Final answer:
The more loyal a firm's profitable customers, the higher its customer equity, not lower.
Step-by-step explanation:
The more loyal a firm's profitable customers, the higher its customer equity, not lower. Customer equity is the total value of a firm's customer base and represents the potential future revenue that can be generated from those customers.
When a firm has loyal customers who continually purchase its products or services, it can increase its customer equity. Loyal customers bring repeat business, provide positive word-of-mouth recommendations, and are more likely to try new offerings from the firm. This leads to higher revenues and ultimately increases the firm's customer equity.
For example, let's say Firm A has a loyal customer base that consistently buys its products and recommends them to others. As a result, Firm A has a high customer equity, indicating the potential for future revenue growth. On the other hand, Firm B may have less loyal customers, resulting in a lower customer equity.