Marketing Research Seminar : An Economic Theory of Customer Valuation

Abstract : Customer value refers to the economic value of the customer’s relationship with the firm. This study adds to the existing economics literature by providing perspectives from the marketing domain that have incorporated the value concept to measure, manage, and maximize customer contributions. This study proposes an economic theory of customer valuation, viz., customer valuation theory (CVT) that conceptualizes the generation of value from the customers to the firms. We review the traditional economic theories (e.g. financial portfolio theory (FPT), Capital Asset Pricing Model (CAPM)) for valuing firm assets (e.g., stocks) and draw a comparison to valuing customer contributions. We recognize the differences in the guiding principles between valuing firm assets and valuing customers in proposing CVT. The study traces the development of value as seen within the economics discipline, and establishes the link to the concept of value as seen in the marketing discipline. Further, this study introduces and discusses the concept of customer lifetime value (CLV) as the metric that can provide a reliable, forward-looking estimate of customer value. Additionally, economic models to estimate CLV, ways to manage CLV using portfolio management principles, and strategies to maximize CLV are discussed in detail.