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CUSTOMER VALUATION IS BECOMING A CRITical element in strategy development and represents an important change in marketing. While drawing on traditional marketing concepts, it configures them in a unique way that implies important differences in marketing practice.
The use of this concept in marketing strategy calls for specific measures and methods that focus on the most relevant components of value. Customer valuation is built on the notion that the customer is the primary asset of the firm. The firm has a portfolio of customer assets that should be analyzed economically to determine which have the greatest value and which have low or negative value to the firm.
Future marketing initiatives directed at customers are viewed as investment decisions that can be made on the basis of expected returns. High-value customers should command more resources because they can be expected to pay back an acceptable return. Low-value customers should receive fewer resources because the expected return from investment is likely to be small or negative (i.e., they are unprofitable).
Whatever else customers may be, they are economic units. Customers are viewed as generators of revenue streams, the results of purchase and repeat purchases of products and services. In the process of becoming and continuing as customers, they also generate costs for the firm-i.e., they use the firm's resources by responding to its promotions and by interacting with its sales and service personnel.
In principal, then, it is possible to estimate the profitability associated with an individual customer by aligning the revenue and cost associated with him or her over time. At minimum, the profitability of a customer segment can be identified.
The time horizon for customer valuation is long-term. l he protit ot a customer should be estimated over a consuming "lifetime" rather than being limited to a single transaction or limited time interval of transactions. This is consistent with relationship marketing strategy, which holds that the marketer's objective ought to be to develop customer relationships rather than to maximize transactions per se.
Viewed in this way, marketers are able to link what's good for the customer-satisfaction of important needs-with what's good for the marketer-improving longterm profit. By using knowledge of customer value, growth strategies can be developed to achieve higher profit and thus increased...