Infusing Customer Equity into Corporate Valuation

What is it about?

The study provides a synthesis of the customer lifetime value and the shareholder value (SHV) approach in order to develop an integrated, marketing-based method for corporate valuation.

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Why is it important?

While the traditional SHV method considers cash flows at a highly aggregated level, our approach employs disaggregated cash flows on the level of individual customers. Thereby we do incorporate the lifetime values of future customers by considering different cohorts. We do capture customer defection by incorporating retention rates. Our model enables a more detailed and valid estimation of corporate value by accounting for the single customer activities that drive marketing actions. This enables a better forecasting of the free cash flow. Incorporating customer-related drivers into financial valuation models makes easier to assess the return on marketing investments.