Customer equity management as formative second-order construct

Despite intensive discussions about customer equity, little research addresses hove to manage customer equity from a firm's perspective. Recent literature proposes various concepts of customer equity management but (toes not feature an empirical study that identities and quantities activities that aim explicitly to maximize customer equity. In the current study, the authors develop a formative measurement instrument for customer equity management as a second-order construct that indicates how intensively firms orient their customer management toward customer value and equity. The study presents a complete process for conceptualizing and operationalizing a formative second-order construct, including a thorough literature review, intensive qualitative research, and a quantitative study with 92 customer equity managers. On the basis of this process, the authors model customer equity management as a function of three formative dimensions - customer equity analysis, customer equity strategy, and customer equity actions - measured by several formative indicators. The resulting formative operationalization satisfies true criteria for evaluating formative indexes. (C) 2008 Elsevier Inc. All rights reserved.