Corporate management today is exposed to an area of conflict that allows only limited latitude. On the one hand, top management is regularly faced with the company owners’ requests for an appropriate return on equity or Shareholder Value, a request that executives of public companies are mostly obliged to by contract: “Corporate Mission Statements proclaiming the responsibility of management is to maximize shareholder’s total return via dividends and increases in the market price of the company’s shares around.”
On the other hand, increasingly mature and well informed customers demand more and more customized goods for their individual requirements and are often known to change their buying behavior quickly. This behavior forces many organizations to an uncompromising orientation towards Customer Value, and a strict customer focus in both corporate planning and management, in order to further develop competitive advantages and to satisfy and retain valuable customers. This is particularly true for middle and lower management.
Hence value creation for customers finds itself opposed to value creation for shareholders. A conflict that appears to find its resolution only in a consequent consideration of customer relationships as investment objects, whose continuation or intensification must be justified through an evaluation of economic efficiency. Against this background, systematic customer valuations become indispensable in order to obtain segmented and efficient market development and to enable a supplier to substantially ensure the availability of the critical resource customers.
Based on the fundamentals of value-based management theory, value-based marketing and the reciprocal character of customer orientation, the author examines the coherence between Customer Equity and Shareholder Value and discusses how and to what extent it can become an appropriate management performance indicator for value-oriented customer relationship management. Furthermore, a selection of some of the most important monetary and non-monetary value potentials of customer relationships are characterized and interpreted.
The author concludes with a critical discussion of the applicabilities and limitations of a wide array of uni-dimensional, multi-dimensional and process-oriented Customer Equity models that are suggested to give marketers and managers a better understanding of the fundamental question for the contributions of marketing to organizational performance.
Table of Contents
1. Introduction
1.1. Problem Definition
1.2. Study Objectives
1.3. Study Procedure
2. Study Fundamentals
2.1. Customer Equity and Value-Based Management
2.1.1. Shareholder Value
2.1.2. Value-Based Marketing as a Consequence of Value-Based Management
2.1.3. Market-Based Assets as Reference Objects in Value-Based Marketing
2.1.4. Customer Equity as a Management Figure in Value-Based Marketing
2.2. Customer Equity in Dyadic Business Relationships
2.2.1. Customer Value: Customer-Sided Value
2.2.2. Customer Equity: Supplier-Sided Value
2.3. Interim Conclusion
3. Chosen Determinants of Customer Equity
3.1. Monetary Value Potentials
3.1.1. The Earning Potential
3.1.2. The Cross-Selling Potential
3.2. Non-Monetary Value Potentials
3.2.1. The Information Potential
3.2.2. The Reference Potential
3.3. Interim Conclusion
4. Chosen Customer Equity Models
4.1. Unidimensional, Monetary Valuation Models
4.1.1. Turnover Analyses
4.1.2. Customer Contribution Accounting
4.1.3. Customer Lifetime Value Analysis
4.2. Unidimensional, Non-Monetary Valuation Models
4.2.1. The Loyalty Ladder Concept
4.2.2. The NBD/Pareto-Model
4.3. Multidimensional Valuation Models
4.3.1. Scoring Models
4.3.1.1. The RFMR-Method
4.3.1.2. The Customer Valuation Grid
4.3.2. Customer Portfolios
4.3.3. The Holistic CE Model by Cornelsen
4.3.3.1. The Cross-Selling Value
4.3.3.2. The Reference Value
4.3.3.3. The Information Value
4.4. The Customer Equity Network as a Process-Oriented Model
4.4.1. Key Figures and Processes
4.4.2. The Customer Cash Flow
4.4.3. The Discount Rate
4.4.4. The Terminal Value
5. Conclusion and Prospectus
Objectives and Research Scope
This thesis examines the applicability and limitations of various customer equity models within value-based management, aiming to reconcile the conflicting demands of shareholder value and customer-focused market orientation by evaluating customer relationships as strategic investment objects.
- Analysis of the coherence between Customer Equity and Shareholder Value.
- Identification of central value components of customer relationships.
- Evaluation of different methodologies for measuring customer equity.
- Critical assessment of model applicability in a management context.
Excerpt from the Book
1.1. Problem Definition
Corporate management today is exposed to an area of conflict that allows only limited latitude. On the one hand, top management is regularly faced with the company owners’ requests for an appropriate return on equity or Shareholder Value, a request that executives of public companies are mostly obliged to by contract: “Corporate Mission Statements proclaiming the responsibility of management is to maximize shareholder’s total return via dividends and increases in the market price of the company’s shares around.” Hence a consequent orientation towards the financial interest of the firm’s owners, respectively its institutional investors is demanded. On the other hand, however, increasingly mature and well informed customers demand more and more customized goods for their individual requirements and are often known to change their buying behavior quickly. This behavior forces many organizations to an uncompromising orientation towards Customer Value, and a strict customer focus in both corporate planning and management, in order to further develop competitive advantages and to satisfy and retain valuable customers. This is particularly true for middle and lower management.
Hence value creation for customers finds itself opposed to value creation for shareholders, which mostly leads to a persistent underinvestment of marketing functions, as marketing will not be able to assert itself in the internal battle for financial resources by only referring to intangible assets, such as brand awareness. This conflict appears to find its resolution only in a consequent consideration of customer relationships as investment objects, whose continuation or intensification must be justified through an evaluation of economic efficiency. The postulation for identifying valuable customers and investing financial resources in them while divesting those creating loss thus complies with the demand of value-based management, according to which corporate funds should only be granted for areas that create substantial value.
Summary of Chapters
1. Introduction: Outlines the tension between shareholder value expectations and customer-oriented management, defining the thesis objective to analyze customer equity as a bridge between these two perspectives.
2. Study Fundamentals: Establishes the theoretical framework by linking shareholder value with customer equity and clarifying the role of market-based assets.
3. Chosen Determinants of Customer Equity: Characterizes monetary and non-monetary value potentials, including earning, cross-selling, information, and reference potentials.
4. Chosen Customer Equity Models: Provides a detailed analysis of unidimensional, multidimensional, and process-oriented models, assessing their mathematical approaches and practical limitations.
5. Conclusion and Prospectus: Summarizes the findings regarding the models' capabilities and suggests that process-oriented networks offer the most promising approach for integrating marketing with corporate financial goals.
Keywords
Customer Equity, Shareholder Value, Value-Based Management, Customer Lifetime Value, Marketing Efficiency, Customer Contribution Margin, Customer Portfolio, RFMR-Method, NBD/Pareto-Model, Market-Based Assets, Customer Retention, Cross-Selling, Reference Potential, Information Potential.
Frequently Asked Questions
What is the core conflict addressed in this research?
The work addresses the conflict between top management's obligation to maximize Shareholder Value and the market-driven requirement to focus on Customer Value for long-term survival.
What is the primary goal of this study?
The objective is to analyze to what extent various Customer Equity models can measure the contribution of marketing to corporate performance and support value-oriented management decisions.
How is "Customer Equity" defined in this context?
Customer Equity is defined as the economic value a supplier attributes to a customer, representing the valuated sum of all current and future customer relationships.
Which scientific methods are analyzed in this thesis?
The thesis evaluates unidimensional models (Turnover Analyses, CLV, Loyalty Ladder), multidimensional models (Scoring, Portfolios, Cornelsen's Holistic Model), and process-oriented models (Customer Equity Network).
What are the two main value potentials for customers?
The work distinguishes between monetary potentials (earnings, cross-selling) and non-monetary potentials (information value, reference/word-of-mouth potential).
How is the "Information Potential" utilized by firms?
It represents the value of strategic information received from customers—such as needs, feedback, or innovation triggers—that helps a supplier optimize their products and processes.
How does the NBD/Pareto-Model help in managing customer relationships?
The NBD/Pareto-model helps determine the "active" status of a customer and predict their lifetime, which assists in deciding when to prune the customer base.
Why is the "Customer Equity Network" considered a process-oriented model?
It is modeled after the Shareholder Value Network, linking transactional and relational processes directly to financial performance indicators and value drivers.
- Quote paper
- Dipl.-Kfm. (FH), BBA Kay-Oliver Bunn (Author), 2008, Customer Equity Analyses, Munich, GRIN Verlag, https://www.grin.com/document/125491
