Customer Valuation Theory

This chapter proposes an economic theory of customer valuation, namely, customer valuation theory (CVT), which conceptualizes the generation of value from customers to firms. The CVT traces the development of value from various disciplines’ perspectives and establishes the link to the concept of value as seen in the marketing discipline by recognizing the differences in the guiding principles between valuing firm assets and valuing customers. This chapter also introduces and discusses the concept of customer future profitability (CFP) as a metric capable of providing a reliable, forward-looking estimate of customer value. Furthermore, economic models for estimating CFP, methods for managing CFP using portfolio management principles, and strategies for maximizing CFP are discussed at length.