Driving shareholder value with customer asset management: Moving beyond customer lifetime value

Abstract

Customer relationships can be conceptualized as market-based assets. Links have been shown between management of these assets and the creation of shareholder value. However, the business-to-business applications of customer asset management seem to lag behind the applications suggested in a business-to-consumer context. This occurrence is possibly related to an over-emphasis on customer lifetime value-based approaches that do not cover the complexities of business-to-business relationships. The authors posit that customer asset management applications should pay attention to all four drivers of shareholder value: revenue, cost, assets, and risk. Using as their basis a review of literature and the findings of an empirical research process consisting of three longitudinal case studies, the authors develop a conceptual framework, identify four research propositions, and outline 11 ways of managing business-to-business customer relationships for increased shareholder value. The findings from the case studies suggest that B2B firms are able to acknowledge all suggested shareholder value drivers. Findings also suggest that firms should develop customer portfolio models and differentiate their customer management concepts in order to move customer asset management beyond traditional acquisition–retention optimization.

Introduction

In their seminal article, Srivastava, Shervani, and Fahey (1998) propose that customer relationships can be conceptualized as market-based assets. Building on the resource-based view, RVB (Barney, 1991, Peteraf, 1993, Wernerfelt, 1984), they suggest that the role of marketing is to create and manage these market-based assets to deliver shareholder value. Since then, we have seen considerable development in concepts such as customer lifetime value (CLV), customer equity (CE), and customer equity management (CEM).

CLV as a term can be traced back to Dwyer (1989). The researchers and commentators who use it most commonly define it as the present value of the expected revenues less the costs from a particular customer. Most existing CLV models have three basic elements: revenue from the customer, the costs of serving the customer, and customer retention rate. The earlier, more simplistic CLV models typically evolved to include, for example, sensitivity to cash flows that vary in timing and amount (Berger and Nasr, 1998, Reinartz and Kumar, 2000), customer risks (Hogan et al., 2002, Ryals and Knox, 2007), and referral, networking, and learning potential (Kumar et al., 2010a, Stahl et al., 2003). The calculation of CLV, in turn, evolved from simple deterministic models to dynamic models (Lewis, 2015) and advanced stochastic techniques (Holm, Kumar, & Rohde, 2012).

CE is conceptually tightly linked to CLV, given that it is most commonly defined as the sum of all customers' lifetime values in a customer base (Schulze, Skiera, and Wiesel, 2012). Various researchers, among them Kumar and Shah (2009) and Silveira, de Oliveira, and Luce (2012), show a link between CE and firms' market capitalization, with Wiesel, Skiera, and Villanueva (2008) thus proposing that customer equity should be included in firms' financial reporting. Bruhn, Georgi, and Hadwick (2008), on the other hand, conceptualize CEM as a second-order construct consisting of activities related to CE analysis, CE strategy formation, and CE activity management.

However, applications of CVL and CE frameworks reveal two areas for further research. The first is associated with the fact that most of the relevant literature is conceptual in nature (Bruhn et al., 2008, Persson, 2011), a situation which emphasizes the need for empirical evidence on how firms apply customer equity management in practice. This research gap is further highlighted by recent concerns about the increasing theory–practice gap in business marketing (Möller & Parvinen, 2015). The second area resides in the realization that current business-to-business (B2B) applications seem to lag, in terms of utility, behind the developmental steps made through business-to-consumer (B2C) applications (Blocker and Flint, 2007, Ramaseshan et al., 2013).

In this paper, we address these two research gaps through three research objectives: (1) creation of a conceptual framework for managing B2B customer relationships for increased shareholder value, (2) investigation of how B2B firms manage their customer relationships for increased shareholder value in practice, and (3) synthesis of the findings of the empirical research into propositions that can be tested in future studies.

The structure of the remainder of this paper is as follows. We begin, in the first section, with a brief review of the current literature on customer relationships as market-based assets. In the second section, we describe the conceptual framework. We report on our empirical research, consisting of three longitudinal B2B case studies, in the third section, and present the main conclusions of that research in the fourth. In the final section, we discuss the theoretical and managerial implications of the research findings, consider the limitations of the research, and identify avenues for further research.