Creating and Validating a Measure of Customer Equity in Hospitality Businesses: Linking Shareholder Value With Return on Marketing

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Virginia Tech

Understanding the contribution of marketing to the shareholder value of a company has been a major challenge for marketing research. The purpose of this dissertation was creating and validating an attitudinal measure of customer equity in hospitality businesses, thus providing a link between return on marketing and the shareholder value of a company. The theoretical background of the customer equity construct was examined, and then systematic scale development processes were initiated. The results produced two concise scales: (1) 17 items that represent the six dimensions of customer equity in the restaurant industry and (2) 19 items that represent the six dimensions of customer equity in the hotel industry. Six dimensions of customer equity achieved strong convergent validity, discriminant validity, and internal consistency, indicating unidimensionality of the constructs. To further validate the newly developed scale, criterion validity was checked in correlation with six criterion measures using data collected from 590 hospitality industry consumers. The results demonstrate that customer equity closely reflects the shareholder value of a company. Also, it was found that value equity, brand equity, relationship equity, and service quality are significantly and positively correlated with overall customer equity of a company. In conclusion, customer equity represents the long-term value of a company, and reflects shareholder value of the company, thus providing a link with return on marketing investments. Theoretical and managerial implications are discussed.

relationship equity, brand equity, value equity, SERVPERF, firm valuation, customer lifetime value, shareholder value, Customer equity