Affiliation:
1. Stuart is a doctoral candidate, Columbia Business School, Columbia University
Abstract
It is increasingly apparent that the financial value of a firm depends on off-balance-sheet intangible assets. In this article, the authors focus on the most critical aspect of a firm: its customers. Specifically, they demonstrate how valuing customers makes it feasible to value firms, including high-growth firms with negative earnings. The authors define the value of a customer as the expected sum of discounted future earnings. They demonstrate their valuation method by using publicly available data for five firms. They find that a 1% improvement in retention, margin, or acquisition cost improves firm value by 5%, 1%, and .1%, respectively. They also find that a 1% improvement in retention has almost five times greater impact on firm value than a 1% change in discount rate or cost of capital. The results show that the linking of marketing concepts to shareholder value is both possible and insightful.
Subject
Marketing,Economics and Econometrics,Business and International Management
Cited by
734 articles.
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