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On Estimating Current-Customer Equity Using Company Summary Data

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  • Pfeifer, Phillip E.

Abstract

This paper considers how to use company reported summary data to estimate current-customer equity, taken here to mean the sum of the customer lifetime values of the firm's current customer relationships. It offers general guidance about how to estimate retention rate and revenue per renewal when the reporting period spans multiple renewal periods (as, for example, when summary data are reported quarterly but customers pay and renew on a monthly basis). The paper goes on to show that traditional retention rate and revenue estimates based on the average number of customers are biased low when acquisition rates are low and vice versa. In addition, the paper demonstrates that monthly, quarterly, and annual models for customer lifetime value are not equivalent even though there exist annual, quarterly, and monthly retention and discount rates that are equivalent. The suggested improvements for estimating the equity of current customers are demonstrated first using a previously published illustrative example and then using company summary data from Netflix, Inc. For the illustrative example, the improvements make a substantial difference in the estimate of current-customer equity (15% and 25% for the two periods) despite being straightforward and somewhat obvious in retrospect.

Suggested Citation

  • Pfeifer, Phillip E., 2011. "On Estimating Current-Customer Equity Using Company Summary Data," Journal of Interactive Marketing, Elsevier, vol. 25(1), pages 1-14.
    • Handle: RePEc:eee:joinma:v:25:y:2011:i:1:p:1-14
    DOI: 10.1016/j.intmar.2010.06.001
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    Citations

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    Cited by:

    1. Matsuoka, Kohsuke, 2021. "A framework for variance analysis of customer equity based on a Markov chain model," Journal of Business Research, Elsevier, vol. 129(C), pages 57-69.
    2. Maria Kubacka, 2020. "Review and Analysis of Selected Customer Value Measurement Methods (Przeglad i analiza wybranych metod pomiaru wartosci klienta)," Research Reports, University of Warsaw, Faculty of Management, vol. 1(32), pages 34-46.
    3. Bendle, Neil Thomas & Wang, Xin (Shane), 2017. "Marketing accounts," International Journal of Research in Marketing, Elsevier, vol. 34(3), pages 604-621.
    4. Neslin, Scott A., 2011. "On Estimating Current-customer Equity Using Company Summary Data: Comment," Journal of Interactive Marketing, Elsevier, vol. 25(1), pages 15-17.
    5. Juha Karvanen & Ari Rantanen & Lasse Luoma, 2014. "Survey data and Bayesian analysis: a cost-efficient way to estimate customer equity," Quantitative Marketing and Economics (QME), Springer, vol. 12(3), pages 305-329, September.
    6. Venkatesan, Rajkumar, 2011. "A Comment on “On Estimating Current-Customer Equity Using Company Summary Data”," Journal of Interactive Marketing, Elsevier, vol. 25(1), pages 23-24.
    7. Wiesel, Thorsten & Skiera, Bernd & Villanueva, Julian, 2011. "Customer Lifetime Value and Customer Equity Models Using Company-reported Summary Data," Journal of Interactive Marketing, Elsevier, vol. 25(1), pages 20-22.
    8. Juha Karvanen & Ari Rantanen & Lasse Luoma, 2013. "Survey data and Bayesian analysis: a cost-efficient way to estimate customer equity," Papers 1304.5380, arXiv.org, revised May 2014.

    More about this item

    Keywords

    Customer lifetime value; customer equity;

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