Valuing Customers
Top Cited Papers
- 1 February 2004
- journal article
- research article
- Published by SAGE Publications in Journal of Marketing Research
- Vol. 41 (1), 7-18
- https://doi.org/10.1509/jmkr.41.1.7.25084
Abstract
It is increasingly apparent that the financial value of a firm depends on off-balance-sheet intangible assets. In this article, the authors focus on the most critical aspect of a firm: its customers. Specifically, they demonstrate how valuing customers makes it feasible to value firms, including high-growth firms with negative earnings. The authors define the value of a customer as the expected sum of discounted future earnings. They demonstrate their valuation method by using publicly available data for five firms. They find that a 1% improvement in retention, margin, or acquisition cost improves firm value by 5%, 1%, and .1%, respectively. They also find that a 1% improvement in retention has almost five times greater impact on firm value than a 1% change in discount rate or cost of capital. The results show that the linking of marketing concepts to shareholder value is both possible and insightful.Keywords
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