This lecture discusses the use of customer equity as a strategic management tool. The customer lifetime values of a sample of customers are estimated, and aggregated into the firm's customer equity. Drivers of customer equity are discussed, with a view to identifying the key drivers of customer equity, projecting the ROI of driver improvement efforts, and estimating the ROI of improvement efforts after the fact. The lecture also considers the relationship between customer equity and the market capitalization of the firm.

Readings: Rust, Lemon & Zeithaml, " Return on Marketing ..." JM 2004 (MSI/Paul Root Award winner, Sheth Award winner), Gupta, Lehmann & Stuart, " Valuing Customers" JMR 2004 (O'Dell Award winner), Kumar & Shah, " Expanding the Role of Marketing ..." JM 2009 (MSI/Paul Root Award winner)

This lecture discusses the use of customer lifetime value as a method of selecting customers to focus on, and customizing marketing efforts to serve them. We examine methods of predicting future customer profitability, and discuss the pitfalls caused by endogeneity in estimation. We also consider the general CRM problem and study a Bayesian approach to determining the best direct marketing programs.

Readings: Rust, Kumar & Venkatesan, " Will the Frog Change into a Prince? ..." IJRM (forthcoming), Rust & Verhoef, " Optimizing the Marketing Interventions Mix ..." Marketing Science 2005

This lecture considers the problem of finding the optimal level of service productivity. The tradeoff between customer satisfaction and productivity is investigated with respect to sector of the economy (service vs. goods), and the strategic managerial implications are explored. This raises the issue of an optimal level of service productivity, trading off between satisfaction and productivity. The latter issue is addressed using both an analytical model and empirical analysis.

Readings: Anderson, Fornell & Rust, " Customer Satisfaction, Productivity and Profitability, ..." Marketing Science 1997 (AMA Best Services Article winner, Finalist, John D.C. Little Award), Rust & Huang, " Optimizing Service Productivity" (under review)