E-Finance Lab Team

We develop a model for firms with contractual customer relationships to link customer metrics (such as customer cash flow, number of customers, and customer retention) to customer equity and shareholder value. This model allows us to calculate a firm's shareholder value and to evaluate the effect of changes in customer metrics on shareholder value. Our empirical studies, our analytical solutions and our simulation study show that customer retention has by far the greatest impact on shareholder value. Furthermore, we propose a ratio of customer equity to shareholder value to identify firms in which changes in customer metrics have a particularly large impact on shareholder value. Our findings allow researchers and managers who analyze the impact of marketing investments on customer metrics to assess their results in terms of shareholder value and to evaluate firms by using customer metrics.