vast majority (92%) of which are off-line, specifically 75% face-to-face and 17% by phone. Yet another researcher, Nielsen, showed that 78% of consumers said they trust word-of-mouth recommendations from other consumers, while only 26% trust banner ads. These figures point solidly to the advantage of a personal recommendation over blogs and ads. “Over the fence, backyard selling” still carries the most weight with consumers, which must account for the continued dominance of direct sales companies, notably Mary Kay and Avon (Chung & Hedges 2009, 2).

Chung and Hedges (2009) state that before ruling out the online channel, more than eight in 10 influencers say they often go online to find out more after reading something in a magazine or newspaper, or hearing something on TV or on the radio, according to a recent survey by MS&L Digital. This shows that, while most recommendations are made off-line, influencers rely on the Internet as a critical resource in helping to inform decisions ( 3).

Chung and Hedges (2009) question “Is Your Digital Marketing a Turn-on?,” many of the online tools brands can leverage in their digital marketing efforts were discussed. When it comes to WOM, the same names are relevant (Facebook, Twitter, YouTube, etc.), but these are merely tactical tools to implement a carefully articulated WOM plan. The Word of Mouth Marketing Association outlines several positive WOM guidelines, they are listed below: (Word-of-mouth Strategies Section, 1).

1) Creating communities and connecting people. This can include creating user groups and fan clubs, supporting independent groups that form around your product, hosting discussions and message boards about your products. (Word-of-mouth Strategies Section, 2).

2) Creating evangelist or advocate programs. This entails motivating brand advocates and evangelists to actively promote a product — providing recognition and tools to active advocates, recruiting new advocates, teaching new advocates about the benefits of the products and encouraging them to spread the word (Word-of-mouth Strategies Section, 4).

3) Engaging in transparent conversation. Any WOM campaign requires two-way conversation with consumers. Some simple ways to execute include creating blogs and other tools to share information or participating openly on online blogs and discussions (Word-of-mouth Strategies Section, 6).

Chung and Hedges (2009) explain that there are several tips for fostering word-of-mouth campaigns. Figure 1 depicts things corporations should do when developing eWOM campaigns.

Figure 1: Developing eWOM Campaigns (adapted from Chung and Hedges 2009, Tips for Section, 1-5).

Figure 2 depicts things corporations should not do when developing eWOM campaigns.

Figure 2: Things Not to Do with eWOM (adapted from Chung and Hedges 2009, Tips for Section, 6-9).

eWOM Communication and Brand Trust (need more info on this)

Brand Trust and Customer Equity

Brand trust, as defined in the study’s introduction, depicts a particular attitude or sentiment that mirrors “the confident expectations of the brand’s reliability and intentions” (Delgado-Ballester & Munuera-Aleman 2005, p. 188). The definition of customer equity, also related earlier in the study, constitutes a customer-centred concept symbolizing “a combination of the value of a firm’s current customer assets and the value of the firm’s potential customer assets” (Hogan, Lemon & Rust 2002, p. 7). The value of customer equity depicts a collective measure of customer profitability. It may be expressed as the sum of the discounted customer lifetime values, the total value of the firm’s current and potential customers (Rust, Lemon & Zeithaml 2004; Kumar & Shah 2009).

In the article, “Customer Equity & Branding – Do you know your numbers?,” Nick Wreden (2007), adjunct professor at Mercer University and author of the book, Fusion Branding: How to Forge Your Brand for the Future, stresses the significance of customer equity. “Advertising doesn’t create a brand. Neither does PR. Nor does data collection about markets and customers” 2). Only one force, customer equity, possesses the power to create a brand. During the coming demand economy, Wreden asserts, customer equity will prove absolutely vital because of increasing “brand polygamy,” the customer’s allegiance to more than one brand as well as the expensive initial costs required for customization.

The following five factors can help a company build its brand; based on customer equity:

1. Know your numbers: What are your acquisition, retention and defection rates?

What is average customer profitability after six months, one year, etc. What is your cost-to-serve for new and established customers?

2. Examine sales compensation: Is the sales force compensated solely on acquisition? Some have established plans where commissions aren’t paid until the customer has been with the firm for at least six months.

3. Establish a customer recovery program: Do you know why customers leave?

Do you try to win them back? A study by Marketing Metrics found the average company has a 60%-70% probability of selling again to existing customers and a 20%-40% probability of successfully selling to lapsed customers. That’s greater than the probability of selling to a new prospect:

5%-20%.

4. Focus on the organization: Meta Group argues hard for a chief customer officer (CCO). This person is responsible for ensuring that the organization enhances retention. Others say that CCO adds a bureaucratic layer and encourages turf wars when every department should be focused on retention.

It’s an interesting debate, but shouldn’t obscure an organizational focus on retention.

5. Look at the budget: For established companies, retention deserves a bigger slice of the pie. And retention efforts don’t just come out of the marketing budget. Every department must contribute (Wreden, 2007, 8). (This needs rewriting in 3rd person)

By focusing on customer equity, a company may save money and boost its exposure. “Software vendor Sybase estimated that it costs six times as much to sell to a new customer as to an existing one. It also found a typical satisfied customer will tell eight to ten people about a favourable experience” (Wreden, 2007, 5). According to eBay’s research, referred customers’ support costs prove to cost the firm less than it would cost it to secure others through marketing. Also, rather than calling eBay’s support desk, the referred customer will more likely consult the individual who referred him to eBay for direction. In addition, loyal customers respond less to competitor’s messages as well as overlook or absolve the corporation’s mistakes quicker.

Whist brand equity has several failings, (including difficulty in calculation and the difficulty small to medium-sized companies have in using it), its strengths as an accountability tool and particularly as a strategic force, more than offsets these limitations. It adds discipline, since branding efforts can be easily measured. It provides a customer-focused perspective to financial analysis. Instead of simply looking to cut costs, customer equity lets companies look at how to achieve value over time. Customer equity also provides clearer justification for the vital branding intangibles – service, innovation, loyalty – that are hard to fit within the cells of a classic accounting spreadsheet. And it shifts organizational focus away from ‘sales’ and market share – which sometimes leads to ill-considered pricing/promotion and acquisition of the ‘wrong’ customers – toward customer profitability.

Technically, customer equity is the sum of the lifetime value of a customer, discounted by time. it’s well understood that an existing customer is more valuable than a new one. In most industries, it costs four to seven times more to replace a current customer than it does to keep one. In the book the Loyalty Effect, Frederick Reichheld found that companies could boost profits by almost 100% by retaining just 5% more of their customers, depending upon the industry. Other studies indicated that even small investments in retention produce a return of three to five times.

Customer equity also empowers segmentation strategies. Most segmentation efforts look at customer spending. That’s not the same as customer profitability and loyalty. Segmenting customers by equity provides key insights on resource deployment.

Many talk about ‘our valuable customers.’ A Gartner study revealed that more than 75% of 600 enterprises surveyed rated customer loyalty as more important than sales to new customers. But there’s not much walking. Look at marketing budgets. On average, 80% is dedicated to acquisition. Retention gets the hindquarters. That helps explain why two-thirds of buyers fail to make a repeat purchase, according to McKinsey & Company, and why, on average, firms lose 20%-40% of their customers annually. Even less is spent on customer recovery, which can produce huge returns (Wreden, 2007, 2-7).

In the contemporary economy, corporations or companies can attain new consumers via a number of techniques. Two options corporations may implement include: (1) Obtain a high-cost marketing firm to provide extensive marketing techniques in a fast-paced manner, or (2) Utilize word-of-mouth reviews from consumers, a potentially slower, yet less costly process. The journal article, “The Impact of Marketing-Induced vs. Word-of-Mouth Customer Acquisition on Customer Equity,” by Julian Villanueva, assistant professor of Marketing, IESE Business School, Madrid, Spain, Shijin Yoo, assistant professor of Marketing, Lee Kong Chian School of Business, Singapore Management University, and Dominique M. Hanssens (2006), the Bud Knapp Professor of Marketing, UCLA Anderson School of Management, Los Angeles, California, assert that the long-term success of a corporation significantly depends on the contribution each attained customer contributes to customer equity overall.

Villanueva, Yoo and Hanssens (2006) explain that consumers can comprise priceless assets for corporations and firms, although they may simultaneously prove to be costly as well as challenging to attain and maintain. During the course of the consumer-corporation relationship, consumer relationships with corporations and firms may change over time and a number of factors may also arise to contribute to changing loyal consumers’ opinions of a corporation or firm. Figure 1 portrays a few factors that could stimulate such changes.

Figure 1: Factors in Consumer-Corporation Relationships (adapted from Villanueva, Yoo & Hanssens 2006, Introduction Section, 1).

Consumers’ lifetime value (CLV) may be defined as the reduced flow of capital generated over the lifetime of one particular consumer. According to Villanueva, Yoo and Hanssens (2006): “To the extent that different acquisition strategies will bring different ‘qualities of customers, the acquisition effort will have an important influence on the long-term profitability of the firm” (Introduction Section, 1). Some experts and scholars assert that corporations should not spend cash to retain just any consumer, but instead work to obtain the “right” kind of customer to enhance customer equity.

Corporations may obtain customers by numerous means; some of the less expensive ways may greatly benefit entrepreneurs as they initially begin company operations.

Consumers can quickly become loyal customers quite quickly just from word-of-mouth referrals from other satisfied customers by means of the internet or a simple article in the newspaper. Some of these companies may use monetary incentives to entice new clients while others strictly rely on word-of-mouth from other satisfied customers. Villanueva, Yoo and Hanssens (2006) explain that “BMG Music Service not only spends on online ad banners and direct mail, but also gives referral incentives (in the form of free CDs) to existing customers to increase the buzz level” (Customer Acquisition Methods Section, 2). Another corporation, Netflix, which rents DVD’s online, purchases online ads, gives free trial coupons, mails numerous coupons for a free trial to targeted consumers and encourages those customers to refer their friends and family to their corporation, without using any cash incentives.

Villanueva, Yoo and Hanssens (2006) express that although this type of recruiting new customers may not be controlled by the company itself, according to researchers Brown and Reingen, these methods are much more likely to obtain new customers for different reasons, three of these reasons are listed below.

1) Firstly, word-of-mouth communication, with or without monetary incentives, according to Villanueva Yoo and Hanssens (2006), are much more creditable than traditional marketing methods which were created and developed by the company itself. For example, according to Herr, Kardes and Kim, communicating by word-of-mouth has been proposed to be much more persuasive than traditional advertising (Villanueva Yoo & Hanssens 2006).

2) Secondly, Friestad and Wright developed the contingent persuasion knowledge theory. This theory suggests that customers recognize the principle goal of this type of marketing communication is to persuade a consumer’s attitudes and beliefs about the company itself, in turn deal with these attempts (Villanueva Yoo & Hanssens 2006).

3) Thirdly, customer acquisition, a type of communication that may be developed and spread without the use of corporations marketing resources or finances. Customer acquisition may be defined as a type of communication that utilizes devoted customers to assume the role of lively sales representatives, who actually work for the company at no charge (Villanueva Yoo & Hanssens 2006).

The manner in which corporations attain consumers may be a critical role in the recent developing model of customer equity (CE).

Villanueva Yoo and Hanssens (2006) explain that the acquisition process and its link with the firm’s performance should be examined as a complex system in which many interactions could take place over time. For example, when computing the marginal contribution on CE of one new customer, we want to measure not only her expected CLV but also all the indirect influences that this acquisition will cause in the firm’s performance (Methodology Section, 1).

We propose a vector-autoregressive (VAR) model to investigate these interactions which we characterize as follows:

(1) Direct effects of acquisition on the performance of the firm. We are interested in measuring the impact of a person being acquired through a given acquisition channel on the firm’s performance;

(2) Cross-effects between two types of customer acquisition. For instance, we are interested in how the marketing-induced customer acquisition affects future acquisitions generated through word-of-mouth;

(3) Feedback effects. The firm’s current performance may affect the future number of customers. For instance, firms that develop stronger reputations through better performance could increase future customer acquisitions;

(4) Reinforcement effects. Both firm’s performance and customer acquisitions may have a future effect on themselves. For instance, if there is inertia in the firm’s marketing resource allocation, the time series of marketing-induced acquisitions will have an autoregressive component. (Villanueva Yoo & Hanssens 2006, Methodology Section).

The customer’s current behavior, according to Robert C. Blattberg, Gary Getz, and Jacquelyn S. Thomas (2001) in the article, “Customer equity – What’s a customer worth?,” depicts the best possible indicator the company can utilize to predict future consumer behavior . Blattberg, Getz, and Thomas also explain that the two following basic reasons contribute to reasons for a company to transition to a customer equity approach.

1. A number of vital new converging technologies will make customer asset-based management viable.

2. Contemporary technological capabilities, with other modifications in ways it’s markets operate in the current turbulent business environment making it mandatory to manage marketing to maximize the customer assets’ value of a company.

Figure 1 presents an interpretation of customer equity a number of companies may subscribe to.

Figure 1: Rendition of Customer Equity (Blattberg, Getz, & Thomas, 2001).

The following article discusses brand equity and trust, also history of brand names, will rewrite in 3rd person.

Craig Roads (2007), Creative Director for Broadhead Company, asserts in the journal article, “Building the company brand. Build the trust that builds sales,” as it happens, brand marketing began in agriculture. The practice of branding livestock to identify the owner goes all the way to the Middle Ages ( 1). Fast-forward to the 19th century, when the Industrial Revolution moved production from local communities to centralized factories creating mass-produced goods. Factories were selling their products to a wider market, but the customers were often only familiar with local goods — a generic product had difficulty competing with familiar, local products ( 2).

Roads (2007) explains that packaged goods manufacturers needed to convince the market that their products could be trusted. So companies used hot irons to burn their product identity — often based on a familiar icon — into shipping barrels, and the “brand name” was born ( 3). Fast-forward again, 100 and some-odd years later, you can still start an argument between sales and marketing over the value of a brand name. And the mere mention of “corporate advertising” can generate apoplexy in beleaguered product managers ( 4).

The fact is, your company has a brand whether you realize it or not. Your products, your advertising and marketing — and even your employees — already present a certain image to the world at large. You may come off as good, bad, ugly, large, medium, small, friendly, impersonal, smart, or not-so-smart (Roads 2007, 5). Your customers receive this information, interpret it, form opinions, and make purchase decisions (Roads 2007, 6). Your competitors and suppliers interpret the same information and form their own opinions, too (Roads 2007, 7).

Roads (2007) explains in his book “Balanced Brand,” (Jossey-Bass) brand consultant John Foley says there are three ways to establish a brand. Figure *** gives suggestions for establishing a brand for companies.

Figure ***: Suggestion for Establishing a Brand (adapted from Roads 2007, Your Brand Section, 5-8).

Roads (2007) further asserts that in other words, if you don’t market your brand yourself, others will do it for you. And you might not like the results ( 9). So be proactive, and get the most value out of your brand, because brands do have tangible value. Just check out a list of “Most Admired Companies” in any industry. See how their admiration index coincides with revenue figures ( 10).

Roads (2007) explains that brand equity is money in the bank. And a strong company brand, or “umbrella brand” creates a strong platform for product promotion. it’s the tide that raises all boats (Money in theSection, 1). Here’s why. Effective brand advertising affects attitudes and opinions. It helps you capture the prime locations in the locale that Trout and Reis call “real estate of the mind,” in their marketing classic, “Positioning” (Money in theSection, 2).

John Andrew Davis (2009) asserts in the book, Competitive Success, How Branding Adds Value, building a successful brand means having a strategic brand-development plan that guides management thinking and actions. Brand value is created and enhances through disciplined brand management practices. As a brand’s reputation grows, so does its preference from customers. Consistently positive customer experiences with a brand further strengthen the customer’s attachment to the brand. This brand attachments acts as a decision-making filter: When customers are asked to choose between the brand they know vs. A new entrant offering a similar product, they are likely to select the brand they have grown to know. For this reason, a strong brand can be a competitive advantage (p. 33).

However, brand building, including an earnest investment in developing profitable customer relationships, is not guaranteed and company management should be cautioned against thinking that once they have achieved a measure of brand success their work is done. Brand building must shift to brand management and enhancement if the initial work is to produce long-term success. Throughout the branding process, there are four factors that shape and determine a brand’s ongoing value. These four factors are given in figure *** below (Davis 2009, p. 33).

Figure ***: Four Factors that Shape a Brand’s Value (Davis 2009, p.33).

Davis (2009) asserts that trust between parties in any relationship is required for long-term success. When a company invests money and resources in building a brand, success is measured not just by financial return but the trust invested by customers. This trust is reflected in the buyer’s decision to select the brand over the competition. Trust is fundamental to economic success because customers are unlikely to depart with their money unless the product they receive in return is one they trust (p. 34).

Earning trust, both internally from employees and externally from customers, comes from management’s efforts to provide the right combination of goods, services, and support that address relevant needs. Employees and customers gain a first-hand understanding of the company through internal practices and external offerings (in the form of goods and services) that prove or refute expectations that have been created by a myriad of influences in marketing communications word of mouth, and past experiences. The net effect of these influences equates to the firm’s reputation and answers the question “does the company deliver on its promises?” (Davis 2009, p. 34).

Davis (2009) further asserts that asking this question is not just an academic exercise and developing a trusted reputation does not happen overnight. Management must structure strategic planning, hiring, implementation, and customer-development practices with the expressed purpose of building trust inside and outside the firm. Traditional and new media tools from broadcast and print to digital, offer marketers numerous avenues for communication that can be tailored to the interests of internal and external audiences. Successful brand building imposes an important responsibility on companies to communicate clearly with messages that reinforce their unique abilities while concurrently conveying the relevance of these abilities to their targeted audiences (p. 34).

Many of the factors that influence the development of trust are under management’s control. Trust building is not limited to marketing communications approaches. Marketing management, of course, must device coordinated and integrated programs (i.e. products, services, support, promotions, advertising, facilities, sales techniques) that shape a positive experience for customers whenever they interact with the company. But there are many more variables to consider, so the complexity of building a trusted reputation has grown commensurately (Davis 2009, p. 34).

At the same time, the Internet and wireless communications have placed more control in the hands of the market and away from companies, putting an added burden on companies to focus on alignment across all operations to minimize inconsistent delivery so that areas outside of management’s direct control, such as consumer-led blogs and podcasts, are less prone to reputation-bashing messages. The benefit is that when trust is developed from multiple touchpoints in the customer’s experience (pre-, during, and post-purchase phases), it becomes a more memorable and meaningful form of trust (Davis 2009, p. 34).

eWOM Communication and Customer Equity

The following article matches topic

Matthew Creamer (2006), feature writer, asserts in the journal article “He’s not a target, he’s your best sales tool; Average Joe talks brands 56 times a week, says study,” get used to it: It’s not you selling to them, it’s you and them selling together. The bell has been tolling daily for the era of interruption marketing as consumers fling marketers’ virals to their friends, distribute product-centric videos of their own on YouTube, and flame your customer-service reps on chatrooms and blogs. But now there’s a study that shows just how much brands are a part of life-right down to the conversations of ordinary Americans ( 1).

Creamer (2006) explains that the first findings of an ongoing survey from the Keller Fay Group has found that the average American mentions specific brands 56 times a week, with positive mentions outnumbering negative on the order of 6 to 1. And all you big ad spenders and PR people will be happy to hear that just under half of those conversations refer to marketing materials or editorial coverage ( 2). These numbers should give cheer to the growing ranks of marketers comfortable with ceding some control of their marketing communications and even product design to their customers. And they should chill those who still think the only real way into consumers’ hearts is with the saw-and-chest-spreader combo that is the TV ad campaign ( 3).

Jim Kite, exec VP-Insight, Research and Accountability at Media-Vest, said that these findings are helping his agency think of word-of-mouth as a marketing outcome rather than a discipline — and that upends the notion that marketing programs must begin with a big mass-media blast (Creamer 2006, 4). “We’ve always talked about marketing in a linear way, when you start with exposure and awareness and get into equity,” he said. “This turns things upside down. it’s important to get to the advocates, who are so powerful. But the issue with marketers is that with paid-for communications you have control. With word of mouth you don’t” (Creamer 2006, 5).

These are some of the key findings from the survey of 1,500 Americans between the ages of 13 and 69 conducted in April by Keller Fay (Creamer 2006, 7). The initial results are based on about 11,000 conversations and 6,000 specific brand mentions. The results confirmed a few suspicions held in the WOM community. For instance, conventional wisdom has held that as much as 80% of brand conversations take place offline, but the recent survey put proportion that at 92% (Creamer 2006, 8). That goes to show that while a lot of WOM focuses on digital communication like viral e-mails, social networks and, of course, blogs, much more is happening face-to-face or on the telephone. “As a marketer, you have to go out and talk to you brand evangelists and brand ambassadors and things like blogs can be important,” said Mr. Keller, CEO of the firm.”But there’s a lot of person-to-person communications going on. This is the way word of mouth gets passed” (Creamer 2006, 9).

Creamer (2006) explains that Keller Fay’s early findings also produced a few surprises, not least some insight into the tone of conversations about brands. There’s not nearly as much brand-bashing going on as you might expect. Sixty-two percent of discussions were characterized as “mostly positive” while only 9% are “mostly negative” (Creamer 2006, 10). They also found that tone has an effect on how far WOM spreads. Consumers are more likely to pass along good mentions than bad ones. “Good news travels further than bad,” Mr. Fay said (Creamer 2006, 11). This surprises, he said, because up until now much word-of-mouth analysis has come from the Internet and thus often reflects the negative opinions of people ranting about products and services. “Looking at all kinds of word-of-mouth conversations gives you a different picture,” he said (Creamer 2006, 12).

Following book matches topic

Marvin V. Zelkowitz (2005) purports in the book, New programming paradigms, the rise of the Internet and the increasing interactivity provided by web-based communications, has facilitated an increase in the amount of service provided by firms. The increased provision of service, in turn has increased firm revenue and thereby firm profitability (p. 164). This increase in revenue achieved through the expansion of service facilitated by the interactivity provided by the Internet, characterizes the positive path. Electronic environments due to their high interactivity levels, are conducive to gathering information from customers and then utilizing this information to provide personalized and customized offerings (p. 165).

These focused and relevant offerings reduce overall costs incurred by the consumer, as they reduce the probability of the customer’s purchase of an unsuitable offering. Simultaneously, the provision of tailor made offerings increases switching costs for consumers and strengthens the customer’s loyalty to the firm. This results in the creation of lasting customer relationships which are furthered by the utilization of one-to-one promotion and marketing efforts and two way dialogue (Zelkowitz 2005, p. 165).

The exclusivity of information and the subsequent provision of customized offerings, enables a firm to expand its customer base and charge a premium for its products, leading to increased revenue. Thus, through broadening its focus and encompassing the importance of focus on the customer, the positive path overcomes the disadvantages of its predecessor the negative path. The customer-centric focus of the positive path emphasizes on customer equity. Customer equity may be defined as the “total of the discounted lifetime values summed over all of a firm’s current and future customers” (Zelkowitz 2005, p. 165).

Customer lifetime value is metric of customer equity at the individual level. Hence an e-service (positive path) orientation implies that a firm’s opportunities are best viewed in terms of the firm’s opportunities to improve the drivers of its customer equity. The possession of a valuable customer related information, the creation of customized offerings and customer relationships and the subsequent development of these relationships, acts as a source of monopoly power to the firm. The possession of this monopoly power enables the firm to charge a premium for its products and thereby attain a higher profitability margins (when compared to the traditional path). Hence service is used as a differentiator to each price competition (Zelkowitz 2005, p. 165).

Zelkowitz (2005) explains that today competition is just a click away for consumers. Consumers can now browse the Internet and use search engines to find a competitor’s offerings. Thus, although the online environment facilitates speedier attraction of customers, it also has the disadvantage of facilitation customer defection. Low switching costs add to this danger of defection. Hence, it is extremely important for e-service firms to attract as well as retain their targeted customer. In order to achieve this, and e-service firm must increase customer satisfaction, loyalty and word-of-mouth. Word-of-mouth refers to consumers recommending a product or service to other potential customers (primarily family and friends) (p. 175).

The Internet provides special advantages to firms who have a higher rate of customer retention. Satisfied and loyal customers act as apostles for an e-service firm, by spreading positive word of mouth about the firm. The firm may fain more through this positive word-of-mouth than through advertising. The online enviorment affords e-service firms greater efficiencies with respect to customer service, customer profiling and communication. A little bit of foresight and planning coupled with a customer-centric focus can achieve great success for a firm by driving customer satisfaction, loyalty and word-of-mouth (Zelkowitz 2005, p. 176).

Following book matches topic

Hyuk Jun Cheong and Margaret a. Morrison (2008), both with the University of Tennessee, assert in the journal article, “Consumers’ Reliance on Product Information and Recommendations Found in UGC,” in the time since the advent of the Internet, the influence of online recommendations on consumer decision making has attracted great attention. YouTube and sites with blogging capabilities, such as MySpace and Facebook, are growing rapidly and frequently feature comments about brands and products. These comments, whether positive or negative, represent a form of user-generated content (UGC) ( 1).

Cheong & Morrison (2008) explain that the Internet plays a significant role in the lives of millions of people in the United States, and many Americans consider it a necessity whose use extends to nearly every aspect of their lives. They read newspapers and magazines online, manage their bank accounts, locate information easily, monitor the lives of others, and develop social networks through online forums or sites such as MySpace and Facebook (Introduction section, 1).

Another common use of the Internet is to purchase and bargain for products. Marketing communications thus have changed significantly as marketers search for ways to communicate with consumers through cyberspace and in light of their common online activities (Rogers and Allbritton 1995). These changes have induced marketers to find optimal ways to use cyberspace when promoting their products and encouraged scholars to study the Internet from the perspectives of their disciplines. Marketing and advertising scholars tend to focus on the Internet’s virtual communication roles and research various areas, including viral marketing, electronic word-of-mouth marketing (eWOM), online advergames, and interactive advertising. Yet Goldsmith and Horowitz (2006) note that researchers have only recently begun to study online content created by users and its implications for marketers. study adds to this area of research by examining how consumers view user-generated content (UGC) pertaining to products found on Web sites (Cheong & Morrison 2008, Introduction Section, 2).

Before the advent of cyberspace, scholars such as Katz and Lazarsfeld (1955), Brooks (1957), Bearden and Etzel (1982), and Rogers (1983) researched face-to-face word-of-mouth (WOM) communication (Fong and Burton 2006; Lam and Mizerski 2005). In a seminal study, Katz and Lazarsfeld (1955) examine the relationships between opinion leaders and their followers and find that interpersonal relationships are much more influential than mass media when people evaluate political candidates. Furthermore, this influence extends beyond politics and to purchases of household goods and food (Cheong & Morrison 2008, Literature Review Section, 1).

When consumers pass along product-focused information to others, WOM (and its online equivalent, eWOM) becomes a key factor for marketers. Over a typical week, as Keller (2007) notes, an average American consumer participates in 121 WOM conversations, during which specific brand names get mentioned 92 times. Arndt (1967, p. 3) defines WOM as the “oral, person to person communication between a receiver and a communicator whom the receiver perceives as non-commercial, concerning a brand, a product or a service.” Conclusions from early studies of WOM suggest that it has a significant influence on consumers’ decision-making processes, especially when they look for information about products, brands, or services (Cheong & Morrison 2008, Literature Review Section, 2).

When marketers present a new product or a newly launched brand, they consider both traditional and nontraditional media in which to place advertising. Nontraditional media, especially for younger consumers, typically include (but are not limited to) the Internet and its associated channels, such as cellular phones, PDAs, and interactive television. Not surprisingly, in response to the widespread availability and growth of computer-based and digital technologies, studies of opinion leaders have evolved to include computer-mediated communication, particularly that related to the Internet (Cheong & Morrison 2008, Theoretical Perspective Section, 2).

Consumers able to access two-way communication networks, such as the Internet, potentially can influence one another more than those who have only traditional, one-way channels. In face-to-face relationships, an opinion leader typically can influence fewer than 12 people (mostly either family members or acquaintances). However, with the advent of the Internet, opinion leaders have acquired the power to influence unlimited numbers of people. Although the Internet certainly extends the potential “stage” of an opinion leader, most studies on opinion leadership continue to focus on face-to-face relationships (Lyons and Henderson 2005). However, the concept of opinion leaders has implications for understanding UGC (Cheong & Morrison 2008, Theoretical Perspective Section, 2).

One of the first scholarly research studies to describe online interpersonal influence and eWOM, conducted by Senecal and Nantel (2001), examines how opinion leaders and followers interact in cyberspace. Smith, Menon, and Sivakumar (2003) also investigate the influence of peer-to-peer recommendations on decision making. They find that recommendations from both experts and regular people with “tie strength” have relatively the same influential power. Godes and Mayzlin (2004), in their analysis of the content of posted messages from usenet newsgroups relative to the success of new television shows, demonstrate that the amount and dispersion of communication relates to a show’s success. Senecal and Nantel (2004) also conduct an experimental study of consumers’ use of online recommendations; according to their findings, consumers who receive positive recommendations about products are twice as likely to purchase the recommended products as other people (Cheong & Morrison 2008, Theoretical Perspective Section, 3).

Consumers also seek information about new products from opinion leaders for various reasons. Goldsmith and Horowitz (2006) identify eight different motivations for online opinion seeking before purchase: (1) reduce risk; (2) because others do it; (3) to secure lower prices; (4) access easy information; (5) accidental/unplanned; (6) because it is cool; (7) stimulation by offline inputs, such as TV; and (8) to get prepurchase information. Evidence also suggests that opinion leaders are technology savvy. According to Geissler and Edison (2005), “market mavens”-those opinion leaders who help consumers deal with numerous product choices-have an affinity for technology, suggesting that they are astute users of Internet-related communications (Cheong & Morrison 2008, Theoretical Perspective Section, 4).

Brand Equity Drivers and Customer Equity

Roland T. Trust (2007), the David Bruce Smith Chair in Marketing at the University of Maryland, asserts in the journal article, “Seeking Higher Roi? Base Strategy on Customer Equity; Better Measure: Why CMOs need to pay closer attention to a new metric to focus investments on the most profitable actions,” there are many ways to invest marketing dollars to try to grow revenue, but how many of them really work — and how can we tell which ones will be profitable? Smart companies increasingly are realizing that marketing-investment decisions need to be based on apples-to-apples comparisons, and customer equity is the strategic metric that makes that possible. By basing strategy on customer equity, a marketing executive can focus investments on the most profitable actions and effectively evaluate return on investment ( 1).

Here’s why: Customer equity is the sum of the lifetime values of a firm’s current and future consumers. But what does that really mean, and why do we care? Think of customer equity as the discounted profit flows summed across all of a firm’s customers. If you remember Finance 101, that is almost exactly the definition of the value of the company. That is, customer equity is a very good marketing proxy for the value of the firm, and in fact there are a number of studies that show that customer equity is usually quite close to the firm’s market capitalization. Bottom line: If a chief marketing officer wants to drive shareholder value, increasing customer equity is the way to do it (Trust 2007, 2).

This also suggests that marketing executives should pay more attention to customer equity-which considers both current and future profits — and less attention to market share, which is only a current snapshot. In fact, marketers are increasingly paying attention to a new metric-customer equity share-which is the brand’s customer equity divided by the total customer equity in the market (Trust 2007, 3).

How can a firm figure out a brand’s customer equity and customer-equity share? It requires a combination of customer surveys and internal company information. The customer surveys are similar in time and length to customer-satisfaction surveys, but they are broader. it’s useful to measure three main drivers of customer equity and industry-specific subdrivers within each of the three. The three drivers of customer equity are value equity (the rational and somewhat objective part of customer equity, which involves things such as quality, price and convenience), brand equity (the emotional and subjective part, involving things such as brand image and brand attitudes) and relationship equity (which involves relationship-building activities, such as loyalty programs, that bind the customer to the brand) (Trust 2007, 4).

Customer ratings on these three drivers and their subdrivers should be obtained for all of the leading companies in the market. Also obtained on the survey is information about purchase frequency, volume per purchase, most recent choice and expectations about the next purchase. This is combined with internal company data on time horizon, discount rate and market shares. From this information, one can estimate the lifetime value of each customer, from which we get the customer equity of the brand (Trust 2007, 5).

Martin Greenbaum (2006), president of Greenbaum Marketing Communications, purports in the journal article, “Creating dynamic brand awareness: building a brand you can count on for unit revenue and franchise development,” it is your brand that identifies and embodies all that a company is. Your brand is the single most important feature of your business proposition. The brand equity that the company holds adds true value to your franchise model and differentiates it from a mere business opportunity. Franchising, as we know it, was built upon the premise of branding and its effectiveness in driving consumer demand ( 1).

To build that world-class franchise brand, there are three primary tasks essential to effective brand building. First, create a unique character or personality for your brand, just as in the case of a real person. Base the personality of your brand on your reputation and core deliverables as a company (Greenbaum 2006, 3).

If your brand (or company) is relatively new, then build your personality around “who you want to be when you grow up,” not necessarily who you are today. Take your time in brand development, conduct market research, and develop positioning statements that define your brand essence. For example, a sandwich shop may have a positioning statement something like this: “Our customers will associate our brand with healthy sandwiches.” Narrow positioning statements down to those with the largest impact; you can’t be everything to everyone (Greenbaum 2006, 4).

Second, build a relationship with your target market based on your personality. Relationships are usually built over time, involving advertising and other forms of communication. For most franchises, relationships are built on the local level, dependent on the overall customer experience. Everything your customers come in contact with, from the advertising materials, to store design and standards for customer service all play a part in strengthening your brand (Greenbaum 2006, 5).

Third, create visual impact through a well-conceived logo and brand identity that becomes more than a mere symbol of your franchise. It must reinforce all the positive aspects of your brand, the consumer’s buying decision and create an emotional response. A cleaning franchise customer should feel relieved knowing that their home is about to be professionally cleaned, especially if that customer’s five children wreaked havoc in the house. Respectively, an ice cream franchise’s customers should experience a little excitement just thinking about eating a delicious ice cream treat made with everything they love most (Greenbaum 2006, 6).

Building upon a primary principle of marketing, “frequency builds response,” then it is a given that your brand should remain consistent. Maintaining brand consistency starts with the development of brand standards for all your communications. Brand standards provide a detailed description of the “acceptable” formats for logo use in all communications (Greenbaum 2006, Build brand consistency Section, 1).

Size, color, placement, and use are “set in stone” in this document, which becomes the bible for your brand. In addition to logo treatments and use, brand standards should also dictate the colors, graphics, fonts and design styles used in consumer and franchise development communications (Greenbaum 2006, Build brand consistency Section, 2).

Although many companies attempt to create brand standards internally, it is best to work with an experienced creative firm. Along with your brand standards, they will create a master file of all approved logo (brand) formats for distribution internally and to franchisees. Developing brand standards is an essential process for all national franchise companies seeking to strengthen brand awareness and build brand equity (Greenbaum 2006, Build brand consistency Section, 3).

Keeping in mind that most branding occurs on the local level for growing brands, let’s touch upon how local branding has its place with Internet technologies. Your brand’s Web site should first and foremost be a consumer marketing tool for franchisees, but also offer information about your franchise opportunity (or link to an independent site). As with all your marketing materials, your brand must be supported by a dynamic Web site design that is simple to navigate and promotes the core services of the business (Greenbaum 2006, Local branding Section, 1).

Refresh your design a minimum of every two years to keep up with the evolution of your brand. Make certain your Web site contains elements of your broadcast, print and direct marketing campaigns to improve consumer familiarity and brand frequency. Invest a segment of your marketing fund in Web content optimization and it is recommended to retain the services of a search engine optimization firm to promote your consumer products and services through key words on Google, Yahoo and other major search engines. To learn more about search engines, visit http://searchenginewatch.com/, which provides a wealth of information on optimization industry data and the best practices (Greenbaum 2006, Local branding Section, 1).

Another online method of localized branding is the implementation of e-mail campaigns, utilizing the customer e-mail data collected by your franchisees. Although this is not a new idea, how the campaign is carried out will have a huge impact on branding and response. Just as with your marketing collateral and Web site, the quality and consistency of your e-mail campaign design is extremely important. To be really remembered, integrate animated graphics into the email message to maximize impact. Imagine your customers opening an email that features your promotional offer animated in a very creative way. Utilizing Flash or JavaScript can have technical issues with most e-mail systems, but animated GIFS work great and maintain a modest file size. Animated GIFS, with a marketing message in html text and downloadable PDF promotional offers (coupons) make for the perfect e-mail campaign-all of which can be administered through your marketing department. It is one of the most targeted and cost-effective delivery systems available to promote local franchise revenues (Greenbaum 2006, Local branding Section, 2).

Relationship Equity Drivers on Customer Equity

William J. Lundstrom, Cleveland State University, Cleveland, Ohio, and Ashutosh Dixit (2008), Cleveland State University, Cleveland, Ohio, assert in the journal article, “Is trust “trustworthy” in customer relationship management?,”

ABSTRACT

Customer relationship management has received considerable attention during the last decade but has only recently incorporated the importance of the trust factor in building the relationship. This article attempts to examine trust and allied concepts and integrate them into a new model of customer relationship equity. The model is presented and includes trust as a precursor and antecedent of the equity relationship. Research is then examined which includes hypothetical contributors of customer relationship equity to determine the relative importance of the elements that make up customer equity.

1. INTRODUCTION

Customer relationship equity (CRE) is the result of a trustful relationship bonding the customer with the brand and/or the organization. Brand equity, in contrast, is the evaluation and meaning of a symbolic representation that invokes feelings and propensity to action. The linking of these concepts results in a new customer relationship management paradigm, which can be described as loving-type relationship. CRE is a two-way dialogue that transcends the typical buyer-seller relationship and brand equity and is dependent on trust-built equity.

The convergence of brand equity with customer relationship equity is somewhat confusing. It is certainly not the customary use of the term, “customer relationship management” which focuses upon sales generation, but the development of a true relationship with long-lasting results. The purpose of this article is to present a theoretical customer relationship equity model illustrating the link between brand equity, customer relationship equity and trust. Then the contributors to the model are examined to determine the strength of contribution each construct makes to customer relationship, equity. It is hypothesized that trust is the fundamental building block upon which customer relationship equity is built.

2. LITERATURE REVIEW

2.1 Trust in relationship models.

Building upon a much earlier treatise of the importance of the bonding relationship and its fundamental elements, one can look to the work of Morgan and Hunt (1994). In their research, the authors postulate that relationship commitment and trust are the two key intervening variables that establish long-term, exchange relationships. Trust is defined as “existing when one party has confidence in an exchange partner’s reliability and integrity.” (p. 23). This and Moorman, Deshpande’ and Zaltman’s (1993) definition of trust — “Trust is defined as a willingness to rely on an exchange partner in whom one has confidence.” (Pg.82) — form the basis of this foundation of customer relationship equity. Whereas trust is considered as an intervening variable, it could also be considered as a precursor and post hoc state of mind preceding and resulting from a relationship. Likewise, Beasty (2007) reports that the book, Beyond Buzz, equates conversations about the company get the customer to understand the company as a person, which leads to good customer relationships and trust. Further, in Jain, Jain and Dhar’s (2007) development of a scale to measure customer relationship management effectiveness, they found a significant higher order factor that significantly contributed to relationship effectiveness: credence (or trust).

Recently, research has shown that trust in the context of the transaction as well as trust in the firm and its representatives is an important element in developing trust in the relationship (Grayson, Johnson and Chen, 2008). Further, as the model introduced below shows, length of relationship and active interactions increase the strength of the relationship and the trust factor (Hulten, 2007; Ramani and Kumar, 2008). Finally, Lacey (2008) has demonstrated that trust is one of the primary drivers of customer commitment and increased purchase intention. Given these recent findings, in the model presented below, trust is presented as one of the primary contributors to relationship equity and further as an important in developing the customer relationship. Testing the importance of trust and other key elements in relationship equity will be presented following the discussion of the relationship equity model.

2.2 a Model of Brand Equity and Customer Relationship Equity Built on Trust.

The link between brand equity and customer relationship equity is seen as one preceding the other. While the focus over the last several decades has been on defining, researching and massaging brand strategy, the age of “one-to-one” marketing has now made it possible to expand beyond the scope of branding, and into the realm of customer relationship equity. That is, brand equity can be perceived as a precursor of relationship building with the customer. However, customer relationship equity is not applicable in all circumstances but is dependent on customer identification, situational involvement in the product/service purchase, and how the relationship is maintained over the long run. Customer relationship equity can be defined as the enduring relation of the customer with the company and/or brand, involving trust, value, caring, understanding and a long-run propensity to maintain the relationship at the expense of other choices. Building upon this treatise of a bonding relationship and trust management, the individual building blocks of brand equity and customer relationship equity and trust equity begin to take shape, as illustrated in the customer relationship equity model of Lundstrom and Wright (2005).

Customer relationship equity (CRE) is a much deeper relationship than either brand equity or the typically described customer relationship management paradigm. As one can see from the model, CRE is impacted by many variables. It is theorized that CRE is not only linked to brand equity, but is impacted by all of the same variables that impact brand equity, as well as: (1) trust; (2) loyalty; (3) caring; (4) needs, wants and desires assessment; and (5) two-way communication. In addition, the link between brand equity and customer relationship equity is moderated by the following elements: (1) involvement in decision; (2) complex decisions; (3) stages in life cycle; (4) folklore; (5) belonging; (6) commodity vs. specialty; (7) convenience items; (8) visibility; (9) experience in category; and (10) length of relationship.

Whereas brand equity is the evaluation and meaning of a symbolic representation that invokes feelings and a propensity to action, customer relationship equity is a bonding of the customer with the brand and/or the organization. It can be described as kinship, friendship and loyalty, or a familial relationship. It is not just mind share, wallet share or increasing the yield from a group of known customers. It is a two-way dialogue that transcends the typical buyer-seller relationship that not only builds the relationship through “loyalty” programs, affinity programs and directed marketing efforts, but strives to understand the client and meet their needs, wants or desires through their life-long process. This “bonding” relationship encompasses the brand and loyalty to the brand, but goes deeper in creating and maintaining a strong, trusting friendship that is difficult to measure. If this were a person, the client-customer would sacrifice other purchases and events to maintain the integrity of the relationship.

Brand equity is a significant precursor of the customer relationship management model and plays a significant role in its link to customer relationship equity. It is significant in this paradigm in that the brand, in fact, is the symbolic representation of the relationship and signifies many of the attributes associated with the relationship. However, the brand is not the relationship; brand equity is a representation of the strength of the relationship, itself. The basis for the relationship is built upon several variables as illustrated in the model; not the least of which is the trust paradigm (Lundstrom, 2008). If it is postulated that trust is built over time and with experience, then the relationship begins to make sense. Trust is built upon the values of caring, communication, need fulfillment as well as the building blocks of brand equity — value, consistency, price and quality. Hence, the research presented here will examine the relative importance of these values to the customer equity equation

3. RESEARCH

In an effort to determine the importance to customers of the various components contributing to customer relationship equity, a questionnaire was developed to measure the importance ratings these contributors: caring, honesty, trust, attention to needs, listening, best value for the money, highest quality, lowest price, more for the same price, special services for best customers and special rewards for high volume users. The questionnaire used a Likert-type scale to measure each dimension “Very Important” to “Not Important at All.” Respondents were then asked to determine in a word, or phrase, the most important element, to them, in developing a long-lasting customer relationship. Demographics on the sample were obtained and analyzed with the data from the survey.

The sample was obtained from people working and residing in a large mid-Western metropolitan area. Questionnaires were distributed as various workplaces by the researcher and graduate students with precise instructions and then retrieved one week later from designated key employees at the worksite. Demographics show the sample to be representative of the population of a relatively upscale, working population. The total number of usable responses from the questionnaire was 443. The results are discussed in the following section.

4. RESULTS

Of the ten (10) items that are purported to create and maintain long-term, customer relationships, the most important to customers was not trust, as believed (Table 1). The most important contributor was “listening to the customer” followed very closely by “honesty” and “being responsive to my needs.” Surprisingly, trust, the variable of interest and most discussed in the literature was the rated as the fourth most important input to creating a long-term relationship. The variables of price, quality and value followed after trust. Also, of interest to practitioners, the least important variables were those associated with affinity programs — special benefits and special treatment — of high-volume users.

Another way of measuring how customers would like to have strong relationships, respondents were asked to describe in a word or phrase what best captured what they would like from the firm in an “ideal” relationship and creating customer equity. Open-ended responses were given by the respondent and then coded. At the top of list and most mentioned was honesty (24.3%) and trust (11.4%) (Table 2). These were followed by responsiveness (7.5%), quality (6.8%) and service (4.9%). From this point on, responses fell off quite rapidly.

5. DISCUSSION

Trust, one of the most discussed, researched and theorized construct contributing to customer relationships, did not meet expectations. That is, respondents in this study did not view trust as the most important input in either rating relationship elements or as the cornerstone of the relationship. Rather, listening to the customer was viewed as the most highly rated item, and honesty as the ideal describing the relationship. Both of these terms may reflect a surrogate measure of trust. In the first instance, to listen is imperative in developing a relationship to understand the position and needs of the other. Likewise, if test, honest would certainly be a surrogate for the word trust and in some instances it is used interchangeably with integrity and trust.

What is of interest in this study is the need to broaden the scope of the research to include more items that contribute to building the relationship with the customer. These include listening, responsiveness to needs, service and quality. Conditions found in brand equity as well as relationship. Perhaps of greatest interest were the rather lowly positions of price, value and special benefits and rewards given to frequent shoppers. Often thought of as the backbone of affinity programs, these latter two items are the least important to customers and the least important in building customer relationship equity.

6. CONCLUSION

As in any study, the sample is somewhat circumspect for generalizability to the broader population. The sample in this study is no exception nor is the instrument used to measure the construct. However, as a first effort to determine the importance of trust directly from the customer, the results are very interesting, at least. Second, the sample for this study is upscale and the target of financial institutions, airlines and higher-end merchandisers who seek these types as valued customers. The use of the “traditional” relationship building models would, for this sample, be at best a fruitless endeavor. It is suggested that future research broaden the concept of relationship building to encompass the items studied in this research and test hypotheses that the customer is truly seeking a relationship built on other more deeply valued concepts rather than simply getting rewards.

Brand Equity Drivers and Customer Equity

Value equity drivers

Dr. William Schiemann (2006), CEO of Metrus Group, a Somerville, NJ, research and advisory firm specializing in the development and implementation of business strategies, assessments, alignment, productivity and quality improvement, and mergers and acquisitions, asserts in the journal article, “People equity: A new paradigm for measuring and managing human capital,”

For many years, organizations have struggled to find a way to assess how well they have deployed their human capital. Much debate rages on the subject (Boudreau & Ramstad, 2005, 2006), but just about everyone agrees on one fact: For most firms, human capital is one of the largest investments, and it represents one of the most difficult management challenges: How do you maximize return on investment in human capital? More specifically, how do you ensure that the human resources in whom you have invested — employees, partners, and other suppliers of labor — are giving you the best performance for the resources you have committed? Most importantly, does their performance measure up to strategic objectives — market share, growth rate, return on capital, brand-building — the achievement of which is essential for competitive success?

“People equity” is a fresh approach to help organizations measure — and substantially increase — their return on investment in human capital. We prefer the term “people equity” rather than “human capital” for several reasons. The word “capital” is too often thought of as a cost or resource to be constrained. On the other hand, investors, board members, and senior executives are conditioned to think of financial and market “equity,” and, more recently, customer “equity,” as positive factors that are central to their interests. Also, in many early uses of the term “human capital,” a disproportionate emphasis was placed on competencies, thereby neglecting other important elements that make up the overall value of people to the organization and its shareholders.

The Power of ACE

Each year, organizations spend billions of dollars on initiatives: quality programs; advanced it platforms; leadership, communications, and diversity training; team-building exercises; rewards and recognition; and other ad hoc attempts to improve performance. Unfortunately, much of the focus of these initiatives is on fixing short-term “pain points”: symptoms rather than root causes of performance gaps.

Scores, even hundreds, of factors influence human performance and, ultimately, business performance. But only a few factors have a significant impact. Our survey research involving thousands of employees in hundreds of organizations, over the past 20 years, along with significant consulting projects aimed at increasing people equity, convinces us that three elements drive overall workforce performance:

1. Alignment

2. Capabilities

3. Engagement

or ACE.

Focusing on these three elements enables organizations to identify the major factors that inhibit business performance and allows them, through a chain of drivers and enablers, to invest their resources wisely — targeting only those areas that have a decisive impact on performance.

Let’s briefly examine the three factors that comprise people equity:

1. Alignment is the extent to which employees are connected to or have a line of sight to the business strategy. It includes the connectedness of employees’ goals or accountabilities with unit, department, and overall organizational goals, along with employees’ level of brand identification. It also includes horizontal alignment: the extent to which work units are effectively aligned with each other to deliver high-value products or services to customers.

2. Capabilities capture the extent to which the organization effectively matches talent, information, and resources with business strategy and customer requirements.

3. Engagement is a more recent evolution of earlier employee satisfaction and commitment research. In general, the literature has evolved from job satisfaction and morale to employee commitment to workforce engagement, which implies the highest level of connectedness to the organization. The acid test of engagement is the extent to which employees advocate their organization as a great place in which to work or invest.

The three key elements of people equity are depicted in Exhibit 1.

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The Drivers and Enablers of ACE

During the course of our organizational research and consulting, we have found that five drivers and four enablers underlie people equity. When these drivers and enablers are effectively managed, then alignment, capabilities, and engagement inevitably increase. As a result, human and organizational performance improve substantially and measurably.

How can organizations maximize the three components of people equity? The answer: by managing the drivers and enablers of these elements, which are outlined in Exhibit 2.

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The drivers of alignment, capabilities, and engagement fall into five categories:

1. Human resource systems, which includes selection and recruiting of qualified talent, rewards and recognition, talent development, and performance management.

2. Technology systems, which includes information, knowledge, tools, and processes.

3. Innovation, including the ability to develop and implement new ideas, creativity leading to better products and services, and the ability to adapt to changing environments or competitive landscapes.

4. Structure encompasses the organization of the company, function, or unit.

5. Unique strategic elements are those aspects of an organization or function that are important in differentiating it from its competitors, including competitive advantage, brand identity, strategic project portfolio management, and business processes.

The enablers of people equity include four crucial elements: an effective supervisor or manager, strong senior leadership, a clearly understood business strategy, and compelling organizational values. Direct supervision is separated from the other three in Exhibit 2 because it enables in a somewhat different way. Senior leadership, the business strategy, and the values set the overall context and typically influence the architecture of the drivers, such as structure or HR systems. For example, an organization like Nordstroms that embodies a high customer intimacy strategy and set of values will typically have a senior leadership team whose behaviors and decisions create a reward architecture that drives employee behaviors to create high customer loyalty. The supervisor, then, is dealt a set of drivers — rewards, structure, technology — within which he or she must work to maximize people equity. Thus, the supervisor enables by using the drivers in the optimal way to create the highest level of alignment, capabilities, and engagement. In the example of rewards, the supervisor may dole out rewards differentially across employees by addressing developmental needs for certain employees, financial needs for others, and work life balance for still others, while staying within the boundaries of the overall rewards architecture.

These four elements combine with the drivers, as depicted in Exhibit 2, to create high people equity. One key barrier to enhancing the value of people equity is the omnipresent “should/actual” gap between strategy and values, and operations. This gap must be closed quickly and effectively. For example, if there are weaknesses in values, such as low trust, poor communication, or low teamwork, that are hindering effective overall performance, resources can be directed to training programs, leadership communications and actions, or rewards to close the gap that is inhibiting workforce performance.

The Impact of Low People Equity

Research confirms the proposition that when an organization’s workforce is misaligned strategically, is capability deficient, and is disengaged, there are substantial, measurable negative consequences.

For example, individuals or units that score low on engagement often have lower performance scores when compared to units with higher engagement scores. Using a measure of workforce commitment, Feuss, et al. (2004), found that, among Veterans’ Administration employees, higher engagement scores translated to higher numbers of claims being processed and millions of dollars in increased productivity. In the alignment arena, our research across numerous industries suggests that customer focus and congruence with organizational goals is typically correlated with improved customer outcomes, such as increased loyalty or retention.

Bottom line: Poor alignment, capabilities, or engagement leads to diminished people equity. Operating costs increase, with underutilized resources, lower productivity, and turnover of high performers.

Low alignment, capabilities, and engagement also have a negative impact on customer relations. When employees lack any one of the critical ACE elements, this can result in disgruntled customers who buy less and drive others away.

Exhibit 3 summarizes, from our research and case studies, the impact of low alignment, capabilities, and engagement on important organizational outcomes. There is some overlap in consequences of deficiencies in each of the three areas, but there are also unique outcomes attributable to low scores on individual ACE dimensions.

Just about every organization has a people equity improvement opportunity of at least 20%. For most, it is over 50%! These numbers are based on our research across the industrial landscape, which suggests that few organizations demonstrate broad alignment of their business units, departments, and teams with the business strategy. In polling middle and senior managers in many organizations, less than 15% report that employees understand their role in supporting the business strategy. Although many can point to blips in which some units report high people equity, these units tend to be the exception that proves the rule.

By improving “ACE” performance, most organizations are better positioned either to manage the same processes, customers, and volume with fewer resources or to redirect existing ones to capitalize on new opportunities.

In the many organizations in which we have documented that between 20 and 25% of time is spent on low- or no-value-added activities, increased people equity would provide an opportunity to redirect a significant amount of time to new, better-aligned initiatives. This would enable leaders to focus resources on developing products and services that satisfy the next-generation demand.

The Criticality of Measurement

Based on the preceding summary and earlier literature (Schiemann, 1996; Wiley, 1996), people equity and its underlying elements have the potential to tell us a lot about how we can maximize our business results through people, and about how well we are utilizing this important investment.

Moving from insights about people equity to results requires adding measurement discipline (Boudreau & Ramstad, 2006). It is a tough challenge, but if we can measure both people equity and its drivers and enablers, then we have an enormous ability to redirect resources and initiatives to maximize not only people equity, but also the elements of customer and market equity that are driven through people.

The Fallacy of One-Dimensional Thinking

Paul Watson, business unit leader for a large financial services organization, knows how important it is to create high engagement in his workforce. His most recent employee survey yielded a score of only 60% in the engagement area. Five years ago, the score on engagement was only 50%, and Paul succeeded in increasing it to 60% two years ago, but there has been no improvement since then.

Furthermore, despite the increases in engagement scores over the five-year period, and a sizable reduction in employee turnover, new problems have surfaced. The unit’s productivity has declined, customer defections have increased, and employees are just not living the brand promise. Paul is not getting the maximum value from his workforce, and he does not understand why.

Our research and case studies of hundreds of organizational units across more than a dozen industries, ranging from service to high-tech to hard-core manufacturing, are full of Pauls. Dedicated, intelligent, and determined, they do not know how to go about increasing people equity.

Here’s our advice to Paul: First, until he begins to pay attention to all three dimensions of people equity, further gains are unlikely. Alignment of employees with the business strategy drives focus and most often connects to business outcomes such as productivity and customer attraction and retention — two areas woefully low in Paul’s unit. Capabilities constitute the third critical leg of the performance-and-results stool. Most often, deficiencies in this area lead to poor customer outcomes, such as lower buying behavior, higher complaints, and greater defection to competitors.

Second, within the engagement area itself, Paul has focused too narrowly on supervisory actions and needs to examine the other factors that influence engagement.

Finally, the larger organization has not focused on managing the variance in engagement scores across different units of the organization. Our advice: Look at both the high- and low-scoring units and try to identify best practices on one end and corrective action on the other. In this way, engagement indices can be improved throughout the organization.

Unfortunately, Paul’s survey did not provide the strategic people content — the areas of alignment and capabilities — that he needed to understand where the gaps were in areas that related to productivity, brand, and customers. Nor did his survey provide enough detail about engagement to allow him to pinpoint variances in this area and isolate root causes.

Survey Dos and Don’ts

A wide variety of tools is being used to provide at least some understanding of people equity: interviews, focus groups, competency profiles, 360-degree feedback tools, formal assessment centers, exit reviews, and surveys. But most of these fail to capture the holistic people equity concept. For example, exit interview scores may detect gaps in engagement based on supervisory practices, reward systems, or growth opportunities; however, the information is often biased by people who have already decided to leave, and the measure occurs well after corrective action should have been taken.

Based on much trial and error with alternative tools over the past decade, we have found that surveys — despite some of their shortfalls — are one of the most effective and economical tools for obtaining a broad assessment of people equity.

Surveys work well for multiple reasons:

1. People are the key stakeholders we are trying to understand and measure, so their perceptions are crucial.

2. People have a unique vantage point from which to observe the organization’s processes, practices, successes, and failures.

3. The information can be captured in a format that readily enables comparisons not only within an organization, but also across functions and organizations.

4. Surveys enable one to estimate not only people equity, but also the drivers and enablers of people equity.

5. Survey information is usually cost-effective to obtain.

6. Survey information differentiates high and low performance. It provides profiles within and across organizations that are correlated with other important business outcomes. Units that are higher or lower in alignment tend to have different gaps in performance outcomes, making the alignment score a leading indicator of other important business outcomes.

Surveys have not always lived up to that promise, for a variety of reasons:

1. Employee surveys have historically placed too strong a focus on the leader’s or supervisor’s role in creating “satisfied,” “committed,” or “engaged” employees.

2. Surveys have often included items on clear expectations, coaching, recognition, and feedback, but they do not tell us whether the goals and the feedback are aligned with the business strategy.

3. Few surveys have tapped the capabilities factor, or they have done so in a fragmentary way.

A New Approach to Measuring People Equity

Despite the shortcomings and widespread skepticism about the utility of surveys, we have experimented with various approaches and found that it is possible to design more strategically oriented surveys that approximate the three components of people equity and its drivers. The secret is to ask the right questions.

At the core of the survey approach we recommend is a short diagnostic questionnaire that captures all three crucial components of people equity. Typically, we also include segments on the drivers and enablers of people equity as well. In total, not including customized strategy questions, most organizations can assess people equity and the drivers and enablers in Exhibit 2 with a survey of 35 to 50 items. Actually, a short form can capture people equity and most of the drivers and enablers with fewer than 25 items.

Frequently, this information is combined with interviews of leaders and managers to understand issues, such as the sources of interdepartmental conflict or the reason for perceived ethics gaps, which are somewhat less accessible from the survey. Sample alignment, capabilities, and engagement questions are listed in Exhibit 4.

Surveying the Status Quo

One way to begin increasing people equity is to understand your current organizational people equity profile. Here are a few questions to get the process started:

1. If you are using employee surveys, do they capture the strategic elements of people equity? If not, you need to determine the purpose of existing surveys. Are they for tactical decision making? For supervisory development? Are they aimed primarily at communications issues? Each survey has a valid use; however, they may not capture the essence of people equity.

2. Are your senior executives eager to see their next survey results? If not, why not? This is typically a result of survey content that is not viewed as strategic. Or the survey results have been misused, thereby creating avoidance behaviors.

3. Next, assuming you want to capture information about your organization’s current people equity, compare your survey with the content in Exhibit 5 to determine the level of overlap or uniqueness. Does it contain questions in each of these areas? Does it contain questions that do not relate to these aspects of people equity?

4. Once you have determined the purpose and value of various existing surveys by examining their content and their impact, you have two choices: (a) enhance an existing survey to include missing content in people equity, or (b) introduce a separate people equity survey to keep the survey instrument — and the leaders — strategically focused.

5. Consider coupling the survey with interviews and focus groups to provide greater understanding of the effect of drivers and enablers on people equity.

These steps should enable you to capture people equity information that will increase executive attention and meaningful action.

People Equity Profiles

Exhibit 6 shows a summary of people equity profiles into which organizations and their subunits fall. Which one describes your overall organization? Your unit? The profiles are helpful in understanding organizational and managerial strengths and vulnerabilities.

Although labels can be dangerous, they can be a useful shorthand for zeroing in on an issue. For example, the “Pollyannas” may be highly engaged in the success of the organization in the short-term but out of touch with critical requirements, such as its brand promise. They may also lack the capabilities required to deliver on committed goals. The “underachiever” knows what needs to be done and has the skills to do it, but lacks the motivation or interest in attacking the issues. The “unfocused talent” is a frequent profile, in which a workforce, unit, or individual is engaged and has the right capabilities, but the organization has not created a clear line of sight to the strategy or brand promise, resulting in wasted resources that will devote far too much time to low — or no-value-added activities. Finally, “talent waste” occurs when the organization has created a strong talent pool that is well matched for its strategy and its customers, but has failed to align or motivate that talent effectively.

People Equity DNA

One of the most useful windows into the organization is through a tool we call the people equity organizational profile. This profile provides a unique graphic picture of how well the organization is managing its people assets at every level. Exhibit 7 illustrates the people equity organizational profile based on an integrated example from several client organizations.

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It is readily apparent that the organization depicted in Exhibit 7 is stronger in developing its capabilities than in its alignment or engagement. However, the mediocre alignment scores at the corporate level — the top score being 100 — mask sizable differences across business units.

The Central Region has major alignment gaps; the Western Region contains many alignment best practices. Engagement, on the other hand, although displaying rather mediocre numbers at the corporate level, varies widely across different departments, indicating both best practice and coaching opportunities.

This people equity organizational profile helps the leadership team see where to direct corrective action. Organization-wide, broad alignment or engagement initiatives would not be the best use of resources, given the wide variances across organizational units. Instead, spot treatments for lower-scoring units are more in order, saving enormous resources that are typically devoted to overused organization-wide fixes.

At the department level, we typically see varying scores on all three elements. In fact, by looking at the variance within a unit, the supervisor can easily see where he or she needs to focus attention for greatest impact. Although smart supervisors use different approaches to motivate, align, and develop people, they all want to arrive at the same goal: individuals within their units who have high scores on all three elements. These are the building blocks of high performance.

A similar process was deployed at a major retail organization recently, resulting in a set of people equity alignment, capabilities, and engagement scores depicted in Exhibit 8. The scores at the business unit level are quite respectable, but there are wide differences across retail operating units. In fact, scores at the local level vary from 24 to 96 on engagement, 37 to 97 on alignment, and 35 to 97 on capabilities, requiring different kinds of priorities and actions. As a customer, you might well think that you were going into different businesses at the local level in terms of the engagement of the employees, their capabilities, and their alignment with you, the customer. These scores also reflect widely different management capabilities within those units, which in turn has significant implications for succession planning and leadership development, given this organization’s policy of promoting most of its leadership team from the ranks.

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The Value of Organizational Profiles

People equity profiles have immense value. They enable an organization to make investment decisions aimed directly at bringing its human assets to the highest competitive levels. People equity profiles replace scatter-shooting with the rifle-shot approach to finding cause and taking corrective action.

If survey data reveal that an entire organization is low on alignment, something is amiss in the line of sight from strategy to unit goals to individual accountabilities to performance rewards. Perhaps it is a lack of a clear strategy, or a lack of adequate measures to define the strategy sufficiently to set clear goals. On the other hand, the strategy and scorecard might be excellent, but either the translation process down the organization is faulty, or the performance management and goal-setting process is weak. The survey data will point management toward the root cause and solution, and enable it to make organization-wide investments with confidence of impact.

Zeroing in on Root Causes

Exhibit 9 unlocks some of the issues underlying our profile in Exhibit 7. By looking at the survey scores for the drivers and enablers of people equity, the exhibit highlights those ACE drivers and enablers on which it may be most fruitful to focus to save time, money, and effort. Notice that HR systems, innovation, and strategy are, overall, the weakest drivers and enablers of people equity, with HR systems scoring only 38 (out of 100), innovation 45, and strategy 49 — lots of room for improvement.

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Drilling down further into the HR systems in this example, Exhibit 10 clearly shows that rewards and performance management are the weakest subsystems. There is a low pay-for-performance linkage, along with weak recognition.

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Within the performance management area, it is safe to conclude that initiating a program to improve goal-setting would not succeed, given the weak feedback system and lack of accountability.

Finally, looking at the talent management subsystem, the data reveals that the organization is far better at attracting and retaining talent than it is at developing it.

Referring back to Exhibit 7, this organization’s people equity organizational profile, it becomes clear that the biggest gains are most likely to come from focused improvements in the Central and East Units. Clearly there are opportunities for improving elements of the overall HR systems — most notably issues within rewards and performance management — that will provide a strong boost to overall people equity.

The great advantage of the ACE model is that it focuses on the drivers and enablers of each of the elements of people equity and allows an organization to home in, directly and decisively, on the leverage points for improvement.

Connecting the Dots

People equity and the dimensions captured in the surveys we have discussed are part of a network of interrelated business constructs that fit together in a cause-effect manner that drives overall business performance and shareholder equity, as illustrated in Exhibit 11.

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Once information is available for the people equity elements, they can be connected to operating metrics (speed of response to customers, cycle time, quality metrics), supplier metrics (partnering, quality), regulatory metrics, customer drivers (reputation, service quality, price) and outcomes (loyalty, client retention), and financial outcomes (productivity, SG&a, revenue growth, margins).

This type of analysis provides an organization with its unique profile of drivers and results, thereby enabling it to pinpoint gaps in its value chain and direct resources in a precise fashion to enhance its overall equity.

Exhibit 12 illustrates the results of one such analysis, which we conducted for an energy company that was looking for a connection between the way it managed its people and customer outcomes. The exhibit shows which people dimensions were the best predictors of customer satisfaction for this particular organization. The use of statistical analysis enabled us to predict increases in customer satisfaction that could be gained by initiating improvements in specific drivers and enablers of employee capabilities.

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Summary

Organizations that seek to increase their shareholder or stakeholder equity must focus on their employees or other sources of labor, and maximize the equity of this investment. Investments in labor are maximized when they are focused or aligned with the business strategy and its targeted markets, when they are directed at motivating or energizing employees to excel, and when they provide the requisite capabilities and resources to flourish.

Human resources, technology, innovation, and structure must be determined by senior management and effectively deployed by managers at every level to maximize the drivers and enablers of people equity.

From our research and experience, few organizations are holistically measuring all ACE drivers and enablers in order to determine which areas of human capital are limiting people equity, and, consequently, market equity. Those who do so enjoy a powerful and sustainable competitive advantage.

Value equity drivers

Impact of Brand -Related, Relationship-Related and Value-Related Drivers on Customer Equity (this needs to be shortened to five words or less)

Tim Shea (2007), President of Great Direct Concepts, a subprime automotive consulting firm, asserts in the journal publication, “Build Your Relationship Equity,”

Many managers and sales reps attempt to move forward with a sale before taking time to build relationship equity that is needed to close the deal. They are “upside down” with the customer.

How does this happen? One common way is poor pre-qualification of customers. With prime customers, you would not consider walking on the lot and immediately giving a price or making a payment call.

Instead, you take the time for a walk-around and test drive to build the value of the vehicle. You build value before asking for information that elicits a commitment from the customer.

Let’s look at how it’s done with subprime customers.

In subprime, the sale is not made during the vehicle walk-around or the demo. Instead, it is made during the customer credit interview. It is here that we explain the approval and purchase process, setting or adjusting expectations.

The constraining factor in a subprime auto sale is the payment terms a lender approves for the customer. It is here we leverage the fact that “the bank has approved you for these vehicles.” Think of this as the “credit” walk-around.

The credit interview should almost always be done face-to-face at the dealership with a “credit manager.”

If you pre-qualify customers on the phone before bringing them in for an appointment, you cut short your ability to build value. If you require co-applicants, cash down and a list of stipulations to begin your relationship, you will start it with psychological negative equity.

Don’t pre-qualify leads. Bring everyone in. When setting appointments with proactive sales leads, get on the phone, answer basic questions, make the appointment and get off the phone.

Consider these fundamentals of sales.

People don’t like to be sold, but they love to buy.

People buy with emotion and justify with logic.

People buy from people they like.

If people love to buy, it is important that we find out why they love to buy. Often in the car business we focus on “what” questions. What type of vehicle? What payment? What interest rate? What term?

These questions are fine but secondary. First focus on the “why” questions that explore buying motives tied to customer feelings and emotion. Put yourself in the shoes of a subprime customer. Three buying motives stand out: 1. Trust. 2. Personal care. 3. Need and desire for the vehicle.

Trust

Every prospect you face is asking themselves: “Can I trust this person?” Are you dealing with integrity? Or do you make unfactual statements that contradict other information you have provided?

Build trust by logically explaining the approval and purchase process. Testimonials from other customers can build trust. Whether written or told, share stories of other people you have helped. Stories connect with people emotionally.

Personal Care

Customers also ask themselves: “Does this person care about me?” People don’t care how much you know until they know how much you care.

Take time to learn your customer’s story and answer their questions. Share life challenges you’ve faced. Treat your customers with respect, even the difficult ones. You are the professional.

Need and desire for the vehicle

Serve your customer by dissuading them of unrealistic expectations for a vehicle that no lender will ever approve. Find out needs, control desires.

Credit-challenged customers need vehicles and also need to reestablish their credit. Once you have worked with the bank to determine the appropriate price point, build desire in the product with a proper walk-around and demo. Co-signers, cash down and stipulations come easier once you’ve made sure the customer really wants the vehicle.

Brand -Related, Relationship-Related and Value-Related Drivers

Conclusion of Literature Review

Online in the virtual word, with the click of a mouse, consumers can check an infinite number of reviews, ratings, and individuall perceptions amidst the myraid of forms of eWOM to learn of more positive or negative experiences than could ever be realized through literal WOM. During the ensuring chapters of the study, the researcher couples the information relating to eWOM, retrieved during the literature review, with other data the researcher acquired. During the next chapter, the methodology, the researcher recounts the particular process implemented to test and explain the effect of customer generated online reviews on the mediating role of brand trust as well as factors that constitute customer equity and contribute to shareholder value, specifically relationship, brand and value drivers.

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