Abstract:
The literature shows some recent calls for an end to 'unaccountable' marketing (Rust et
al., 2001; Sheth and Sharma, 2001) and the use of customer lifetime value as an
appropriate marketing metric (Rust et al., 2001). Some commentators recommend the
application of shareholder value measures to the valuation of customer relationships
(Uyemara, 1997; Mariotti, 1996). The thesis evaluates the application of shareholder
value measures to the valuation of customers. Shareholder value involves both risk and
return; therefore, the thesis argues, the risk of the customer or segment has to be
identified before that customer's role in creating shareholder value for an organisation
can be assessed.
In addition, Relationship Marketing suggests that customer relationships have value in
ways that are not easy to capture using traditional customer profitability analysis. The
thesis explores different methods of valuing relationship benefits.
As a result of the literature review, a model of the total value of the customer is
developed which defines the Total Value of the Customer as the lifetime economic
value of the customer (customer lifetime value adjusted for risk), plus the value of
relationship benefits (Referral and Reference Effects, and Learning and Innovation).
The model is operationalized using shareholder value measures and then tested in two
collaborative research projects.
The research finds that managers in the participating companies do not have good
information about the lifetime value of their customer relationships. Evidence of
changes in strategy as a result of a better understanding of the value of the customer is
found.
The research contributes to theory and knowledge through defining and calculating the
Total Value of the Customer; demonstrating the application of shareholder value
measures to the valuation of customers; finding and measuring relationship benefits
measuring customer risk; and finding a link between the value of the customer and
targeted marketing strategies.
