Customer Based Corporate Valuation : Integrating The Concepts Of Customer Equity And Shareholder Value

2060 Words Mar 9th, 2015 9 Pages
Customer-based corporate valuation: Integrating the concepts of customer equity and shareholder value

The purpose of this model is to calculate Customer Lifetime Value (CLV) and Customer Equity (CE) and then integrate it with the traditional valuation method and come up with a holistic corporate valuation method. The shift toward value-based management has led to an increasing demand for corporate valuation methods. It is very difficult to value companies which have very low proportion of tangible assets. These are generally internet based firms and start-ups. These companies have negative earning during their initial period.

Generally, valuation is done by using cash flows and other financial factors. The value of intangible assets is hardly reflected in financial ratios. But in this model, long-term value derived from a customer is considered as a factor for valuation. This method seeks to formally incorporate the customer value concept into the Shareholder value (SHV) model in order to develop an integrated, marketing-based method for corporate value calculation. Since both concepts are methodically analogous, this approach seems to be beneficial.

The CLV concept

Customer value is viewed as customer’s economic value to the company and is defined as the sum total of value derived from a customer over a lifetime. It measures the profit stream of a customer across the entire customer’s lifetime. Here, marketing expenditure as viewed as investments in customer assets that…
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