Abstract
Marketers are being assailed from all quarters with respect to accountability for their initiatives. But virtually all the financial measures being used, from return on investment (ROI) to return on marketing investment (ROMI), have a fatal limitation: each assumes there is an infinite supply of customers and prospects. In fact, however, customers and prospects are limited in number. They are a scarce productive resource — even scarcer than capital for most businesses. No business can create value without a customer, and different customers create value at different rates. If marketing's job is to create the maximum possible value for a business, then it should employ a metric of success that gauges how much value is created per customer available, rather than how much value is created per dollar invested. Return on Customer, or ROC, is a metric designed for that purpose. ROC incorporates not just the profit generated by a customer in the current period, but also any positive or negative changes in the customer's lifetime value during the period. A firm relying on ROC will actually make different — and more managerially and financially beneficial — decisions than it would make by relying solely on ROI. ROC should be maximised from among the alternatives that exceed a firm's investment hurdle rate. To do this, a firm must earn the trust of its customers.
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Peppers, D., Rogers, M. Return on Customer: A new metric of value creation — Return on investment by itself is not good enough. J Direct Data Digit Mark Pract 7, 318–331 (2006). https://doi.org/10.1057/palgrave.dddmp.4340538
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DOI: https://doi.org/10.1057/palgrave.dddmp.4340538