Valuing Customers

Journal of Marketing Research, pp. 7-18, February 2004

HBS Marketing Research Paper No. 03-08

13 Pages Posted: 13 Nov 2003 Last revised: 27 Jul 2011

Sunil Gupta

Harvard Business School

Donald R. Lehmann

Columbia Business School - Marketing

Jennifer Ames Stuart

Novartis International

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: Customer lifetime value, valuation, forecasting

JEL Classification: C53, M31

Suggested Citation

Gupta, Sunil and Lehmann, Donald R. and Stuart, Jennifer Ames, Valuing Customers. Journal of Marketing Research, pp. 7-18, February 2004; HBS Marketing Research Paper No. 03-08. Available at SSRN: https://ssrn.com/abstract=459595 or http://dx.doi.org/10.2139/ssrn.459595

Sunil Gupta (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Donald R. Lehmann

Columbia Business School - Marketing ( email )

New York, NY 10027
United States

Jennifer Ames Stuart

Novartis International ( email )

Relations Medias
Case postale
Basel, CH-4002
Switzerland
41 61 324 22 00 (Phone)
41 61 324 33 00 (Fax)

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