Managing Customers as Investments

About the Authors

Sunil Gupta is the Meyer Feldberg Professor of Business at Columbia Business School. His extensive experience includes teaching at institutions like UCLA and Harvard Business School, and consulting for companies worldwide. Donald R. Lehmann, the George E. Warren Professor of Business at Columbia Business School, has taught at Cornell, Dartmouth, NYU, and the University of Pennsylvania. Together, Gupta and Lehmann bring a wealth of knowledge and practical insights into the strategic management of customer relationships.

Main Idea

"Managing Customers as Investments" argues that customers are critical assets of any company. Gupta and Lehmann present a comprehensive framework for evaluating the financial impact of customer relationships, emphasizing that understanding customer value can significantly enhance marketing strategies and overall business performance. By recognizing customers as assets, companies can better manage their investments in customer acquisition and retention, ultimately leading to increased shareholder wealth.

Table of Contents

• Introduction
• Customers Are Assets
• The Value of a Customer
• Customer-Based Strategy
• Customer-Based Valuation
• Customer-Based Planning
• Customer-Based Organization
• Conclusion

Customers Are Assets

Customers are the lifeblood of any organization. Without customers, a firm has no revenues, no profits, and therefore, no market value. Contrary to the commonly held view, creating shareholder wealth in the short run is not the main purpose of an organization. Long-run shareholder wealth is the reward for creating customer value.

Gupta and Lehmann emphasize the importance of estimating the value of current and future customers as a proxy for the value of a firm. For example, if the average value of a customer to a firm is $100, and the firm has 30 million customers, then the value of its current customer base is $3 billion. Factoring in the present value of future customers, the value of the firm's customer base could be even higher.

"If you believe that customers are indeed assets that generate profits over the long run, then marketing expenditures to acquire and retain these customers should be treated as investments, not expenses." - Sunil Gupta and Donald R. Lehmann

The Value of a Customer

The fundamental building block of Gupta and Lehmann's approach is the customer lifetime value (CLV), which is the present value of all current and future profits generated from a customer over the life of his or her business with a firm. This concept incorporates several aspects: