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Published in:
2010 | OriginalPaper | Chapter
Customer Equity
Driving the Value of the Firm by Increasing the Value of Customers
Authors : Roland T. Rust, Gaurav Bhalla
Published in: Handbook of Service Science
Publisher: Springer US
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Abstract
From the standpoint of the firm, service science involves two areas of study—1) how to reduce costs through greater efficiency and productivity, and 2) how to increase revenues by providing better service to customers. We focus on the second area of study, which to date has been underrepresented in the recent service science literature. Better service to customers results in greater revenues, higher profits, and a higher customer lifetime value. Customer equity, the sum of the customer lifetime values across the current and future customers of the firm, is thus the logical metric for evaluating the success of revenue expansion efforts. We summarize research findings that show that customer equity is a good proxy for the stock market value of the firm, and explain why this should be the case. We also outline the key drivers of customer equity and suggest how firms can use customer equity to evaluate the return on investment (or projected return on investment) from strategic expenditures.