January 13, 2004

Dominique HanssensLos Angeles — Dominique M. Hanssens, Bud Knapp Professor of Management at UCLA Anderson, delivered a lecture entitled, “Marketing Science: Building Brands and Growing Customer Equity,” on Friday, January 16 as part of the 2003-2004 Marschak Colloquium, which features leading experts in the use of mathematics in the behavioral sciences. Professor Hanssens has been on the faculty since 1977. He has served as the school's faculty chair, associate dean, and marketing area chair. Professor Hanssens’ research is widely published. He has won distinguished teaching awards in the UCLA MBA and Executive MBA programs, and is a frequent contributor to the school's executive education offerings. In 2003, he was awarded the school’s Neidorf ‘decade’ teaching award. He has consulted with Agilent Technologies, British Telecom, Hewlett Packard, Home Savings of America, Hughes, Johnson & Johnson, Mattel Toys, Microsoft, Pacific Telesis, TRW, and Wells Fargo among other firms.

The following is an abstract of Professor Hanssens’ presentation.

Marketing Science: Building Brands and Growing Customer Equity
While the marketing discipline has been around since the early 20th century, it has benefited from formal scientific inquiry for less than thirty years. However, in that short time span, our knowledge of how product markets work and how companies can make better marketing decisions has grown rapidly. At the same time, marketing practice has come under increased scrutiny to demonstrate its value to shareholders, especially in light of alarming statistics such as: 80% of new products fail, 85% of sales promotions are unprofitable and 50% of advertising is ineffective. Considering that, in an advanced economy such as the US, about 7% of GNP is spent on personal selling, and about 3% of GNP is spent on advertising, the potential impact of an improved understanding of marketing effectiveness is substantial.

In this colloquium, I structure the scientific knowledge of marketing effectiveness around the themes of building brands and growing customer equity. Brands are identifiers of firms’ products and services that offer important protection against commoditization. Customer equity is the sum of the lifetime values of the firm’s customers. Brand equity and customer equity are important intangible assets that preserve and enhance the firm’s financial health.

In “building brands,” I focus on the supply side of marketing, i.e. what marketers do in order to create and enhance the demand for their products and services. I discuss the quantitative impact of the marketing mix on sales revenue and profitability, in particular the effects of product quality, pricing, distribution, sales force, advertising and price promotion. I draw empirical generalizations from the literature and from my own work on the econometrics of market response, with specific reference to long-term effects.

In “growing customer equity,” I focus on the demand side of marketing, i.e. what is the long-term value of a customer relationship to the firm, and how can that value be enhanced by marketing actions. The key components of customer equity are acquisition and retention, but we have few empirical generalizations about their effectiveness to date. Instead, I will focus on the results of one large-scale study on the impact of advertising, sales promotion and product quality on customer acquisition and retention.

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