01.Determining the indirect value of a customer.pdfVIP

INTRODUCTION The advent of relationship marketing has had a profound impact on the marketing /finance interface. Relationship marketing focuses on customers and long-term relationship building rather than on products (Christopher, Payne and Ballantyne 2003). A major implication of relationship marketing is that marketing decisions should be about optimising the long-term value of the customer (Berger and Bechwati 2001). Consequently, accounting for marketing has shifted from the traditional product profitability approach (Grant and Schlesinger 1995) to a customer profitability focus. The new focus has revealed that customer profitability is principally determined not by the cost of the products that the customer buys, but by the costs of managing the customer relationship (Kalwani and Narayandas 1995; Reinartz and Kumar 2002). JOURNAL OF MARKETING MANAGEMENT, 2008, Vol. 24, No. 7-8, pp.847-864 ISSN0267-257X print /ISSN1472-1376 online ? Westburn Publishers Ltd. doi:10.1362/026725708X345542 Determining the indirect value of a customer Lynette Ryals, Cranfi eld School of Management, UK* Abstract The issue of accountability in marketing has led to a substantial and growing body of work on how to value customer relationships. Net present value methods (customer lifetime value / customer equity) have emerged as generally preferred ways to assess the financial value of customers. However, such calculations fail to take account of other important but indirect sources of value noted by previous researchers, such as advocacy. This paper examines the development and application of three processes to determine indirect value in business-to-business and business-to-consumer contexts. The research shows that indirect value has a measurable monetary impact not captured by conventional financial tools, and that understanding this changes the way in which customers are managed. Keywords Customer lifetime value, Customer equity, Indirect value, Advocacy JOURNA