Linking Customer Assets to Financial Performance

TLDR: In this paper, the authors argue that the basic customer lifetime value (CLV) model represents a useful foundation from which to begin to fill the gap between marketing actions and shareholder value, but much work remains to be done before appropriate models can be developed that reflect the true value of a customer to the firm.

Abstract: As more firms adopt a customer asset management approach to their business, it has become increasingly important to understand how customer management efforts relate to the financial performance of the firm. Of specific interest to shareholders is the relationship between traditional financial measures and customer-centric measures. The customer-centric measure that has received the most attention is customer lifetime value (CLV). In this article, the authors argue that the basic CLV model represents a useful foundation from which to begin to fill the gap between marketing actions and shareholder value. However, much work remains to be done before appropriate models can be developed that reflect the true value of a customer to the firm. Specifically, this article elaborates on how factors such as risk associated with customer behavior dynamics, social and competitive effects, and the effect of the product life cycle can be incorporated into the basic CLV model.