Thorsten Wiesel, Bernd Skiera, & Julian Villanueva
Executive Summary
Customers are one of a firm’s most valuable assets. With this view, many firms aim to increase the value of their customer base through their customer management activities, and recent research has developed models capable of measuring and managing customer equity (the discounted stream of cash flows generated by customers throughout their relationship with a firm).
Despite the general acceptance that customers are important, intangible assets, few companies report forward-looking customer metrics to the financial community. Such information would help investors—the “consumers” of financial reports—to monitor firms’ performance with respect to their customer assets and to communicate a customer value orientation to the financial community. The Management Discussion and Analysis required by the Securities and Exchange Commission and the recently discussed Management Commentary (International Accounting Standard Board) require information that supplements and complements information in a firm’s financial statements. This information should be future oriented, understandable, relevant, reliable, and comparable, as well as provide an “analysis through the eyes of management.”
The authors suggest that investors should receive information about customer metrics (e.g., customer acquisition costs, customer retention rates), the value of the customer base (i.e., customer equity), components of customer equity, how these components change over time, and the effects of changes in customer metrics over time. They propose a means to report customer equity that matches financial reporting criteria and enables investors, creditors, and other “consumers” of financial reports to understand clearly the firm’s capability to generate shareholder value. They illustrate it with data from Netflix.com, an online DVD rental firm.
An external reporting about the consequences of a firm’s customer management activities completes the concept of value-based customer management because it aligns customer management with corporate goals and the investor’s perspective. The developed reporting technique provides a starting point for considering the value of the customer base in a firm’s financial report, especially in the Management Discussion and Analysis or Management Commentary sections.
Biography
Thorsten Wiesel is Assistant Professor of Marketing in the Marketing Department at VU University, Amsterdam, the Netherlands. He studied business administration and economics at the University of Frankfurt, Germany, and specialized in finance, marketing, and electronic commerce. Thorsten finished his PhD at the chair of Electronic Commerce and the E-Finance Lab at the Johann Wolfgang Goethe–University in Frankfurt/Main. During his doctoral studies, Thorsten was a visiting scholar at IESE Business School, Barcelona, Penn State University, State College (United States), and Goizueta Business School, Atlanta. In 2004, Thorsten was named ISBM Business Marketing Doctoral Fellow, and at EMAC 2006, he and his coauthors were awarded the Best Paper of the Conference based on a Doctoral Dissertation. His areas of expertise and interest are in customer management, value-based marketing/marketing performance measurement, customer-based firm valuation, investor relationship management, and marketing risk management.
Bernd Skiera is Professor of Electronic Commerce in the Department of Marketing, School of Business and Economics, at Johann Wolfgang Goethe-Universität Frankfurt, Germany, and a member of the board of the E-Finance Lab at the University of Frankfurt. His research areas are customer management, pricing, search engine marketing, and virtual stock market, with a particular focus on the financial service industry. Recent publications have appeared in Journal of Marketing Research, Marketing Science, and Management Science.
Julian Villanueva is a faculty member in the Marketing Department at the IESE Business School. He holds a PhD in Management (Marketing) from the University of California, Los Angeles, an MBA from the IESE Business School, and a BA in Economics from the Universidad Complutense de Madrid. His research interests are in the area of customer equity. He is also interested in customer relationship management, brand management and product positioning, price discrimination, customer segmentation and targeting, Internet marketing, sales force management, channels of distribution, and linking marketing spending to long-term performance.
Journal of Marketing, Vol. 72, No. 2, March 2008
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