Assessing the Role of Customer Equity in Corporate Valuation: A Review and a Path Forward

Abstract

There is a growing opportunity to elevate the role of marketing by explicitly linking corporate valuation to customer activity. However, extant approaches to do so, most notably through customer equity (CE), have seen limited uptake in industry. The authors discuss three important reasons for this: (1) lack of agreement over how CE is (and should be) defined, (2) lack of consistency between CE and shareholder value, and (3) lack of congruence between the CE-based valuation process and how finance professionals currently perform corporate valuation. The authors develop a conceptual framework for an emerging concept called “customer-based corporate valuation” (CBCV) to remedy these issues and enhance adoption of a CE-based paradigm. The authors conclude with implications of these concepts for other marketing topics, including the accounting treatment of marketing investments.

Keywords: customer lifetime value, customer equity, shareholder value, valuation