The Positive Research on Customer Equity Measurement for a Multi-brands Firm Based on Principal Components Analysis

Abstract

This article first presents a conceptual model to explain how to calculate customer lifetime value and measure customer equity for a multi-brands firm using the brand-switching matrix. The change in the firm's customer equity is the change in its current and future customers' lifetime values, summed across all customers in the market. Each customer's lifetime value results from the frequency of category purchases, average quantity of purchase, and brand-switching patterns combined with the firm's contribution margin. Also we extend the return on marketing model, breaking the assumption that the firm has only one brand (product), and considering the impacts of reputation publicizing and cross-purchase. To demonstrate how the approach can be implemented in a specific firm, using Principal Components Analysis, we take a positive study to customer equity measurement by using data from a daily chemical manufacture firm Q offering three sets of brands (products) under the Chinese circumstance, validating the feasibility and reliability of the extended model