New Theory Focuses on Customer Valuation

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Key Takeaways
What? This study proposes the CVT to value future customer contributions based on the nature and scope  of the contributions.

So What? By focusing on a CVT-based approach, firms can (1) acquire/retain profitable customers, (2) employ resources productively, and (3) nurture profitable customers, resulting in higher firm value. 

Now What? Firms should (re)organize their structure and operations to facilitate the implementation of CVT-based strategies.

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Critical to the growth of any business is offering value to and gaining value from customers. However, customer value varies from customer to customer; some are clearly more profitable than others. Research​ from Professor V. Kumar in the Journal of Marketing offers a new Customer Valutation Theory (CVT) to understand this realtionship. He proposes associated strategies that result in increased firm value by acquiring, retaining, and nurturing profitable customers. 

By accounting for volatility and vulnerability of customer cash flows, this unique approach measures the future value of each customer on the basis of (1) their direct economic value contribution, (2) the depth of the direct economic value contribution, and (3) the breadth of the indirect economic value contribution. Professor Kumar notes, "When firms can precisely link their actions to customer value and ultimately to firm/shareholder value, they can begin to realize the potential of valuing customers as assets."

Relying on concepts from economics, finance, and marketing, Kumar's research establishes an interface that connects the value of each customer with firm performance and, therefore, firm valuation. This connection is established by (1) valuing customers as assets, (2) managing a portfolio of customers, and (3) nurturing profitable customers. 

The research not only demostrates the applicability of the CVT in specific markets; rather, it offers an understanding of how CVT is applied across multiple marketing types (e.g., B2B, B2C), business settings (e.g., contractual, noncontractual), regional contexts (e.g., domestic, global), and various industries. Managers should feel confident regarding its relevance and applicability to the current marketplace. 

The full article is available in the January issue of the Journal of Marketing.

About Professor V. Kumar

V. Kumar (VK) is the Regents Professor, Richard and Susan Lenny Distinguished Chair Professor of Marketing, and executive director of the Center for Excellence in Brand & Customer Management at the J. Mack Robinson College of Business at Georgia State University. He also is Chang Jiang Scholar at Huazhong University of Science and Technology, China. He has been recognized with eight lifetime achievement awards in marketing strategy, interorganizational issues, retailing, business-to-business marketing, and marketing research from the AMA and other professional organizations. He also has had the privilege and the honor of serving as editor-in-chief of the Journal of Marketing, the number one ranked academic journal in the field of marketing.

About the Journal of Marketing

Journal of Marketing (JM), a bimonthly publication of the American Marketing Association (AMA), is one of the premier refereed scholarly journals of the marketing discipline. Since its founding in 1936, JM has played a significant role in the dissemination of marketing knowledge grounded in scholarly research, as well as in shaping the content and boundaries of the discipline.

About American Marketing Association (AMA)

As the largest professional marketing association in the world, the AMA is trusted by marketing and sales professionals to help them discover what’s coming next in the industry. The AMA has a community of local chapters in more than 70 cities and 350 college campuses throughout North America. The AMA is home to award-winning content, PCM® professional certification, premiere academic journals, and industry-leading training events and conferences. For more information about the AMA, visit www.ama.org


 
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