V.

Kumar

A Theory of Customer Valuation:

Concepts, Metrics, Strategy,
and Implementation
Customer value refers to the economic value of the customer’s relationship with the firm. This study approaches the
topic of customer value for measuring, managing, and maximizing customer contributions by proposing a customer
valuation theory (CVT) based on economic principles that conceptualizes the generation of value from customers to
firms. The author reviews the established economic theories for valuing investor assets (e.g., stocks) and draws a
comparison to valuing customer contributions. Furthermore, the author recognizes the differences in the guiding
principles between valuing stocks and valuing customers in proposing CVT. Using CVT, the author discusses the
concept of customer lifetime value (CLV) as the metric that can provide a reliable, forward-looking estimate of direct
customer value. In addition, economic models to estimate CLV, ways to manage CLV using portfolio management
principles, and strategies to maximize CLV are discussed in detail. The author extends the customer value concept by
discussing ways that a customer can add value to the firm indirectly through incentivized referrals, social media
influence, and feedback. Finally, the benefits of CVT to multiple constituencies are offered.

Keywords: customer valuation theory, customer lifetime value, customer engagement, customer profitability, stock
valuation

ny sustainable business first creates value for its customers, and products, the challenge in this context for

A customers through firm offerings1 and, in the process,

derives value from its customers in the form of profit.2
This duality of roles performed by firms and customers to
derive and deliver value best summarizes the firm–customer
relationship from a value standpoint. However, this value is
distributed heterogeneously across customers. Because it is
the firms/decision makers who allocate resources to markets,
1“Firm offering” refers to physical goods, services, brands, or a
combination thereof.
2“Customer” denotes both an end consumer and a business
customer.
V. Kumar (VK) is the Regents Professor, Richard and Susan Lenny
Distinguished Chair, & Professor in Marketing, and Executive Director of the
Center for Excellence in Brand and Customer Management, and the Di-
rector of the PhD Program in Marketing, J. Mack Robinson College of
Business, Georgia State University (email: vk@gsu.edu). VK is also
honored as the Chang Jiang Scholar at Huazhong University of Science
and Technology; Fellow, Hagler Institute for Advanced Study, Texas A&M
University; and the Senior Fellow, Indian School of Business, Hyderabad.
The author thanks the senior editor, Robert Meyer, and the JM review team
for their valuable comments during the review process. This study has been
presented in many universities worldwide over the past few years and has
benefited significantly from the audience feedback. The author also thanks
Bharath Rajan for his assistance in the preparation of this manuscript, and
Renu for copyediting an earlier version of the manuscript. Robert Meyer,
Senior Editor for AMA Journals, served as the editor charged with pro-
cessing this article through review and final acceptance per the AMA policy
on submissions by journal editors. Praveen Kopalle served as area editor for
this article.
firms is to dynamically align resources spent on customers
and products to simultaneously generate both value to cus-
tomers and value from customers. In addition, the volatility
and vulnerability in customer cash flows differentially affects
overall firm profitability. These changes can be due to both
customer actions and firm actions. For instance, especially
in business markets, leadership change in the customer
organization influences procurement decisions that can
result in changes in future cash flows. Similarly, customer
life events (e.g., getting divorced, becoming empty nesters)
can also affect future cash flows. Therefore, firms look for
ways to better manage cash flows (Srivastava, Shervani, and
Fahey 1999).
To better understand and manage the value creation and
cash flow management process, this article proposes a theory to
value future customer contributions: the customer valuation
theory (CVT). The CVT focuses on two aspects of customer
financial contributions: their nature (i.e., direct and indirect) and
their scope (i.e., breadth and depth). In doing so, the CVT
informs firms about (1) the conceptualization of value gener-
ation from customers and (2) the ways and means available to
generate and maximize value from customers. In this regard, the
power of the customer lifetime value (CLV) metric to accurately
value a customer’s future contributions is established. By ap-
plying the CLV metric, this study demonstrates how firms can
use CVT to (1) value customer assets, (2) manage customer
portfolios, and (3) nurture profitable customers. The robustness
of the CVT is also highlighted through its successful imple-
mentation across various types of markets (consumer and
business), scenarios (contractual and noncontractual business

© 2018, American Marketing Association Journal of Marketing

ISSN: 0022-2429 (print) Vol. 82 (January 2018), 1–19
1547-7185 (electronic) 1 DOI: 10.1509/jm.17.0208
settings), contexts (domestic and global), and industries (e.g., To assist investors in the stock valuation process, several
insurance, airline, retail). Furthermore, the widespread positive approaches, such as the discounted cash flow models, capital
impact of implementing CVT on multiple constituents of the asset pricing models, and the arbitrage pricing theory, among
market such as the firms, the customers, the employees, the others, are available. The resulting stock valuation would
society, and the environment is also identified. then inform investors about the configuration of the portfolio
using approaches such as the modern portfolio theory (Elton
et al. 2014).
Valuing Assets: A Contextual In the case of the firm investing in its customers, the val-
Background uation of customers also forms a crucial component. If the
principles of the stock valuation approach were applied to
What is an asset? Despite the conflicting viewpoints on the role
manage investments in customers, firms ideally should perform
and constituents of an asset or firm resource (Mahoney and
the following three actions: (1) identify and invest in the “right”
Pandian 1992), an asset can be broadly defined as any physical,
customers, (2) form a customer portfolio (or customer base)
organizational, or human attribute that enables the firm to consisting of favorable customers, and (3) constantly reevaluate
generate and implement strategies that improve its efficiency
the portfolio to ensure that the firm is maximizing its future
and effectiveness in the marketplace (Barney 1991). Given the
gains. In reality, performing each of these three actions is not
prominence of assets in deploying firm strategies and gaining
always possible because of certain challenges.
competitive advantage, the next question is, What makes them
The comparison between the case of the investor and the
valuable? Here too, scholars from diverse fields such as finance,
firm shows the similarity in how they manage their respective
industrial organization, management, and economics have
assets (stocks vs. customers). So, can the principles that guide
presented several approaches to decode an asset’s value. With
the valuation of stocks be applied in valuing customers? To
specific reference to marketing, academics and practitioners
answer this question, the challenges of valuing customers must
consider customers as assets and have instated strategies that
first be understood.
manage and nurture customers rather than use them only for
First, firms need a reliable method to identify and invest in
specific marketing actions. In this regard, studies have in- the “right” customers. While it may seem straightforward to say
vestigated customer asset valuation from various viewpoints
that the “right” customers are the ones who exhibit the highest
such as firm valuation (Gupta, Lehmann, and Stuart 2004;
value potential, the specifics may not be so apparent. Tradi-
Kumar and Shah 2009), customer management (Berger et al.
tionally, value measures have focused on repeat purchases,
2002), and financial performance (Hogan et al. 2002), among
acquisition cost, retention cost, tenure, and share of wallet,
others. The differing approaches to asset valuation not-
among others. Thus, a valuation approach that can accu-
withstanding, the true value of an asset is most often observed
rately capture these intricacies for firms to identify the most
in its interactions in the external marketplace. This leads to the
valuable customers is essential.
next question: How are assets valued? To better understand
Second, configuring a portfolio of the most valuable
the approach to value assets, consider two scenarios—an
customers is easier said than done. The customer characteristics
investor investing in stocks, and a firm investing in its
(e.g., consumption pattern, lifestyle habits) that determine
customers. their value potential have been found to change over time
In the case of the investor (which applies to both individual
(Kumar 2013). As a result, periodic evaluation of customer
and institutional investors), the valuation of stocks forms a
value measures (e.g., profitability) is a necessary and reliable
crucial component. Drawing on the valuation, the investor
method to help managers in the vital job of keeping track
typically performs three routine actions: (s)he (1) selects and
of changing customer characteristics. Furthermore, regulated
invests in stocks that show potential for growth, (2) constructs a
monopolies such as telephone and municipality services are
portfolio of stocks and bonds, and (3) constantly rebalances the
often required to cross-subsidize one group of customers with
portfolio to ensure maximum future gains. An important
another (e.g., rural and urban customers). In such cases, firms
feature common to all these actions is the element of risk.
may not be able to build the ideal portfolio of customers.
This is because risk affects the volatility and vulnerability
Third, rebalancing of customers is not a feasible strategy.
of cash flows, which, in turn, affect the stock value and
Although cases have been reported in which companies have
ultimately reflect in the overall firm value.3 As a result, in- fired customers because profitability concerns (Reardon 2007),
vestors aiming to avoid risk ideally should (1) invest in stocks
this is not a common practice. For instance, many banks are
that indicate a steady stream of cash flow, (2) construct a
unable to “fire” the unprofitable customers, especially if they are
portfolio of similar stocks so that their overall future value is
from lower socioeconomic groups or minority groups. In ad-
secured and maximized, and (3) constantly evaluate the earnings
dition, churn is a challenge that firms constantly face. While a
potential of the stocks in their portfolio and reconfigure the
firm may want to have profitable customers, holding on to those
portfolio by selling risky stocks and buying robust stocks.
customers typically poses challenges for the firm. Therefore,
firms need a reliable way to discern how to manage unprofitable
3I recognize that the valuation of a company is affected by many
customers as well as ways to nurture profitable customers.
other factors (including nonmonetary factors such as competition
and mergers and acquisitions) beyond the focal firm’s cash flows. Therefore, in this study, I present the case for a val-
However, this example is designed to illustrate the importance of uation approach that is specifically designed to value
cash flows in determining firm value. I thank an anonymous re- customer assets. In doing so, I demonstrate why the stock
viewer for raising this distinction. valuation approach is not readily applicable to valuing

2 / Journal of Marketing, January 2018

customer assets and show how customer assets are uniquely
positioned to provide value to the firm.
Theoretical Approach to Valuing
Assets
The theoretical underpinnings of how an investor values stocks
and a firm values its customers can be understood through
the following questions:
• How do firms view customer assets?
• Why are financial theories inappropriate for valuing customers?
• How does customer valuation work?
How Do Firms View Customer Assets?
Research on customer asset management dates to models that
explored how consumers make purchase decisions (Howard
and Sheth 1969). The research insights generated since then
have led to the consideration of customers as integral to or-
ganizations (Gupta and Lehmann 2005; Shah et al. 2006). In
this regard, studies have considered customers to be intangible
assets of a firm (Hunt and Morgan 1995; Srivastava, Shervani,
and Fahey 1998) and have proposed approaches to valuing and
managing their contributions to the firm (Bolton, Lemon, and
Verhoef 2004; Reinartz and Kumar 2000).
Studies have also focused on applying customer value to
enhance firm performance from various perspectives such as the
role of customer acquisition strategies (Lewis 2006), customer
retention strategies (Reinartz, Thomas, and Kumar 2005),
customer loyalty (Reinartz and Kumar 2002), customer
satisfaction (Anderson and Mittal 2000), resource allo-
cation (Petersen and Kumar 2015), and customer metrics
(Petersen et al. 2009; Srinivasan and Hanssens 2009), among
others. Such attempts continue to shape profitable customer
management (based on future customer profitability) for both
contractual and noncontractual business settings.
Research on customer value has also explored the volatility
and uncertainty of future revenue contributions. In this regard,
studies have identified that certain behavioral drivers on the part
of customers (e.g., level of purchases, product return behavior)
determine the level and volatility of cash flows (Kumar, Shah,
and Venkatesan 2006; Reinartz and Kumar 2003). Therefore,
the management of behavioral drivers is critical in valuing
customers.
Why Are Financial Theories Inappropriate for
Valuing Customers?
Prior studies have investigated the application of financial
theories to marketing decisions. For instance, Cardozo and
Smith (1983) proposed an approach for making product
portfolio decisions by applying the financial portfolio
theory. However, Devinney, Stewart, and Shocker (1985)
highlighted critical differences regarding applying a financial
theory in a product decision setting. Similarly, Tarasi et al.
(2011) demonstrated the application of financial portfolio
theory for making customer portfolio decisions, which
subsequently attracted critical review in the literature (Billett
2011; Selnes 2011). Other efforts that have incorporated
concepts from financial theories into marketing applications
include the introduction of customer beta that measures the
riskiness of customers (Dhar and Glazer 2003), a customer
relationship scorecard based on customers’ risk–return char-
acteristics (Ryals 2003), and the management of customer
segments using portfolio theory (Bolton and Tarasi 2015;
Buhl and Heinrich 2008; Groening et al. 2014). In light of
these efforts to apply financial theories for valuing customers,
some principal differences between finance and marketing
must be noted. Figure 1 illustrates these differences as well as
how they ultimately affect firm value. They are as follows:
• It is possible to invest money into stocks and achieve a higher
amount in return. However, this is not possible in the case of
customers. Firms know that beyond a certain point, investing
more money in their customers will yield a lower rate of
return. In other words, whereas the investment-to-earnings
relationship can be linear in the case of stocks, it is nonlinear
in the case of customers.
• Investors can be fairly certain about a stock’s “life expec-
tancy” and the survival of that firm. However, firms that
invest in customers can make no such conclusion about their
customers. In other words, investors have relatively more
information about how long the stocks in which they have
invested will remain in trading, compared with firms’ knowledge
of how long their customers will remain their customers.
• In the case of widely held stocks (i.e., those that are not
closely controlled by investors and fund owners), if a stock
begins to perform poorly, the investor has the option of
quickly divesting that stock. After divesting, the investor has
the option of either buying another stock or just holding on to
the cash. However, firms typically do not have prior in-
formation about how much value a customer is going to bring
in. Furthermore, changes in customer lifestyles may make
customers less profitable or may even cause losses. In such a
case, the firm typically does not “divest” of such loss-making
customers but has to find ways to manage them appropriately.
This is also true in certain business settings (e.g., oil industry)
in which it is difficult for suppliers to exit a customer re-
lationship. In some cases, such situations can lead to spec-
ulative business practices such as stockpiling. In other words,
the value and volume of investments in stocks is easily scalable,
compared with the investments in customers.
• Investors routinely buy and sell stocks that will increase the
value to the portfolio and/or minimize the risk of losing value.
However, firms that invest in customers do not have the
luxury of hiring and firing customers. As a result, a low-value
customer is still likely to be part of a firm’s customer port-
folio, and firms will have to find ways to manage these
customers in such a manner that they do not lose firm value.
In other words, rebalancing a stock portfolio is easier than
rebalancing a customer portfolio.
• Although investors value their investments in widely held
stocks in line with the projected cash flows of the respective
stocks,4 firms that have invested in their customers assess the
value of their customers on the basis of customer contribu-
tions to firm revenue, which determines the stock price and,
ultimately, the firm’s value. Recognizing this chain of impact
is important in developing a metric that can effectively track
the firm’s value creation. In other words, whereas the impact
of investing in customers can be observed on the value of
stocks (and, ultimately, on firm value), investing in widely
4Exceptions to this are initial public offerings wherein the stock
value increases as new customers are added.
A Theory of Customer Valuation / 3
 FIGURE 1
Differences in Valuing Stocks Versus Customers

Firm Value

Stock Valuation Principles Customer Valuation Principles

Investment-to-earnings ratio Investment-to-earnings ratio

for stocks can be linear
Information on the tenure of a
stock being traded is more
accurate
The value and volume of
investments in stocks are
easily scalable
Rebalancing a portfolio is
relatively easier
Guide Sentiments play an important
Valuation of
role in the valuation
Stocks
Speculation plays an
important role in the valuation
Identification of risks is
relatively easier
Risk diversification is based
on the risk’s systematic or
Investors unsystematic nature
Investments in stocks do not
(Individuals
affect customer value
and
Stock value prediction is
Institutions)
possible only for the long run
Passive approach to
managing future changes
for customers is nonlinear
Information on the tenure of a
customer is less accurate
The value and volume of
investments in customers are
not easily scalable
Rebalancing a customer
portfolio is relatively difficult
Sentiments do not play an
important role in the valuation Valuation
Guide Valuation of
Speculation does not play an of
Noncustomer
important role in the valuation Customers Assets
Identification of risks is
relatively difficult
Risk diversification is based
the risk’s impact on customer
profitability Firms
Investments in customers can
affect stock value
Customer value prediction is
more accurate in the short run
than in the long run
Active approach to anticipating
and managing future changes

held stocks has a limited observable impact on the value of
customers.
• Using financial theories, it is possible for investors to identify
the types of risks to which stocks are exposed (e.g., given the
economic cycles) and recognize the ones that can be di-
versified from the ones that cannot. However, firms that have
invested in their customers cannot readily identify the risks
from customer contributions, or their impact on profitability.
In other words, it is relatively easier to identify (and therefore
manage) risks arising from investments in stocks compared
with investments in customers.
• Investor sentiments play an important role in investment
decisions (Weber and Johnson 2009). Stock market opera-
tions involve investor sentiments regarding a firm’s future
performance expectations, which, in turn, determine the level
of attractiveness of that firm in the industry. In contrast, the
influence of investor sentiment is not a significant force when
valuing a customer’s direct contribution. However, for
customers who are based in politically unstable regions, the
valuation is different more for sentimental reasons than for
economic reasons. In other words, the importance of investor
sentiment is higher in the valuation of stocks than in the
valuation of customers.
• Speculation also plays an important role in investment de-
cisions. For instance, speculation is based on a rational
betting decision that is known to stabilize asset prices
(Friedman 1953) and is sometimes based on insider trading
(Kyle 1985). Furthermore, it is known that if the investment
actions of rational speculators trigger the buying of securities
when prices rise and selling when prices fall, then an increase
in the number of forward-looking speculators can increase
volatility about the asset fundamentals (De Long et al. 1990).
In contrast, speculation does not play a major role when
assessing the value of a customer. In other words, the im-
portance of speculation is higher in the valuation of stocks
than in the valuation of customers.
• Drawing on known future discounted cash flows, an investor
typically decides on his or her choice of investment. That is,
the options are limited to either investment or divestment.
As a result, investors generally cannot influence the future
cash flow patterns of a firm to change the course of their own
actions. In other words, financial theories offer a passive
approach to managing investments, whereas customer
management requires an active management approach.
• The volatility and vulnerability of stocks make it difficult for
investors to predict stock returns in the short run. Short-term
returns are difficult to predict because of their random walk
feature (Jensen 1978; Malkiel 1995). In addition, Kumar,
Ramaswami, and Srivastava (2000) observe that daily returns
are sensitive to random disturbances in the market. To predict
stock movements, they offset the effect of random distur-
bances by considering a longer time period such as a month.
Using the principles advanced by the capital asset pricing
model and the arbitrage pricing theory, the study developed a
multistage model to study variation in stock returns. The
study found that the addition of significant factors other than
the market factors (i.e., cost and supply of money) increases
the level of risk, which results in a decrease in the price of the

4 / Journal of Marketing, January 2018

 firm. In this regard, appropriately designed marketing actions
directed at the environmental uncertainties (i.e., macroeco-
nomic factors) can lessen the impact on the firm’s cash flows,
because predictions of customer value are accurate in the
short run. Therefore, estimating the value of customers and
pairing this value with appropriately designed marketing
strategies can place firms on the path to increased financial
returns. The level of predictive accuracy of customer value,
however, declines only in the long run. In other words, a
more accurate prediction of stock returns is possible only in
the long run, compared with the prediction of customer value,
which is more accurate in the short run.
In addition to the financial theories, knowledge from
behavioral finance is also relevant here. Behavioral finance
literature has argued that some financial phenomena can
reasonably be understood using models in which some agents
are not fully rational (Barberis and Thaler 2003). With
specific reference to investor behavior, behavioral finance has
explained how certain investor groups behave, the types of
portfolios investors hold, and investors’ trading patterns
over time. Barberis and Thaler (2003) trace investor be-
haviors such as having insufficient diversification of port-
folios (Baxter and Jermann 1997), opting for simpler
diversification strategies (Benartzi and Thaler 2001), having
high trading volumes (Barber and Odean 2000), holding on to
stocks even if they are decreasing in value (Odean 1998),
and considering “attention-getting” stocks for their pur-
chase decisions (Barber and Odean 1999) to demonstrate
that investors are not always rational in their investment
decisions. This stream of literature has established that in-
vestors’ attitudes and behaviors are of vital importance. In
light of the aforementioned differences between customers
and stocks, I develop the CVT as a robust theory for valuing
customer assets by adopting a different approach than that
used to value stocks.
How Does Customer Valuation Work?
From the previous discussion of the determinants of customer
assets, one of the approaches to value customers in a general
form is presented next:
(1) CFPi = fðTransaction behaviori , Marketing costi ,
Demographic=firmographic variablesi ,
Economic and environmental factorsÞ,
where CFPi refers to customer future profitability of customer i.
Simply put, the future profitability of the customers depends
on their past and current transaction behaviors, the marketing
efforts of the firm, the identity and profile of the customers (i.e.,
demographic variables), and the environment in which these
customers exist (i.e., economic and environmental factors).
Furthermore, when modeling CFP, statistical issues such as
heterogeneity, endogeneity, and simultaneity are factored in the
estimation of such models. Once the CFP is modeled, business
intelligence software systems can be used to score CFP, update
customer information, and rescore CFP on a periodic basis.
Technology can also be incorporated to target customers on a
real-time basis through relevant messages in an effort to increase
future cash flows. Drawing on this valuation approach, I ad-
vance the following testable propositions.
Transaction behavior. Also known as exchange charac-
teristics, the transaction behavior broadly includes all the past
and current transaction variables that affect and influence the
customer–firm relationship. The commitment-trust theory
(Morgan and Hunt 1994) proposes that firms try to establish
positive relationships with customers by developing com-
mitment and trust with them. While a customer’s positive
affect influences his or her commitment to the firm, research
has also uncovered other dimensions of customer commit-
ment. For instance, Allen and Meyer (1990) proposed a three-
component model of commitment (affective, calculative, and
normative). Recently, Keiningham et al. (2015) proposed
customer commitment as a five-dimension construct (affective,
normative, economic, forced, and habitual). Beyond repeat
purchases, purchase habits have been found to play an im-
portant role in determining customer transaction behavior
(Ascarza, Iyengar, and Schleicher 2016; Duhigg 2013). Spe-
cifically, research has reported that customer habits influence the
future volatility and vulnerability of cash flows (Shah et al.
2017) and firm performance (Shah, Kumar, and Kim 2014).
Furthermore, the importance of primary market research in
understanding customer behavior patterns has also been
highlighted, especially in light of the abundance of behavioral
information made possible by big data (Knowledge@
Wharton 2014). As a result, frequent customer–firm in-
teractions should increase customer trust and commitment
in the firm at a faster rate, provided that the interactions are
satisfactory. Therefore,
P1: Customer transaction activities significantly influence
customer future profitability.
This proposition has been tested across various industries
and markets (business to business [B2B] and business to
customer [B2C]), and research has found that customer future
profitability is positively influenced by a host of variables,
including (1) prior customer spending level (Reinartz and
Kumar 2000), (2) customer cross-buying behavior (Kumar,
George, and Pancras 2008; Venkatesan and Kumar 2004), (3)
the intensity of customer purchases within a product category
(Reinartz and Kumar 2003), and (4) members of rewards
programs with the firm (Kumar, Shah, and Venkatesan 2006).
In addition, studies have also found the average interpurchase
time and the number of product returns to have a significantly
positive impact on customer future profitability, up to a certain
threshold (Reinartz and Kumar 2003).
Marketing cost. Marketing cost can include past, current,
and future promotional costs (toward customer acquisition,
retention, and win-back); technology upgrades; service im-
provements; employee management; and quality control. The
importance of effective management of customer assets to
enhance firm profitability (Bolton, Lemon, and Verhoef 2004)
has directed research attention toward understanding the impact
of marketing expenditures on customer value and actively using
marketing communication actions (i.e., customer contact
channels) to maximize customer value. Prior research has
established that well-timed communication efforts (Kumar,
Venkatesan, and Reinartz 2008) and well-managed content
(Kim and Kumar 2018) between firms and customers reduces
A Theory of Customer Valuation / 5
the propensity of a customer to quit a relationship (Morgan and
Hunt 1994). However, too much communication has also been
found to be detrimental to the relationship (Fournier, Dobscha,
and Mick 1998), thereby indicating the presence of an optimal
communication level.
P2: Marketing cost nonlinearly influences customer future
profitability.
Studies have revealed an inverted U-shaped relationship
between marketing contacts (involving rich modes [e.g., sales
personnel contact] and standardized modes [e.g., telephone,
direct mail]) and customer behavior (Reinartz, Thomas, and
Kumar 2005; Venkatesan, Kumar, and Bohling 2007). Fur-
thermore, in a permission-based marketing context, a firm’s
marketing contact policy influences both the length of time a
customer stays in an email program and the average amount a
customer spends on a transaction while (s)he is subscribed to the
email program; too much marketing may not only make cus-
tomers less likely to opt in but also cause them to opt out more
quickly (Kumar, Zhang, and Luo 2014).
Demographic/firmographic variables. Demographic/
firmographic variables refer to the distinguishing characteris-
tics of the customer (end user or business customer). In the case
of a business customer, the firmographic variables include the
type of industry, the age and size of the firm, the level of annual
revenue, and the location of the business. In the case of an end
user, the demographic variables include age, gender, income,
and the physical location of the customers. The demographic/
firmographic variables can aid firms in characterizing attractive
segments into identifiable and measurable groups of customers
(Zeithaml 2000). In the case of end users, the heterogeneity in
profit contributions can be better understood through a cus-
tomer’s demographic and psychographic variables (Chintagunta,
Jain, and Vilcassim 1991); demographic variables affect customer
store choice (Craig, Ghosh, and McLafferty 1984), shopping
channel choice (Inman, Shankar, and Ferraro 2004), profitable
lifetime duration (Reinartz and Kumar 2003), and migration of
shopping choice (Thomas and Sullivan 2005), to name a few. As a
result, classifying customers on the basis of their distinguishing
characteristics can help firms in their customer segmentation and
customer relationship management efforts. Therefore,
P3: Demographic/firmographic variables significantly influence
customer future profitability.
The testing of this proposition has revealed that demo-
graphic variables such as household income, population density
of the neighborhood, gender, age of the head of the household,
marital status, education level, and so forth significantly affect
future customer profitability (Kumar, George, and Pancras
2008; Kumar, Shah, and Venkatesan 2006). Furthermore,
research has also established that firmographic variables such
as the size of the firm and the industry category of the business
customers significantly explained the variation in contribution
margin for the focal firm (Venkatesan and Kumar 2004).
Specifically, Venkatesan and Kumar (2004) found that the focal
firm’s business customers in the financial services, technology,
consumer packaged goods, and government industry categories
provided, on average, a higher contribution margin than firms in
other industry categories.
6 / Journal of Marketing, January 2018
Economic and environmental factors. Economic factors
such as gross domestic product (GDP) per capita help determine
the consumption pattern of a country. It has been established
that consumers’ response to macroeconomic factors is a
function of not just their ability to buy (as measured by current
and expected future income), but also their willingness to buy
(Katona 1975). This underlying theory explains how various
macroeconomic conditions affect price changes (Gordon, Avi,
and Yang 2013), changes in consumers’ frame of mind
(Chhaochharia, Korniotis, and Kumar 2011), and overall
household utility (Kamakura and Du 2012), to name a few.
Furthermore, research has also shown that changes in con-
sumers’ economic constraints have varying effects on their
profit-contributing potential. For instance, Sunder, Kumar,
and Zhao (2016) demonstrated that high-CLV customers are
least affected by changes in their budgetary constraints when
compared with low-CLV customers. Therefore, if a country
has a high GDP and high purchasing power, its consumers
will have more disposable income and spend more.
P4: Economic and environmental factors significantly in-
fluence a customer’s future profitability.
Studies that have tested this proposition have found that
GDP per capita, the country’s economic well-being (how
customers feel about and experience their daily lives), cultural
characteristics, and the employment rate significantly influence
future customer profitability (Kumar and Pansari 2016b; Kumar
et al. 2014; Umashankar, Bhagwat, and Kumar 2016).
Customer Valuation Theory
In line with the customer valuation approach discussed pre-
viously, the CVT can be defined as a mechanism to measure the
future value of each customer on the basis of (1) the customer’s
direct economic value contribution, (2) the depth of the direct
economic value contribution, and (3) the breadth of the indirect
economic value contribution by accounting for volatility and
vulnerability of customer cash flows. The key components of
this definition include:
• Direct economic value contribution: This refers to the eco-
nomic value of the customer relationship to the firm,
expressed as a contribution margin or net profit. A firm can
both measure and optimize its marketing efforts by in-
corporating customer value at the core of its decision-making
process. When implemented at firms, it aids in (1) computing a
customer’s future profitability, (2) arriving at a good measure of
customer value, (3) optimally allocating marketing resources to
maximize customer value, and (4) identifying ways to maximize
the return on marketing investments.
• Depth of direct economic value contribution: This refers to
the intensity and inclusiveness of customers’ direct value
contributions to the firm through their own purchases that
have produced significant financial results for the imple-
menting firms. Examples of such instances include the
acquisition and retention of profitable customers on the basis
of their future value potential, customer purchase potential
across multiple channels of buying, and the possibility of
customers to buy across multiple product categories.
• Breadth of the indirect economic value contribution: This
refers to customers’ indirect value contributions to the firm
through their referral behavior, their online influence on
prospects’ and other customers’ purchases, and their
 feedback on the firm offerings. These indirect measures also
contribute significantly to a firm’s cash flow. This indirect
contribution can also be extended to accommodate other
contexts such as salesperson productivity, donations (in the
case of nonprofit firms), and business references.
Because CVT enables managers to actively manage cus-
tomer relationships on the basis of future customer contributions
through specialized customer strategies, it creates a positive
impact on firm performance. Specifically, the implementation of
the CVT can help firms improve their marketing productivity and
realize higher firm value through (1) valuing customers as assets,
(2) managing a portfolio of customers, and (3) nurturing prof-
itable customers. Therefore, it is critical to understand the nature
of the linkage between CVT and firm value. Figure 2 provides an
overview of how the components of CVT function in driving
firm value.
In summary, the proposed CVT is relevant for the following
reasons:
• Unlike prior marketing applications of the financial portfolio
theory, this theory focuses on customer management at the
individual customer level (on the basis of his or her profit-
ability) instead of the customer segment level. Although
customers are grouped in line with their profitability (i.e.,
high-, medium-, and low-profit segments), the subsequent
strategies that are developed are always deployed at an in-
dividual customer level because this is more effective. Such
an approach is different from how investors handle financial
assets. The CVT implicitly accounts for customer risks (i.e.,
volatility and vulnerability in cash flows) when modeling
future customer profitability. In doing so, the model focuses
FIGURE 2
Understanding the Link Between CVT and Firm Value
Valuing
Customers as
Assets
Concepts
Direct
Economic Value CLV
Contribution
Augmented customer
Depth of Direct
value through the
Economic Value
Wheel of Fortune
Contribution
strategies
Breadth of
Indirect Identify indirect
Economic customer value
Value contribution
Contribution
on how the risks ultimately affect customer profitability (and
thereby, overall firm profitability) and treats it accordingly.
For this reason, the CVT does not explicitly provide a beta
value or any indicator for the risk-free return equivalent in the
case of investments. Furthermore, the CVT enables managers
to identify and manage the diversifiable risks through tailored
offerings by focusing on the drivers of customer value.
• Because the CVT focuses on customer profitability, the
variation in associated customer costs at the individual level
are accounted for.
• The CVT is highly active in terms of generating actionable
firm strategies. By dynamically managing the volatility and
vulnerability in cash flows, this theory enables managers to
actively monitor customer relationships over time and un-
dertake necessary remedial measures. In comparison, the
financial theories largely suggest that investors invest (or
divest) at any point in time as determined by the discounted
cash flow analyses. As a result, the financial theories remain
passive by not providing adequate directions to investors
such that they can influence future changes.
• Because future costs drive future margins, the CVT-based
strategies advise managers to better manage their acquisition
and retention of profitable customers; by doing so, firms can
actively refine and manage the customer valuation approach.
However, no such option is available with investing in stocks
because stocks yield fixed returns, and the investor cannot
influence or manage the return on a stock.
• The CVT recognizes the investment-to-earnings relationship,
in the case of customers, to be nonlinear (unlike whenn
valuing stocks), and it uses an appropriate customer valuation
approach. This is subsequently reflected in customer strat-
egies that can be developed.
Managing Nurturing
Portfolio of Profitable
Customers Customers
Metrics Strategies
Create a portfolio of
Relationship
customers
Identify value
segments on the basis of
Interaction
augmented customer
value
Maximize indirect
Engagement
value contribution
A Theory of Customer Valuation / 7
 Valuing Customers as Assets
(Concepts)
The next component of the CVT delves into the concepts behind
customer valuation and the related financial benefits they hold
for firms. To contextualize the practice of customer valuation to
the proposed theory, it is essential to review prior literature on
this topic. In recent years, the idea of treating customers as assets
of a firm has emerged as the most popular and efficient way of
doing business (Hunt and Morgan 1995). This entails identi-
fying future customer profitability and designing marketing
guidelines that will advise managers on profitable customer
management. Traditionally, firms have used several metrics to
value customers (Kumar and Reinartz 2012; Petersen et al.
2009). The guidance from these metrics has driven decisions
pertaining to the allocation of marketing resources.
When considering a customer’s value contribution to the
firm, a crucial part is his or her contribution in the future periods.
It is this future component that is of immense interest to aca-
demics and practitioners. The concept of future value contri-
bution has been conceptualized in the form of the CLV metric,
which refers to the present value of future profits generated
from a customer over his or her lifetime with the firm (Gupta and
Lehmann 2005; Venkatesan and Kumar 2004).
The conceptualization of CLV was strongly influenced by
the corporate finance body of knowledge, and specifically to the
contribution of the present value concept by Irving Fisher (1965
[1930]) and Eugene Fama’s asset pricing theory (Fama and
Miller 1972). Applying this knowledge to customer asset
management, it is evident that customers pose risks in terms of
generating returns for the firm in the future. However, the
impact of these risks on customer profitability is not uniform
across all customers. In this regard, the CLV approach identifies
opportunities to contain the variation in returns (also known as
cash flow volatility) and, thus, the total risk of changes in the
value of the firm (measured by future returns) (Shah et al.
2017). This is possible by understanding the drivers of cus-
tomer profitability and their impact on CLV.
While the inspiration from other sciences such as economics
and finance is apparent, the adaptation and inclusion into the
customer asset valuation would not have been possible without
the development of new methodologies specific to the mar-
keting milieu. Specifically, the conceptualization of the
CLV metric and the development of substantive methodol-
ogies served as a stepping stone for managing profitability by
selecting the right customers for targeting and determining
the allocation of resources for customer acquisition, re-
tention, and growth. Furthermore, this important contribution
also demonstrated that the CLV framework can help firms
manage risk through appropriate actions directed at the in-
dividual customers.
Direct Economic Value Contribution
While the valuation of assets/projects is typically done at the
aggregate level, the CLV metric enables firms to capture the
direct value contribution of customers at both the aggregate and
the individual levels. At the aggregate level, the average lifetime
value of a customer is derived from the lifetime value of a
cohort, segment, or even a firm. Here, the estimation of CLV
8 / Journal of Marketing, January 2018
can be accomplished by identifying and measuring the factors
that drive CLV. At the individual level, the CLV is calculated as
the sum of cumulated cash flows—discounted using the
weighted average cost of capital—of a customer over his or her
entire lifetime with the company (Kumar 2008). It is a function
of the predicted contribution margin, the propensity for a
customer to continue in the relationship, and the marketing
resources allocated to the customer. It is important to note that
weighted average cost of capital is one of the measures that
represent the discount factor used to compute CLV, among
other options (e.g., T-bills rate). In its general form, CLV can be
expressed as follows (Venkatesan and Kumar 2004):
T
(2) CLVi =  ðFuture Contributionð1Margin
t =1 + dÞ t
it - Future Cost it Þ
,
where i is the customer index, t is the time index, T refers to the
number of time periods considered for estimating CLV, and d is
the discount rate.5 The CVT proposed in this study is based on
the individual-level CLV rather than the aggregate level.
Although a “true” CLV measure implies measuring the
customer’s value over his or her lifetime, for most applications it
is a three-year window.6 The reasons for this time frame are as
follows: (1) because future cash flows are heavily discounted, a
significant portion of profit can be accounted for in the first three
years, and the contributions in the following years are very
small; (2) the predictive accuracy of the models decline over a
longer time frame; (3) changes in customer needs and life cycle
are likely to change significantly beyond a three-year window;
(4) product offerings change in response to technological ad-
vancements and customer needs; and (5) CLV predictions are
updated on the basis of a rolling time horizon to accommodate
changes in other environmental factors. However, specific in-
dustry trends do lead to some exceptions for this three-year
window. For instance, automakers can expect customers to
make a purchase every four to six years (we suggest using a
longer window to accommodate at least a couple of purchases or
using purchase intention measures to forecast future value),
computer manufacturers can expect customers to make a pur-
chase every one to two years (we suggest a four- to five-year
window to account for at least two or three purchases); and
insurance companies can take up to seven years to recover the
acquisition costs. Exceptions aside, the aforementioned reasons
advocate the use of a three-year timeframe in computing the CLV.
The extant CLV literature has covered a wide range of
business conditions through the measurement approaches. This
coverage has expanded the scope and application of CLV-based
models for a multitude of industries and markets. Some of the
later developments in modeling CLV have accommodated
several modeling challenges, which has allowed for more so-
phisticated and precise estimation of customer value. Kumar
and Reinartz (2016) provide a detailed review of select ap-
proaches that have made significant contributions in modeling
5Although the prediction of future contribution margin and future
costs does generate risk in the CLV calculation, a higher discount
rate can be used to account for the uncertainties in the prediction.
6In the B2B markets, some categories may not conform to the
three-year window (e.g., capital goods such as plant and machinery).
CLV. Table 1 offers a summary of the model form as well as
merits and shortcomings of popular modeling approaches.
Although the models discussed here are the most popular
ones, there will always be improvements to the CLV model
because of the nature of the availability of customer data and the
business situation. In addition, the knowledge of how to im-
plement the models is also important in determining how CLV
can be managed at different firms.
Depth of Direct Economic Value Contribution
The depth of direct economic value contributions, as measured
by CLV, have focused on the impact of customers’ direct profit
contributions to the firm through their own purchases. Track-
ing and valuing these contributions have produced significant
financial results for the implementing firms. In this regard,
recent research has demonstrated that when firms try to un-
derstand and leverage the true power of measuring and max-
imizing CLV, it ultimately results in enhanced firm value
(Berger et al. 2002; Kumar, Ramaswami, and Srivastava 2000;
Kumar and Shah 2009). Furthermore, Kumar (2008, 2013)
explored the implications and generated the “Wheel of Fortune”
strategies that have enabled firms to address marketing issues
with greater confidence and ensure better decision making. This
set of strategies answers the following questions:
1. Customer selection: How do firms identify the “right”
customers to manage? Reinartz and Kumar (2000) found that
long-life customers are not necessarily profitable customers,
and the authors call for the use of a forward-looking metric such
as CLV to identify the “right” customers to manage.
2. Managing repeat purchases and profitability simultaneously:
How can firms ensure profitability while improving customer
repeat purchases? When customized actions were imple-
mented at a B2C catalog retailer on the basis of segmenting
customers on repeat purchases and profitability, Reinartz
and Kumar (2002) found that loyal customers are aware of
their value to the company and demand premium service,
believe they deserve lower prices, and spread positive word
of mouth only if they feel and act loyal.
3. Optimal allocation of resources: Which customers should
the firms interact with through inexpensive channels (e.g.,
Internet, phone), and which customers should firms let go?
When resources were reallocated on the basis of the optimal
mix and frequency of communication channels, a B2B com-
pany realized 100% more revenue and 83% more profits across
its four customer segments (Venkatesan and Kumar 2004).
4. Cross-buy: How can customers’ purchases be increased
across multiple product categories to improve customer
profitability? By encouraging customers to buy across more
product categories through profitable customer management
strategies, Kumar, George, and Pancras (2008) found that
metrics such as revenue per order, margin per order, revenue
per month, margin per month, and orders per month increased
as customers shopped across multiple product categories.
However, not all cross-buying is good. Shah et al. (2012)
found that across five B2B and B2C firms, 10%–35% of the
firms’ customers who cross-buy are unprofitable and account
for a significant proportion (39%–88%) of the firms’ total loss
from its customers. Therefore, discerning profitable from un-
profitable cross-buying behavior is essential.
5. Next logical product: How do firms decide the timing of an
offering to a customer? When done right, results have shown
that firms increased their profits by an average of $1,600 per
customer, representing an increase in return on investment
(ROI) of 160% (Kumar, Venkatesan, and Reinartz 2006).
6. Preventing customer attrition: How do firms decide which
prospect will make a better customer in the future and is
therefore worthwhile to acquire? Using test and control groups,
Reinartz, Thomas, and Kumar (2005) showed that acquiring
and retaining the “right” customers garnered a B2C firm an
incremental profit of $345,800 with an ROI close to 860%.
7. Product returns: Should the firm encourage or discourage
product return behavior, and how should it manage this process?
Petersen and Kumar (2009) found that the ideal level of product
returns should be one that maximizes firm profits. For a B2C
catalog retailer, they found that the optimal percentage of product
returns that maximized profitability was 13%. Furthermore,
Petersen and Kumar (2015) addressed the aspects of perceived
risk and optimal resource allocation into the product returns
process for a B2C catalog retailer and found that the firm was
able to generate approximately $300,000 more in profits com-
pared with the next best available resource allocation strategy.
8. Managing multichannel shoppers: What kind of sales and
service resources should firms allocate to current customers to
conduct future business with them? Kumar and Venkatesan
(2005) identified the drivers of profitable multichannel
shopping behavior and found that adding one more channel
resulted in an average net gain of about 80% in profits.
9. Branding and customer profitability: Should firms invest in
building brands or customers? Kumar, Luo, and Rao (2016) have
shown that by understanding the link between investments in
branding and CLV, firms can efficiently allocate their resources
to improving customer brand value to generate maximum
lifetime value. It was found that a 5% increase in the investments
in branding causes the CLV to increase by over 25%.
10. Acquiring profitable customers: How should firms monitor
customer activity to readjust the form and intensity of their
marketing initiatives? In managing firm actions regarding
customer acquisition and retention efforts, Reinartz,
Thomas, and Kumar (2005) found that it is not sufficient to
consider how much to spend on acquisition or retention
alone but, instead, firms need to consider how they must
balance acquisition and retention spending together to
maximize profitability and double the ROI.
11. Interaction orientation: Ramani and Kumar (2008) ask,
Should firms realign themselves to realize augmented CLV?
If so, is interaction orientation the answer?
12. Referral marketing strategy: How can firms enhance their
value through customers’ referral behavior? By implementing
customized campaigns for each customer value segment, B2B
and B2C firms have realized large profit gains, representing a
higher ROI (Kumar, Petersen, and Leone 2007, 2010, 2013).
13. Linking CLV to shareholder value: How do firms leverage
the CLV metric to drive their stock price and provide more
value to their stakeholders? By linking CLV-based actions
to a firm’s stock price, B2B and B2C firms have reported
significant increases of approximately 35% and 57%, re-
spectively, in their stock prices; better prediction of stock price
movements; and superior performance with respect to the
stock market index and rival firms (Krasnikov, Jayachandran,
and Kumar 2009; Kumar and Shah 2009).
Breadth of Indirect Economic Value Contribution
Apart from customers’ own contributions, the CLV metric also
applies to customers’ indirect profit contributions to the firm
such as their referral behavior, online influence on prospects’
and other customers’ purchases, and review/feedback on the
A Theory of Customer Valuation / 9
 TABLE 1
Summary of Select CLV Modeling Approaches

Estimating Models Independently (Venkatesan and Kumar 2004)

Ti n
 ð1 + rÞ
GCit MCi,m,l
Model Form CLVit =  = t - m
l ,
t =1 ð1 + rÞ fi l =1
where
GCi,t = gross contribution from customer i in purchase occasion t,
MCi,m,l = marketing cost, for customer i in communication channel m in time period l,
fi (or frequency) = 12/expinti (where expinti is the expected interpurchase time for customer i),
r = discount rate, n = number of years to forecast, and Ti = number of purchases made by customer i.
Merits • Accounts for customers to return to the firm after a temporary dormancy in a relationship
• Aids resource allocation decisions on marketing communication channels
Shortcomings • Does not account for competitive responses and consumers’ brand-switching behavior
Estimating Models Simultaneously (Venkatesan, Kumar, and Bohling 2007)
Model Form Likelihood function:
  
k =1 fijk ½fk ðtij ak , lijk , g k Þ · pðDQij di,k , dpk , s2k Þcij Sk ðtij ak , lijk , g k Þð1-cij Þ ,
K
L = ∏ni=1 ∏Jj =1
i

where
f (tij|a, li, g) = the density function for the generalized gamma distribution;
S (tij|a, li, g) = the survival function for the generalized gamma distribution;
p (DQ|di, d*, s2) = the density function for purchase quantity; and
cij = the censoring indicator, where cij = 1 if the jth interpurchase time for the ith customer is not right-censored
and cij = 0 if the jth interpurchase time for the ith customer is right-censored.
Merits • Accounts for endogeneity and heterogeneity
• Provides more accurate results than independent estimation
Shortcomings • Model development and estimation is complex
Brand-Switching Approach (Rust, Lemon, and Zeithaml 2004)
T 1
Model Form CLV = t =ij 0 t Vijt · pijt · Bijt ,
ð1 + dj Þfi
where
Tij = number of purchases customer i makes during the specified time period,
dj = firm j’s discount rate,
fi = average number of purchases customer i makes in a unit time (e.g., per year),
Vijt = customer i’s expected purchase volume of brand j in purchase t,
pijt = expected contribution margin per unit of brand j from customer i in purchase t, and
Bijt = probability that customer i buys brand j in purchase t.
Merits • Can be used when the firm has cross-sectional and longitudinal database
• Accounts for all types of marketing expenditures
• Can accommodate competition
Shortcomings • Sample selection can play an important role in the accuracy of the metric
• Often relies heavily on survey based data, thus leading to an increase in sampling cost and survey biases.
Monte Carlo Simulation Algorithm (Rust, Kumar, and Venkatesan 2011)
Model Form pðPit , Purit , Xit Þ = pðPit jPurit = 1, Xit Þ · pðPurit = 1jXit Þ · pðXit Þ,
where Purit is the indicator of purchase and is equal to 1 if customer i purchases from the firm in time t, and
0 otherwise.
Merits • Better predictive power over simpler competing models
• Better understanding of customer profitability and firm value
Shortcomings • Cannot be used in a lost-for-good setting
• Heavy reliance long purchase histories
Customer Migration Model (Dwyer 1997)
T
Model Form CE = t =0 MM t C t Pt
ð1 + dÞt
,
where
MMt is a matrix that contains the probabilities of customers moving from one segment to another at time t,
Ct is a vector containing the number of customers in each segment at time t, and
Pt is the profit from each segment at time t.
Merits • Considers probabilistic nature of customer purchases
Shortcomings • Can be used only in limited business settings

10 / Journal of Marketing, January 2018

 TABLE 1
Continued

Deterministic Model (Jain and Singh 2002)

CLV = i =1 ð1ðR+i -dÞCi-0:5
iÞ
n
Model Form ,
where
i = the period of cash flow from customer transaction,
Ri = revenue from the customer in period i,
Ci = total cost of generating the revenue Ri in period i, and
N = the total number of periods of projected life of the customer under consideration.
Merits • Higher predictive accuracy
• Aids in firm-level strategy development
Shortcomings • Requires huge amounts of individual customer data
• Does not consider the relationship between model parameters
• Descriptive, but not prescriptive, and therefore less helpful in managerial decision making
• Does not account for competition
Probabilistic Model (Drèze and Bonfrer 2009)
t
Model Form CLVt = ð1 +ð1dÞ+t dÞ
- pðtÞ
AðtÞ,
where
t = a fixed time interval between contacts,
A(t) = expected surplus from communications following the interval, and
p(t) = probability of retention given that interval.
Merits • Can be used when the firm does not have longitudinal database
• Identification of subdrivers aids in better resource allocation
Shortcomings • Assumes purchase volume and interpurchase time to be exogenous
• Calls for frequent updating of the model
• Heavy reliance on data and less reliance on managerial insight
Structural Model (Sunder, Kumar, and Zhao 2016)
J J
Model Form Uit = j =1 ½yit lnð1 + qijt Þ + li ln½yit - j =1 ðPjt qijt Þ,
where
Uit = overall utility from consumption by consumer i at time t,
yijt = baseline utility,
yit = unobserved budget allocation within category by consumer i at time t,
Pjt = price of brand j at time t, and
qijt = quantity of brand j consumed by consumer i at time t. The qijt can then be used in the assessment of CLV.
Merits • Model based on theoretical underpinnings of consumer behavior
• Can account for various salient aspects of consumer behavior (e.g., multiple discreteness, budgeting etc.)
which cannot be addressed by other methods
• Aids in accurate out of sample prediction and managerial policy simulations
Shortcomings • Model development and estimation is very complex
• Relies heavily on across and within variation in customer purchases

products and services they consume. When firms pursue op-
portunities to draw out indirect profit contributions from cus-
tomers, it implies engaging with customers by identifying the
various sources of profit. Such a focus would result in maxi-
mizing customer engagement value. Conceptually, customer
engagement value is the total value provided by customers who
value the brand such that they engage with the firms (1) through
their purchase transactions (or CLV), (2) through their ability to
refer other customers to the firm using the firm’s referral
program (or customer referral value [CRV]), (3) through their
power to positively influence other customers about the firm’s
offerings on social media (or customer influence value [CIV]),
and (4) by providing feedback to the firm for product and service
ideas (or customer knowledge value [CKV]) (Kumar et al. 2010).
CRV. With respect to indirect customer contributions to
profit, promoting customer referrals is a popular practice
adopted by firms. The CRV metric captures the net present
value (NPV) of the future profits of new customers who pur-
chased the firm offerings as a result of the referral behavior
of the current customer (Kumar, Petersen, and Leone 2010).
Kumar, Petersen, and Leone (2007) showed that when targeted
referral behavior campaigns were offered to select customers
of a telecommunications firm, it resulted in overall value
gains of $486,090, representing an ROI of 15.4. This study

A Theory of Customer Valuation / 11

established that customers who score highly on CLV are not the
same as those who are successful at referring new customers,
and it made the case for measuring both CLV and CRV when
evaluating marketing campaigns. To compute CRV, the first
step is for firms to integrate their customer transaction database
with the referral database. In the absence of referral behavior
information, firms can collect it from new customers by asking
questions such as, “Were you referred, and if so, by whom?” Or,
“To what degree did the referral influence your decision to transact
with us?” The CRV metric is, however, not relevant for all business
situations. For instance, customers may not make referrals if they are
not attached to the product (e.g., fast-moving consumer goods).
Furthermore, a customer recommendation for one product does
not necessarily apply to the firm’s portfolio of products.
The concept of referral behavior has also been extended to
apply to the B2B relationship setting through the business ref-
erence value (BRV) metric. This metric computes the amount of
profit the existing client firm can help generate from the prospect
firms that purchase the firm offerings as a result of the client
reference. Significant differences were found between high-BRV
and low-BRV clients of a telecommunications and financial
services firm, which indicated that, compared with low-BRV
clients, high-BRV clients (1) contribute more value, (2) stay longer
with the firm, (3) are more likely to provide a video reference
than a “call me” reference, and (4) are larger in size and annual
revenue (Kumar, Petersen, and Leone 2013). By linking CRV and
BRV to CLV, firms can begin to identify the value of customers
and enhance it through optimally designed marketing campaigns.
CIV. The power of the online medium has influenced
customers to (1) persuade and convert others into customers, (2)
continually use the firm’s offerings, and (3) change/modify their
own purchase patterns. In an effort to conceptualize and met-
ricize the customer influence on others, research has contributed
two key metrics—customer influence effect (CIE) and CIV.
Whereas the CIE measures the net spread and influence of a
message from a particular individual, the CIV calculates the
monetary gain or loss a firm experiences that is attributable to a
customer, through his or her spread of positive or negative
influence. Tracking these two metrics for a company’s social
media campaign, Kumar et al. (2013) were able to dem-
onstrate a 49% increase in brand awareness, 83% increase in
ROI, and 40% increase in sales revenue growth rate. Al-
though this study described the applicability of the CIE and
CIV metrics in the case of an offline retailer, it can be extended
to online retailers as well. Companies such as Starbucks and
Staples already have established customer relationship man-
agement practices alongside a vibrant social media presence.
CKV. Because customer input is a valuable resource in the
product development process, the value of this contribution
needs to be captured and included as part of a customer’s value to
the firm. This was captured in the conceptualization of the CKV
metric, which refers to the monetary value attributed to a cus-
tomer by a firm as a result of the profit generated by implementing
an idea/suggestion/feedback from that customer. This customer
feedback not only identifies the areas that are in need of im-
provement but also helps provide suggestions and solutions for
future upgrades and modifications to firm offerings. This feed-
back has the potential to make the entire offering more attractive
12 / Journal of Marketing, January 2018
to existing and potential customers as well as improve process
efficiencies. Customers must be attributed to the corresponding
feedback to receive credit toward their asset value (Kumar and
Bhagwat 2010).
While the value of customer feedback can be substantial to
any firm, juxtaposing CLV with CKV can yield even greater
insights to firms. Normally, customers with low CLVs have
little experience with the product and/or they are likely to be
unenthusiastic about the firm and therefore are likely to provide
little feedback to the firm. Consequently, the higher a cus-
tomer’s CLV, the more positive that customer will perceive the
company and its products to be, and the more opportunities for
the company to receive input. However, at very high levels of
CLV (an indication of a close fit between the company’s
products and a customer’s needs), the customers are likely to be
highly satisfied and therefore have little incentive to provide
feedback. These customers can, however, be encouraged to
assist less experienced and less knowledgeable customers when
firms implement a communication medium to do so.
Customer brand value. The three tangible value met-
rics—CRV, CIV, and CKV—collectively capture customers’
indirect profit contributions. In addition to these metrics, an
attitudinal metric (intangible value)—customer brand value
(CBV)—measures the value that the customer attaches to the
brand as a result of all the marketing and communication
messages delivered through different media. Conceptually,
CBV refers to the total value a customer attaches to a brand
through his or her experiences with the brand over time (Kumar,
Luo, and Rao 2016). The CBV is a multidimensional metric that
measures the customer’s brand knowledge, brand attitude,
brand purchase intention, and brand behavior and enables
companies to devise appropriate strategies depending on where
the problem exists—awareness, trust, or repeat purchase.
Monitoring all the components of CBV becomes important
from a branding standpoint. That is, brand-building efforts are
aimed at inducing favorable behavior outcomes toward the
brand, such as longer duration, higher purchase frequency,
higher contribution margin, and positive customer referrals.
Such behavioral outcomes determine the CLV scores. With this
understanding, managers can work on optimizing the compo-
nents of CBV to improve an individual’s CLV score. In this
regard, Kumar (2013) shows that CBV is the foundation for
managing CLV, CRV, CIV, and CKV.
Managing Customer Portfolios
(Metrics)
The next component of the CVT relates to identifying the
metrics to ascertain the value of customers. Firms constantly
struggle with managing customers while ensuring profitability.
In many cases, the cost of serving a customer may far exceed the
returns from that customer. In such a scenario, firms are caught
between retaining their customer portfolio/base and ensuring a
healthy bottom line. The CLV metric will help firms manage
healthy customer portfolios.
Direct Economic Value Contribution
As mentioned previously, the CLV stream of research has
uncovered several resource reallocation insights that have
helped firms maximize their value. Specifically, studies have
focused on the magnitude of cash flows (the expected returns as
measured by CLV) and on the volatility and variability of the
cash flows (the risk element associated with customer revenue
contributions). This dual focus has enabled firms to better
understand customer portfolio decisions and manage customers.
Through this process, it is possible to select and invest in
customers who will optimize the overall customer cash flow
while balancing the risk in cash flow variations.
While the concept of managing customer portfolios is
similar to the financial portfolio theory, a couple of key dif-
ferences must be noted. First, financial assets are typically
classified in line with their historic risk/return characteristics.
However, the same approach does not apply when treating
customers as assets. Research has shown that past customer
contributions are not highly correlated with future profit po-
tential when using traditional or backward-looking metrics
(Venkatesan and Kumar 2004). The CLV metric, in contrast,
has been found to be a good predictor of future customer
profitability. Second, finance managers typically invest in in-
dividual assets and try to maximize the portfolio’s return.
However, marketing managers largely allocate resources at the
customer segment level and increase customer profit. This is due
to the nonlinear relationship between customer investments and
returns. In other words, customer responses operate within
certain thresholds of the level of marketing investments, and too
few or too many marketing investments may not elicit the
desired customer response. Whereas early studies have con-
tributed to managing customer portfolios by optimizing
segment-level risk/return (Buhl and Heinrich 2008; Reinartz
and Kumar 2003; Tarasi et al. 2011), more recent studies are
focusing on optimizing resource allocation at the individual
customer level to maximize overall profitability (Kumar, Zhang,
and Luo 2014; Luo and Kumar 2013; Petersen and Kumar 2015).
Depth of Direct Economic Value Contribution
To realize the full potential of customer contributions, firms
must focus on the augmented customer value while managing
customer portfolios. This is possible through optimal allocation
of resources by prioritizing customers on their augmented
profitability and their receptiveness to marketing efforts. To do
so, decile analysis of the predicted CLV must be performed.
Here, the baseline CLV (i.e., NPV of future profits that con-
siders only the focal product category that the customer pur-
chases) and the incremental CLV (i.e., NPV of future profits that
considers customer purchases only from new product cate-
gories) are separately tracked. Conceptually, the augmented
CLV is the sum of baseline CLV and the monetary impact of the
portfolio of strategies discussed previously. Furthermore, the
medium-value customers experience the highest gain from
the portfolio of strategies—higher than even the high-value
customers. This indicates the receptiveness of customers to
firm-initiated marketing actions. Following this, firms can
prioritize marketing resources and actions according to the
impact on future profits and on firm value.
A good way to understand the impact of optimal allocation
of resources is through the firm’s usage of marketing com-
munication channels (Venkatesan, Kumar, and Bohling 2007).
To optimally allocate their resources, firms must first identify
their most profitable customers and those who are the most
responsive to marketing efforts. Performed at the individual
customer level, the selection of the best mix of communication
channels is determined on the basis of the responsiveness of
each customer. The cost-effectiveness of these channels is also
considered to measure the customers’ potential revenue con-
tribution based on the contacts made. The firm then decides the
frequency and interval of contacts through these channels to
develop a customer contact strategy. Analyzing customer be-
havior in relation to these factors provides firms with valuable
information about their customers’ preferences and attitudes. By
carefully monitoring customers’ purchase frequency, the time
elapsed between purchases, and the contribution margin,
managers can determine the frequency of firm initiatives to
maximize CLV through an optimal contact strategy.
The benefits of optimal resource allocation using CLV as
the metric can be observed even in a complex business setting.
When IBM adopted the CLV metric to measure customer
profitability and allocate resources for customers, the firm
determined the level of contact and outreach efforts through
telesales, email, direct mail, and catalogs on an individual
customer basis. At the conclusion of this program (based on
approximately 35,000 customers), IBM was able to effectively
reallocate resources for approximately 14% of customers as
well as increase revenues by about US$20 million. This was
done without increasing the investment but by abandoning
ineffective techniques based on customer spending history in
favor of the CLV metric (Kumar et al. 2008).
Breadth of Indirect Economic Value Contribution
In managing customer portfolios, firms must realize that cus-
tomers have multiple ways to contribute value, and all avenues
have to be explored to maximize customer contributions. In this
regard, the CLV metric has resulted in the creation of other
metrics that can be used to manage and maximize customer
value. These metrics must be managed independently, because a
customer could contribute in one or more of these ways. Fur-
thermore, firms must identify the ideal combination of direct and
indirect value contribution from the metrics that provide the
greatest profits to the firm. Figure 3 illustrates the metrics that
embed the principles of CLV.
While most of the metrics illustrated in Figure 3 have been
discussed in previous sections of this study, a brief description
of salesperson future value (SFV), donor lifetime value (DLV),
and employee engagement value (EEV) is provided here in the
following subsections.
SFV. Despite numerous studies conducted on the sales
function, the future value of the salesperson to the firm and how
organizational factors affect it has received little attention. Rec-
ognizing the importance of this knowledge to firms, Kumar,
Sunder, and Leone (2014) conceptualized the SFV metric and
empirically demonstrated the short-term and long-term effects of
managing SFV. The SFV is defined as the NPV of future cash
flows from a salesperson’s customers (i.e., CLV) after accounting
A Theory of Customer Valuation / 13
 FIGURE 3
Maximizing Indirect Value Contribution
Customer
Referral
Employee Value Business
Engagement Reference
Value Value
Customer Customer
Engagement Principles Brand Value
Value
of CLV
Embedded
In…
Salesperson Customer
Future Influence
Value Value
Donor
Customer
Lifetime Knowledge
Value Value
for the costs of developing, motivating, and retaining the sales-
person. By measuring the value of the salespeople using the SFV
metric and linking the performance with the types of training and
incentives each salesperson receives, it is possible to identify the
best-performing salespeople and tailor the training and incentives
to maximize their performance. When this approach was
implemented in a Fortune 500 B2B firm, the firm was able
to reallocate training and incentive investments across
salespeople, which resulted in an 8% increase in SFV
across the sales force and a 4% increase in firm revenue
(Kumar, Sunder, and Leone 2015).
DLV. Similar to for-profit firms, nonprofit firms also need
to build relationships to be able to raise donations. In this case,
the relationships are created with potential donors. Furthermore,
the nonprofit firm will have to be selective about the donors with
whom it builds relationships, so that it judiciously uses its
limited resources. To make this possible, Kumar and Petersen
(2016) conceptualized the DLV metric, which refers to the sum
of donations in the future years discounted to the present value
over a donor’s lifetime with the firm. Using the donor de-
mographic information, past donation behavior, and marketing
information, the DLV is modeled by predicting (1) the likeli-
hood of donation; (2) the value of donation, given that the
person will donate; and (3) marketing costs expended in seeking
donations. By computing the DLV, it is possible for nonprofit
firms to rank-order donors on the basis of their future donation
value to the firm. This metric can predict who will be able to
donate with 90% accuracy, the value of donations with 80%
accuracy, and the DLV with 75% accuracy.
EEV. Firms can leverage the power of an engaged cus-
tomer base better if they have a workforce that interacts
well with customers. Customer–employee interactions help
14 / Journal of Marketing, January 2018
create perceptions about the firm, which affect repeat customer
purchases (Sirianni et al. 2013). These perceptions lead to at-
titudinal and behavioral outcomes through their impact on
purchases, referrals, influence, and knowledge that the customers
provide to the firm. In this regard, a positive interaction between
customers and employees is likely to motivate how customers
talk about the brand and whether they recommend it to their
friends and relatives. Kumar and Pansari (2014, p. 55) define
employee engagement as “a multidimensional construct which
comprises of all the different facets of the attitudes and behaviors
of employees towards the organization.” The dimensions of
employee engagement comprise employee satisfaction, em-
ployee identification, employee commitment, employee loyalty,
and employee performance. Kumar and Pansari (2016a) de-
veloped an approach to measure EEV using a five-point scale.
When implemented in the airline, telecommunication, and hotel
industries, the authors found that the highest level of growth in
profits (10%–15%) occurs when a company’s employees are
highly engaged (i.e., have a high EEV); the lowest level of
growth (0%–1%) occurs when the company’s employees are
disengaged (i.e., have a low EEV). Ongoing research continues
to uncover several facets of the metrics presented in Figure 3, and
the insights generated thus far have advised firms in valuing
customers.
Nurturing Profitable Customers
(Strategies)
Finally, the concepts and metrics discussed previously lead to
the establishment of strategies that will aid in growing customer
value. In developing strategies, firms are often misled by the
belief that loyal customers are profitable. In addition, firms’
belief that creating customer reward programs can result in
increased repeat purchasing behavior, and thereby improve firm
profitability, is misplaced. Research in this area has shown that
loyal customers are not necessarily profitable, and the re-
lationship between repeat purchases and profitability is more
complex than is often perceived. In addition, firms regularly use
traditional metrics to measure the value of their customers, and
these lead managers to implement flawed marketing strategies
that drain the firm’s resources. In this regard, the CLV metric is
ideal for firms aiming to grow and nurture customer profit-
ability. When firms adopt a CLV-based approach, they can
make consistent decisions over time about (1) which customers
and prospects to acquire and retain, (2) which customers and
prospects not to acquire and retain, and (3) the level of resources
to spend on the various customer segments.
Direct Economic Value Contribution
When aiming to maximize the direct contribution of customers
to the firm, the CVT proposes that the focus be on establishing
profitable customer relationships that are based on customer
transactions. In this regard, Reinartz and Kumar (2002) found
that (1) loyal customers do not cost less to serve, (2) loyal
customers consistently paid lower prices, and (2) customers
who were attitudinally and behaviorally loyal were more likely
to be active word-of-mouth marketers than those who were only
behaviorally loyal. In effect, the study found that while there
may be long-standing customers who are only marginally
profitable, there also may be short-term customers who are
highly profitable. The identification of the distinct customer
types led to the development of the following specific
strategies:
1. High repeat purchases and high profitability. Referred to as
“True Friends,” these customers buy steadily and regularly over
time. They are generally satisfied with the firm and are usually
comfortable engaging with the firm’s processes. Firms should
build relationships with these customers because they present the
highest potential for long-term profitability.
2. Low repeat purchases and high profitability. Referred to as
“Butterflies,” these customers do not repeat purchase often, tend
to buy a lot in a short time period and then move on to other firms,
and avoid building a long-term relationship with any single firm.
Firms should enjoy their profits until they turn to competition.
3. High repeat purchases and low profitability. Referred to as
“Barnacles,” these customers, if managed unwisely, could
drain the company’s resources. Firms must evaluate their size
and share of wallet. If the customers’ share of wallet is low,
firms can up-sell and cross-sell to them to make them
profitable. However, if the size of wallet is small, strict cost
control measures must be taken to prevent losses for the firm.
4. Low repeat purchases and low profitability. Referred to as
“Strangers,” these customers not only are a poor fit to the
company but offer very little profit potential to the firm. Firms
should identify these customers early on and avoid any in-
vestment toward building a relationship with them.
A relationship focus would lead firms to identify those cus-
tomers who provide the most value and prioritize the marketing
efforts accordingly.
Depth of Direct Economic Value Contribution
Firms are expected to demonstrate the profitability of their
marketing actions at the individual customer level on an on-
going basis. At the same time, customers expect firms to
customize products and services to meet their demands. A
successful management of these two types of expectations
depends on the firms’ ability to better interact with customers
and create a unique positioning in the future. This calls for
implementing an interaction strategy in which firm–customer
and customer–customer interactions constantly occur. In other
words, the CVT advocates for a firm–customer exchange en-
vironment that focuses on constant interactions as opposed to
just profitable transactions.
Implementing the interaction strategy requires the firm to
adopt an interaction-oriented approach, which consists of four
components—customer concept, interaction response capacity,
customer empowerment, and customer value management—
that the firm can utilize to increase the impact on its profitability
(Ramani and Kumar 2008). First, the customer concept pro-
poses that the unit of every marketing action or reaction is an
individual customer. This places the customer at the top of the
hierarchy in the customer–firm relationship. By doing so, firms
are able to observe customer behavior and respond appropri-
ately. Second, the interaction response capacity (the degree to
which a firm can provide successive products or services
drawing on previous customer feedback) highlights the im-
portance of firms attending to and promptly addressing cus-
tomer needs. Third, the customer empowerment component
refers to the extent to which a firm allows its customers to (1)
connect with the firm and design the nature of the transaction
and (2) connect and collaborate with each other by sharing
information, praise, and criticism about a firm’s product and
services. Finally, the customer value management component
refers to the extent to which a firm can quantify and calculate the
individual customer value and use it to reallocate resources to
customers. Firms such as IBM and American Express, through
their endorsement of practices that are consistent with the
elements of interaction orientation, have realized superior
business performance, thereby demonstrating the manage-
rial significance of the interaction orientation approach.
Breadth of Indirect Economic Value Contribution
Firms can nurture customer profitability by implementing
an engagement strategy that considers the value generated
by customers and employees and results in superior firm
performance. The CVT proposes an engagement strategy that
builds an engaged and committed customer and employee
base to enhance the firm’s overall profitability (Kumar and
Pansari 2016a).
Although the engagement approach is powerful by itself, its
true potential is realized when it is viewed from a long-term
perspective. Engaged customers contribute to the long-term
reputation and recognition of the brand. Creating an environ-
ment where customers are more engaged with the company may
require an initial investment, but doing so has the potential to
generate higher profits in the long run through the creation of
customer engagement (Verhoef, Reinartz, and Krafft 2010).
Furthermore, fostering engagement within firms is effective
even in a recessionary economy. In a recessionary period, firms
face budgetary challenges that significantly affect their mar-
keting plans, which influences their levels of brand awareness
and adoption. During this period, firms can mitigate the risks
posed by the dents in their marketing budgets if they have a
highly engaged employee base that promotes the firm’s brand
and its products/services to its customers. This would ensure
delivery of a superior customer experience, thereby increasing
customer purchases, influence, and referrals—all without any
additional marketing investments.
Benefits of the CVT
The true measure of any marketing strategy or initiative is the
improved financial result for the firm implementing it. This is
why it is critical to study customer reactions to firm actions.
When firms can precisely link their actions to customer value
and, ultimately, to firm/shareholder value, they can begin to realize
the potential of valuing customers as assets. Using concepts from
economics, finance, and marketing, this article has created an
interface that connects the value of each customer (determined by
evaluating the lifetime value of the customer to the firm) with the
performance and, therefore, the valuation of the firm. This con-
nection has been established by (1) valuing customers as assets,
(2) managing a portfolio of customers, and (3) nurturing profitable
customers. Each of these tactics plays a unique role in the opti-
mization of shareholder value, customer equity, and overall
profitability, and each tactic also works in combination with others
to increase the overall impact on the firm value. Specifically, the
CVT proposed here provides the following benefits:
A Theory of Customer Valuation / 15
 1. Benefit to the firms: When firms understand customer prof-
itability and adopt CVT as the desired approach, they will be
able to (1) attract and retain the most valuable customers, (2)
nurture customers into a skilled resource base for the firm, (3)
prevent their customers from switching to competitors by
instilling a heightened sense of ownership of the firm among its
customers, (4) consistently evolve their product/service offerings
and match it to customer needs and preferences, (5) develop the
ability to accurately foresee customer responses, and (6) exhibit
superior aggregate business-level performance because the firm
will be dynamically maximizing the profit function at every stage
of business activity across all customers.
2. Benefit to the customers: The CVT essentially advocates that
the individual customer be the unit of analysis of every
marketing action and reaction. This implies that firms respond
to heterogeneous customers differently at different points in
time by pooling information from multiple sources and points
in time. This approach provides customers avenues to (1)
connect with the firm and actively shape the nature of
transactions and (2) connect and collaborate with each other
by sharing information and knowledge. Furthermore, cus-
tomers will be subjected to only the product/service offerings
that are appropriate to them rather than every offering in the
firm’s product portfolio. This keeps the customers focused,
involved, and connected to the firm, thereby increasing their
lifetime with the firm.
3. Benefit to the environment: When firms base their marketing
actions on the potential value the customers can bring them, it
becomes easier to align and allocate the optimal amount of
resources toward each customer. For instance, firms can plan
and optimize the printing and mailing of marketing materials
only to those customers they are intended for, and not send
mass mailers. In addition to enhancing the effectiveness of the
firm’s marketing efforts, this would also prevent the wasteful
usage of valuable environmental and infrastructural resources
and would help firms embrace sustainability as part of their
core mission (Kumar and Christodoulopoulou 2014).
4. Benefit to society: The benefits to society from implementing
the CVT are threefold. First, there is a clear line of com-
munication from firms to customers in terms of what to
expect. The customer expectations relate to product/service
offerings as well as firm responses through marketing actions.
Second, the customer’s repeat purchases can now be con-
solidated among a few preferred firms. When firms display
their respective needs and expectations, customers’ repeat
purchases gradually are aligned to matching firms. Over
time, a self-selection of repeat patronage by firms takes place
that leads firms to focus their resources to satisfy their cus-
tomers’ expectations. Finally, customers become empow-
ered, such that they can exercise their choice and free will,
thereby having a definite say in the marketing transaction
process. This empowerment is evident through behavior
ranging from customer advocacy (in case of complete sat-
isfaction of firm offerings) to customer boycott and negative
word of mouth (in case of extreme displeasure).
5. Benefit to the employees: Employees are instrumental in
providing a better customer experience, and this leads to
customer engagement. Firms can engage their customers only
if their employees are committed to delivering the brand
values and performing to the best of their ability. Employees
can be committed to the organization only if they understand
its goals and their responsibilities toward achieving these
goals. The employees must be highly engaged with the firm
to provide peak performance (Kumar and Pansari 2014).
Therefore, in addition to engaging customers, firms must also
ensure that they are engaging their employees.
16 / Journal of Marketing, January 2018
Implications for Future Research
The insights from various financial theories served as a good
starting point in the development of the CVT. In addition, the
modern portfolio theory provided insights into risk di-
versification and the maintenance of a balanced portfolio.
Overall, this study has showcased CVT as a forward-looking
approach to aid managers in the valuation and management of a
customer’s future contributions.
Specifically, two key managerial implications emerge. First,
the applicability of the CVT has been demonstrated in various
scenarios spanning multiple markets (e.g., B2B, B2C), business
settings (e.g., contractual, noncontractual), regional contexts
(e.g., domestic, global), and industries. This should provide
confidence to managers regarding its relevance and applicability
to the current marketplace. Furthermore, experts opine that in
the next five to ten years, CLV will be the metric of prime
importance to businesses (Fader 2016). Second, given the
evolution in the methodology to value customers, the avail-
ability of customer information, and the 360-degree customer
data, managers are enriched with improvements that can result
in better implementation. Despite the success of the CLV
metric, it has not experienced industry-wide acceptance. For
instance, a survey found that while 76% of the respondents
agreed that CLV was important to their organization, only 42%
reported that they were able to implement it (Charlton 2014).
In this light, I identify three areas that can benefit from
future research. First, the identification of the relevant organi-
zational structure required to facilitate and implement CVT-
based strategies is important. A customer-centric organization
has been identified as a basis to align an organization (Kumar
2013). Such an alignment can enable firms to view their cus-
tomers both as a source of business and as a potential business
resource. However, more insights are necessary to better un-
derstand the organizational requirements for a successful CVT
implementation. Second, the role of multiple stakeholders needs
to be explored. For instance, studies have investigated the
circumstances in which firm–stakeholder relationships are
forged, such as those in which (1) the stakeholder is critical to
the functioning of the firm (e.g., institutional investors having an
equity interest in a firm), (2) the stakeholder aims to gain from
the relationship (e.g., customers seeking firm offerings), (3) the
firm and the stakeholder mutually gain from the association
(e.g., the firm and the channel partners working collectively to
produce and sell offerings), and (4) the stakeholder has moral
rights attached to the firm’s operations (e.g., customer rights and
employee rights) (Freeman and Reed 1983). However, precise
recommendations have to be generated that can inform firms
about better stakeholder integration for a successful imple-
mentation of CVT. Finally, the time-varying effects of certain
drivers involved in the implementation of CVT need to be better
understood. These elements include the valuation methodolo-
gies, data availability, intensity of customer-level data, and
emergence of smarter consumers. Over time, these elements are
likely to have a dynamic effect on CVT-based strategies. In
summary, by focusing on a CVT-based approach, firms can (1)
acquire and retain profitable customers, (2) employ resources
productively, and (3) nurture profitable customers, which will
ultimately result in higher firm value.
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A Theory of Customer Valuation / 19