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Managing Customers as Investments
Book

Managing Customers as Investments

The Strategic Value of Customers in the Long Run

Sunil Gupta and Donald R. Lehmann
Wharton School Publishing, 2005

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Editorial Rating

9

Qualities

  • Innovative
  • Applicable

Recommendation

How much are your customers worth? If financiers and investors had bothered to ask themselves this basic question, they might have prevented the Internet bubble and other expensive corporate mistakes. Such disasters can occur when people invest in businesses with no earnings and fanciful business models. Authors and professors Sunil Gupta and Donald Lehmann make a powerful case that executives should abandon outdated business-evaluation models based on traditional financial metrics, such as cash flows. Instead, they should rely on the present and future value of their businesses’ customers: the „customer’s lifetime value,“ or CLV. The authors discuss these issues in understandable language and buttress their arguments with formulas that will enable marketers to implement their ideas. They also provide helpful examples that are like mini business-school case studies. getAbstract highly recommends this book to all marketing executives, as well as to executives who are financially responsible for mergers and acquisitions, or advertising. This book could change the way you do business and increase your earnings from your best customers.

Take-Aways

  • High customer acquisitions and retention can be harmful to a company’s financial health. Focus your customer-marketing plan on customers with long-term value.
  • Businesses should assess a „customer’s lifetime value“ or CLV, the profit margin customers provide over their lifetimes.
  • A customer’s lifetime value is usually one to 4.5 times the customer’s annual margin.

About the Authors

Sunil Gupta and Donald R. Lehmann are professors at the Columbia Business School. Gupta leads seminars and consults on marketing strategy, pricing and customer management. Lehmann’s other books include Analysis for Marketing Planning, Product Management and Meta-Analysis in Marketing. He is the founding editor of the journal Marketing Letters.

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