Improving customer equity through value creation and value appropriation

108 Pages·2016·1.24 MB·English

Iowa State University Capstones, Theses and
Graduate Theses and Dissertations
Dissertations
2014
Improving customer equity through value creation
and value appropriation
Youngsu Lee
Iowa State University
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14028.
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Improving customer equity through value creation and value appropriation

by

Youngsu Lee

A dissertation submitted to the graduate faculty

in partial fulfillment of the requirements for the degree of

DOCTOR OF PHILOSOPHY

Major: Business and Technology (Marketing)

Program of Study Committee:
Sridhar N. Ramaswami, Major Professor
Terry L. Childers
Stephen K. Kim
Douglas M. Walker
Qing Hu

Iowa State University

Ames, Iowa

2014

Copyright © Youngsu Lee, 2014. All rights reserved.
ii

Then you will know the truth, and the truth will set you free (John 8:28).
I’m so grateful to God who gives me strength when I am weak.

This work is dedicated to my family who has always supported my endeavor to
pursue a PhD degree.
iii

TABLE OF CONTENTS

Page
LIST OF FIGURES .................................................................................................. iv
LIST OF TABLES ..................................................................................................... v
NOMENCLATURE .................................................................................................. vi
ACKNOWLEDGEMENTS ....................................................................................... vii
ABSTRACT………………………………. .............................................................. viii
CHAPTER 1 INTRODUCTION .......................................................................... 1
CHAPTER 2 CONCEPTUAL FRAMEWORK .................................................. 10
Customer Equity ................................................................................................. 10
Value Creation and Value Appropriation ........................................................... 13
Value Creation Processes and Outcomes ............................................................ 26
Value Appropriation Processes and Outcomes ................................................... 37
VC and VA Efficiency and Customer Equity ..................................................... 47

CHAPTER 3 METHOD ..................................................................................... 51
Empirical Context and Data Collection .............................................................. 51
Measure Development ........................................................................................ 53
Measure Validation ............................................................................................. 56
Hypothesis Tests and Results .............................................................................. 59

CHAPTER 5 DISCUSSION AND CONCLUSION ............................................ 69
Summary and Contribution ................................................................................. 69
Managerial Implications ..................................................................................... 71
Limitations and Further Research ....................................................................... 73
REFERENCES .......................................................................................................... 86
iv

LIST OF FIGURES

Page

Figure 1 Conceptual Model of the Study ................................................................ 83

Figure 2 Research model ......................................................................................... 83

Figure 3 Floodlight Analyses of Interaction Effects ............................................... 84
v

LIST OF TABLES

Page
Table 1 Value Creation and Value Appropriation Processes ................................. 74
Table 2 Confirmatory Factor Analysis for VC and VA Processes ........................ 75
Table 3 Confirmatory Factor Analysis for VC and VA Outcomes ........................ 77
Table 4 Confirmatory Factor Analysis for CE and Control Variables .................. 78
Table 5 Descriptive Statistics and Correlation Matrix ........................................... 79
Table 6 Results of Tobit Type 2 (Heckman) Regressions ..................................... 80
Table 7 Seemingly Unrelated Regression Parameter Estimates
(A nested model only with main effect terms) .......................................... 81
Table 8 Seemingly Unrelated Regression Parameter Estimates
(Full model with interaction terms) .......................................................... 82
vi

NOMENCLATURE

CE Customer Equity
VE Value Equity
RE Relationship Equity
BE Brand Equity
VC Value Creation
VA Value Appropriation
VCE Value Creation Efficiency
VAE Value Appropriation Efficiency
DEA Data Envelopment Analysis
B2B Business-To-Business
vii

ACKNOWLEDGEMENTS

I would like to give my special thanks to my committee chair, Dr. Sridhar
Ramaswami, who not only imparted knowledge, but also shared his precious lifetime
experience. I would like to thank my committee members, Dr. Stephen Kim who became my
role model as an academic researcher, Dr. Terry Childers who inspired me to think deeply,
Dr. Doug Walker who always encouraged me, and Dr. Qing Hu who helped me transition,
for their guidance and support throughout the course of this research.
In addition, I would also like to thank my coursework professors for brightening my
ignorance and imparting knowledge, and the department faculty and staff for making my
time at Iowa State University a wonderful experience.
Finally, I want to also offer my appreciation to friends, especially members of Ames
KUMC (Ames Korean Methodist United Church) who became my family while in Ames
during the Ph.D. program.
viii

ABSTRACT

Customer equity is increasingly being considered as a market-based asset that can
improve financial performance and market valuation of firms. There has been a trend
therefore within organizations to design internal processes which can facilitate maximal
achievement of customer equity. From a managerial perspective, it is important to know how
such processes come together to influence equity perceptions of the firm’s customers. Value
theory categorizes processes into two components: value creating and value appropriating. In
this dissertation, I evaluate how marketing-related VC and VA processes interact in shaping
customer equity of a firm. I develop a framework that identifies several VC and VA
organizational processes based on the work of Srivastava and his colleagues (1999) and other
relevant extant research. I also propose outcomes to measure effectiveness of VC and VA
processes. Using data collected from B2B firms in India, I estimate the efficiency of firms in
converting VC and VA inputs into VC and VA outcomes. I call these efficiencies as value
creation efficiency (VCE) and value appropriation efficiency (VAE). I then test how VCE
and VAE work together to affect CE outcomes. The floodlight analysis of interaction effects
between VCE and VAE show that the effect of VC processes on value and relationship
equity assessment by customers depends on VA processes being moderately efficient. On the
other hand, the effect of VC processes on brand equity assessment by customers depends on
the presence of high level of VA efficiency. The overall message is that unless a firm is
efficient in transforming VA processes into VA outcomes, it may not gain equity benefits
from VC processes.
1

CHAPTER 1
INTRODUCTION

Customer equity, defined as the total of the discounted lifetime values of the firm’s
customers, has gained the interest of both academicians and practitioners (Blattberg and
Deighton 1996; Lemon, Rust, and Zeithaml 2001; Rust, Zeithaml, and Lemon 2000).
Customer equity (CE hereafter) highlights the value a firm derives from its market-based
assets, i.e., its customers (Gupta, Hanssens, Hardie, Kahn, Kumar, Lin, Ravishanker, and
Sriram 2006; Srivastava, Shervani, and Fahey 1998). The primary emphases of extant
literature in CE so far has been to develop various approaches to estimate customers’ lifetime
value (CLV hereafter) based on information and assumption about customers’ purchasing
pattern, probability of future purchase behavior, marketing programs to acquire and retain
customers, and so forth (Gupta et al. 2006; Reinartz, Krafft, and Hoyer 2004; Reinartz,
Thomas, and Kumar 2005; Venkatesan and Kumar 2004). Many firms like IBM, Capital
One, and LL Bean are adopting customer equity concept and using CLV as a tool to manage
their business and marketing plans (Gupta et al. 2006). In addition, academic researchers
have shown empirical evidence that management of customer equity based on CLV
positively influences performance of the firm. They even go further, arguing that customer
equity can be used as a firm’s performance metric along with other financial metrics like
stock prices and aggregate profit of the firm (Gupta et al. 2006; Kumar and Shah 2009).
CE and CLV offer a lot of benefits to marketing managers who feel the pressure to
quantify performance of marketing programs. Thanks to the development of information
technology, marketing managers and researchers have been able to estimate CLV using