1、CUSTOMER-BASED CORPORATE VALUATIONBauerHammerschmidtBraehler47Yearbook of Marketing and Consumer Research, Vol.1 (2003) GfK* Dr. Hans H. Bauer is Professor and Chairman of the Department of Business Administration andMarketing II and is the Scientific Director of the Institute for Market-Oriented Ma
2、nagement at theUniversity of Mannheim.Dipl.-Kfm. Maik Hammerschmidt is a Scientific Assistant at this department and doctoral candidatein Marketing. Address: L 5, 1, D-69131 Mannheim, Germany, Phone: +49 (0)621-1811572,Fax: +49 (0)621-1811571, E-Mail: maik.hammerschmidtbwl.uni-mannheim.deDipl.-Kfm.
3、Matthias Braehler is a junior consultant at the Marketing-Partner-Unternehmens-beratung, Munich, Germany.Original contribution, based on an article in GfK Jahrbuch der Absatz- und Verbrauchsforschung, Vol. 48(2002), No. 4, pp. 324344.THE CUSTOMER LIFETIME VALUE CONCEPTAND ITS CONTRIBUTION TO CORPORA
4、TE VALUATIONby Hans H.Bauer, Maik Hammerschmidt and Matthias Braehler*ABSTRACTThe shareholder value and the customer lifetime value approach are conceptually andmethodically analogous. Both concepts calculate the value of a particular decisionunit by discounting the forecasted net cash flows by the
5、risk-adjusted cost of capi-tal. However, virtually no scholarly attention has been devoted to the question if anyof the components of the shareholder value could be determined in a more market-oriented way using individual customer lifetime values. Therefore, the main objecti-ve of this paper is to
6、systematically explore the contribution of both concepts to thefield of corporate valuation.At first we present a comprehensive calculation method for estimating both the indi-vidual lifetime value of a customer and the customer equity. After a critical exami-nation of the shareholder value concept,
7、 a synthesis of both value approaches allow-ing for a disaggregated and more realistic corporate valuation will be presented.CUSTOMER-BASED CORPORATE VALUATIONBauerHammerschmidtBraehler 481. The Significance of the Customer in Corporate ValuationIn recent years, the proliferation of value-based mana
8、gement has led to an increasingdemand for corporate valuation methods. This development is rooted in externalfactors, namely in the capital markets requirements. The fulfillment of the need to ef-fectively assess companies is particularly important at a time when a strongly merger-driven economy wit
9、h a growing monetary transaction volume fosters the danger of falseevaluation and misinterpretation. However, internal reasons also play a major role inthis context, such as the support of efficient resource allocation, which requires themeasurement of the value contribution of functions or business
10、 units (Srivastava/Shervani/Fahey 2000, pp.168 f.; Blattberg/Deighton 1996, pp. 136144). These days, market orientation does not represent a companys key success factor, mar-ket value orientation does. In this context, market value orientation is usually inter-preted as capital market orientation; f
11、or this reason, the concept of shareholder value isfrequently employed. Resulting from the financial origins of the shareholder value con-cept as a predominant evaluation method, marketing as a likewise value-creating areahas long been neglected. It is an accepted fact that the field of marketing an
12、d withinthis broad area the field of sales represents the crucial company-customer interface,the customer being the most valuable resource of the company (Srivastava/Shervani/Fahey 1999, p. 169). It is the customer who creates value all preceding stages onlyproduce costs. Creation of value solely em
13、erges from economic exchange in businessrelations.Against this background, it appears sensible to consider the concept of customervalue with regard to tactical decisions and, more importantly, as a strategic metric toassess the overall value of a firm, for example in the context of mergers and acqui
14、sitions.The concept of customer value represents the link between the customer as the extern-al factor with regard to a companys revenue and the internal processes representingthe costs of a company. Thus, it serves as a useful tool in determining the free cash flowin a more market-oriented way by d
15、isaggregating the sales market into different parti-al profit streams yielded by the customers. Consequently, if corporate valuation is basedon the single value-enhancing customer activities (up selling, cross selling, referralsetc.) and the marketing costs incurred to induce these effects, a more r
16、ealistic and pre-cise determination of the free cash flow is assured. We suggest that long-term values ofcustomers are more stable and relevant metrics of firm value than market capitalizationor price-earnings-ratios. The latter are difficult to utilize when a company has negati-ve earnings, as is t
17、ypical in the early periods of internet-based businesses for example(Gupta/Lehmann/Stuart 2001, p. 3). Yearbook of Marketing and Consumer Research, Vol.1 (2003)GfK2. 2.1 Our research efforts are aimed at the synthesis of the customer value concept and theshareholder value concept in a corporate valu
18、ation framework. It is not within the scopeof this paper to explore the causal relationships between the two constructs in order tocontribute to the implementation of the value management process (for a review of thisresearch stream see Payne/Holt/Frow 2001). Instead, this paper seeks to formally in
19、fusethe customer value concept into the shareholder value model by developing anintegrated, marketing-based method for the calculation of corporate value. Since bothconcepts are methodically analogous, this approach seems to be beneficial. Both con-cepts calculate the value of a particular decision
20、unit by discounting the forecasted netcash flows by the risk-adjusted cost of capital. Nevertheless, as Payne/Holt/Frow (2001)indicate, customer value and shareholder value have been treated as separate constructsin individual research streams. Consequently, an integrative modeling of this topic has
21、been neglected so far (Berger/Nasr 1998, p.17; Payne/Holt/Frow 2001, p. 788).The Customer Lifetime Value ConceptThe Underlying IdeaWithin the scope of this paper, we define customer value from a supplier-orientedpoint of view as the customers economic value to the company, a definition which dif-fer
22、s from the frequently employed demand-oriented view of customer value as thecompanys or its products value to the customer (Cornelsen 2000, pp. 3337; Staat/Bauer/Hammerschmidt 2002, p. 206). A comprehensive understanding of customer valueshould comprise all different aspects of a customers contribut
23、ion to the companys suc-cess (Cornelsen 2000, p. 38). The customer lifetime value (henceforth CLV) representssuch a profound supplier-oriented understanding of customer value. The CLV measu-res the profit streams of a customer across the entire customer life cycle. The CLV represents an application
24、of the principles of contemporary finance to the eva-luation of customer relations (Day/Fahey 1988; Doyle 2000). The model is aimed at theassignment of a profitability figure to the customer which is based on all prospectiveand directly attributable inpayments and outpayments. This procedure also ac
25、countsfor effects that go beyond customers own transactions, for example referring the pro-ducts to other potential customers through word of mouth activities. Although a con-siderable number of CLV models have been developed so far, no generally accepted,superior approach exists (Jackson 1992, p. 4
26、4).Many CLV models do not provide marketing-relevant information regarding customer-specific details, such as expected cross selling revenues or recommendation behavior.Additionally, various models do not consider the construct of customer retention rateCUSTOMER-BASED CORPORATE VALUATIONBauerHammers
27、chmidtBraehler49Yearbook of Marketing and Consumer Research, Vol.1 (2003) GfKCUSTOMER-BASED CORPORATE VALUATIONBauerHammerschmidtBraehler 502.2(for models which do not integrate retention rates see Bruhn et al. 2000; Cornelsen 2000;Homburg/Schnurr 1999; Koehler 1999; Wilde/Hickethier 1997; Jackson 1
28、985; Mulhern1999; Niraj/Gupta/Narasimhan 2001). The underlying assumption of these approachescontradicts the economic reality, which is marked by customer migration and a strongtendency to switch vendors. Other CLV models do integrate customer retention rates and often also set out market-ing or cus
29、tomer retention costs separately. Yet, these models lack further and morecomplex elements such as revenues from cross selling or references (see Berger/Nasr1998; Dwyer 1997; Keane/Wang 1995; Reinartz/Kumar 2000; Wang/Spiegel 1994).Furthermore, there are approaches which neglect retention rates but c
30、onsider contri-bution margins resulting from new customers who have been acquired by referrals (seeGierl/Kurbel 1997).The above-mentioned approaches fail to integrate all relevant value effects of a custo-mer into one single model. These shortcomings call for a suitable approach encom-passing all re
31、levant aspects of customer profitability. Solely Cornelsen (2000) and Diller(2001) succeed in presenting relatively comprehensive CLV models comprising manyof the fundamental customer value constituents which have been addressed earlier. Inthe following, we will based on the quoted research papers p
32、rovide a brief summa-ry of all components of CLV with their respective partial values (subparts) and integratethese facets into a coherent, all-encompassing model.The Components of Customer Lifetime ValueAn examination of the basic CLV-models reveals that the incorporated variables cangenerally be c
33、lassified into three categories: revenue, costs and retention rate(Reinartz/Kumar 2000, p. 19). Keeping in mind the practical side, which is character-ized by large and heterogeneous customer groups, Blattberg/Deighton (1991) suggestthat firms should partition their customer bases in homogeneous seg
34、ments that possessdifferent lifetime values. In order to create sufficiently detailed individual CLVs and atthe same time minimize calculation efforts, each value component will be calculatedseparately for each customer segment. These specific value figures of each group willthen serve as a basis fo
35、r the calculation of individual CLVs.a73 Retention Rate The retention rate is a factor which is typically defined with regard to the individualcustomer. It refers to the probability that an individual customer remains loyal to aparticular supplier and keeps yielding expected revenue as well as costs
36、 within a fixedperiod of time. By means of the retention rates, anticipated contribution margins areadjusted to the probability of occurrence (Dwyer 1997, pp. 6 ff.).Yearbook of Marketing and Consumer Research, Vol.1 (2003)GfKThe retention rate can be estimated with the help of empirically validated
37、 determinantsof loyalty, such as customer satisfaction, switching barriers, variety-seeking behavior,and attractiveness of alternatives (Peter 1999, pp.105 ff.; Jones/Sasser 1995). Causal ana-lyses such as the LISREL-approach represent adequate analytical instruments in orderto quantify the directio
38、n and strength of these effects (Peter 1999). Further startingpoints for the analysis of retention rates are customer loyalty models that cover diffe-rent kinds of relationship settings (contractual vs. non-contractual, see Jackson 1992).In contractual settings, representing the lost-for-good model,
39、 the customer is eithertotally commited to the vendor or totally lost. In this case the retention rate and ex-pected revenues can be forecasted fairly accurately depending on the usage of theservices in the previous period and the contract terms (Bolton 1998). Migration models that are often based o
40、n Markov-chains display the non-contractualsituation, where customers split their category expenses among several firms (Dwyer1997; Pfeifer/Carraway 2000; Schmittlein/Morrison/Colombo 1987). In this always-a-share case, the retention rate is not to be regarded as a stable but as a dynamic factorrefl
41、ecting changes in purchase behavior over the customer life cycle (Wang/Spiegel 1994,p. 75). a73 Revenue The second constituent revenue can be classified into four sub-categories: autono-mous revenue, up selling revenue, cross selling revenue, and contribution marginsresulting from referral activitie
42、s of existing customers. These facets play a major role incompiling a complete record of a customers effects over the life cycle and are essentialto the identification of operative starting points for controlling these effects.The autonomous revenue merely accounts for factors that are not directly
43、influenc-ed by the company or that are only affected by standard marketing measures such asTV advertising, i.e. basic revenue not including targeted measures to raise up sellingor cross selling. It is usually calculated by means of traditional procedures of demandforecast, e.g. analyses of time sequ
44、ences or stochastic brand choice models such as mul-tinomial Logit models (Schmittlein/Peterson 1994; Lilien/Kotler/Moorthy 1992). Up selling revenue is yielded by the additional selling of the same product as aconsequence of increased purchase frequency and intensity in long-life relationships(quan
45、tity effect, i.e. higher purchase amount per transaction and more transactions perperiod). They also emerge from a price effect, that is the selling of higher-priced sub-stitutes of the same category to loyal, long-term customers that are less price sensitive(Reinartz/Kumar 2000, pp. 20 f.; Reichhel
46、d/Teal 1996). Therefore, up selling revenuessymbolize the retention value of a customer. They can, for example, be estimated withCUSTOMER-BASED CORPORATE VALUATIONBauerHammerschmidtBraehler51Yearbook of Marketing and Consumer Research, Vol.1 (2003) GfKCUSTOMER-BASED CORPORATE VALUATIONBauerHammersch
47、midtBraehler 52the help of frontier function models: these models provide information about themaximum revenue that can be obtained on the basis of efficient marketing and salesprocesses (Kim/Kim 1999; for the concept of efficient frontier and its application inmarketing refer to Bauer/Hammerschmidt
48、/Staat 2002). In contrast to up selling, cross selling can be defined as the selling of complementaryproducts or product categories respectively which have not been bought from the ven-dor (Reichheld/Sasser 1990, p. 5); a case in point is the selling of a life insurance to anautomobile insurance cus
49、tomer. In addition to cross selling matrices, the same pro-gnosis methods can be employed which have been identified in the context of upselling revenue.The reference value measures margins stemming from new customers who were wonthrough the referral behavior of existing customers. Its estimation can, for example, beaccomplished with the help of the reference value model developed by Cornelsen (2000).a73 Costs The basic methods for predicting customer costs are those which are commonly usedin product-related accounting. Merely the reference object has cha
