Customer Accounting: Creating Value with Customer Analytics

95 Pages·2019·2.79 MB·English

by  Massimiliano Bonacchi

SPRINGER BRIEFS IN ACCOUNTING
Massimiliano Bonacchi
Paolo Perego
Customer
Accounting
Creating Value with
Customer Analytics
1 23
SpringerBriefs in Accounting
Serieseditors
PeterSchuster,Schmalkalden,Germany
RobertLuther,Bristol,UK
Moreinformationaboutthisseriesathttp://www.springer.com/series/11900
(cid:129)
Massimiliano Bonacchi Paolo Perego
Customer Accounting
Creating Value with Customer Analytics
MassimilianoBonacchi PaoloPerego
FacultyofEconomicsandManagement FacultyofEconomicsandManagement
FreeUniversityofBozen-Bolzano FreeUniversityofBozen-Bolzano
Bolzano,Italy Bolzano,Italy
ISSN2196-7873 ISSN2196-7881 (electronic)
SpringerBriefsinAccounting
ISBN978-3-030-01970-9 ISBN978-3-030-01971-6 (eBook)
https://doi.org/10.1007/978-3-030-01971-6
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©TheAuthor(s),underexclusivelicencetoSpringerNatureSwitzerlandAG2019
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Foreword
It is self-evident that customers are essential to business enterprises. This was
alreadythecasewhenthefirstbartertransactioninhistorywasconcluded.Whatis
relativelynewistheabilityofmanybusinessesnow,particularlythosewhochargea
subscriptionfeefortheirservices,totracktheircustomers,identifytheirpreferences,
customize products to people’s tastes, and learn about their experiences and satis-
factionlevel.Thiswealthofinformationderivedfromthefootprintsofcustomersof
Internetserviceproviders,mediaandentertainmentfirms,andinsurancecompanies,
among other sectors, radically transformed corporate customer management. But
thistransformationisaworkinprocesswithlotsofunansweredquestionsforboth
corporatemanagersandtheirshareholders.
Thatisthereasonthisbookoncustomeraccountingissuchawelcomeadditionto
theliteratureofmanagement,marketing,operationsresearch,andofcourseaccount-
ing. The core of the book is the introduction of the highly useful concept of a
company’s lifetime value of customers, which for many enterprises is their largest
andmostconsequential,value-creatingasset.Thecomputationofcustomers’value
(customerequity)andthevarioususesofthisimportantmetricinmanagementand
capital market investment decisions are clearly discussed in this book. The many
real-lifeexamplesprovidedbytheauthors,bothexpertsonthesubject,demonstrate
thepowerofthisnewmetricandmakethebookfuntoread.
Customer value and the related measures introduced and demonstrated by the
authors are particularly important to investors, given the sharp decline in the
usefulness and relevance of the traditional accounting and financial variables used
in investment analysis. In this book, both managers and investors will find new
measuresandmethodstomanagecustomersandenhancecorporatevalue.
Who will benefit from this book? Corporate executives responsible for the
managementoftheircustomerstocreatecorporatevalueandalsoCFOs;financial
analystsandinvestorsstrivingtovaluebusinessenterprisesandfrustratedwiththe
traditional,failedfinancialmeasuresbasedonaccountingassetand earnings;and
v
vi Foreword
lastbutnotleast,businessstudents,bothattheundergraduateandgraduate(MBA)
levels,willbenefitconsiderablyfromthisbookinfinance,marketing,andaccount-
ingcourses.
PhilipBardesProfessorofAccounting BaruchLev
andFinance
NYUSternSchoolofBusiness
NewYork,NY,USA
Contents
1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Customer-CentricityinaFast-EvolvingLandscape. . . . . . . . . . . . . 1
1.2 MotivationandObjectivesofThisBook. . . . . . . . . . . . . . . . . . . . 4
1.3 TheoreticalFramework:OrganizationalArchitecture. . . . . . . . . . . . 5
1.4 OutlineofThisBook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2 CustomerAnalytics:Definitions,MeasurementandModels. . . . . . . . 13
2.1 CustomerAnalytics:DefinitionsofCP,CLVandCE. . . . . . . . . . . 13
2.2 CLVFormulae:SourcesandVariations. . . . . . . . . . . . . . . . . . . . . 16
2.3 ApplicationsofCLVinSubscription-BasedBusinessSettings. . . . . 17
2.4 CLVScorecardandCohortAnalysis:AnApplicationinanSBE. . . 19
2.4.1 TheCLVScorecardasaPerformanceMeasurement
System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.4.2 BenefitsofCLVScorecard. . . . . . . . . . . . . . . . . . . . . . . . . 24
2.4.3 CLVCohortAnalysis:Rationale. .. . . . . . . . . . . . .. . . . . . 25
2.4.4 CLVCohortAnalysis:APracticalIllustration. . . . . . . . . . . 28
2.5 ConclusionsandImplications. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3 CustomerAnalyticsforInternalDecision-MakingandControl. . . . . 37
3.1 ReviewofAccountingandMarketingLiterature. . . . . . . . . . . . . . . 37
3.2 EvaluationoftheLiterature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.3 ACaseStudyontheAdoptionofCustomerAnalytics. . . . . . . . . . 42
3.3.1 CaseBackgroundandResearchMethodology. . . . . . . . . . . 42
3.3.2 OrganizationalStructure. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.3.3 ThePerformanceMeasurementSystem. . . . . . . . . . . . . . . . 45
3.3.4 TheRewardSystem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.3.5 ConclusionsandImplicationsfromtheCaseStudy. . . . . . . 48
3.4 AnExploratoryCross-SectionalSurveyontheAdoption
ofCustomerAnalytics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
vii
viii Contents
3.4.1 SampleandDataCollection. . . . . . . . . . . . . . . . . . . . . . . . 53
3.4.2 DescriptiveStatisticsandUnivariateAnalysis. . . . . . . . . . . 54
3.4.3 MultivariateAnalysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
3.4.4 ConclusionsandImplicationsfromtheSurvey. . . . . .. . . . . 58
AppendixChapter3:Questionnaire. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
4 CustomerEquityforExternalReportingandValuation. . . . . . . . . . . 67
4.1 CustomersastheMostValuable(Intangible)Asset. . . . . . . . . . . . . 67
4.2 CustomerFranchiseIsMissinginIFRS/USGAAPFinancial
Statements:HowtoValueIt?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
4.3 DescribingSBEsBusinessModelUsingCustomerMetrics. . . . . . . 69
4.4 ValuingSBEsUsingPubliclyDisclosedCustomerMetrics:
AParsimoniousModeltoEstimateCustomerEquity. . . . . . . . . . . 71
4.5 CustomerEquityandStockReturns:EmpiricalEvidence. . . . . . . . 77
4.6 BeyondGAAP:CustomerMetricsReporting. . . . . . . . . . . . . . . . . 79
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
5 ConclusionsandTrendstoLookForward. . . . . . . . . . . . . . . . . . . . . 83
5.1 LookingBackandLookingAhead. .. . . .. . . .. . . . .. . . .. . . .. . 83
5.2 LinkingOnlinewithOfflineCommerce. . . . . . . . . . . . . . . . . . . . . 84
5.3 EnhancedFormsofCorporateNon–financialReporting. . . . . . . . . 85
5.4 TheRisingImpactofArtificialIntelligenceonModelingCustomer
Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Chapter 1
Introduction
Theprimaryfunctionofabusinessistoservethecustomer
andtheprimarygoalofyourbusinessistocreatecustomers.
—PeterDrucker
1.1 Customer-Centricity in a Fast-Evolving Landscape
During the Nineties, the business environment was affected by technological
advances resulting from “combinatorial innovations” triggered by liberalization of
the telecommunication industry and the Internet (Varian et al. 2004). Those inno-
vationscreatedthebasisformanyoftheinnovativeservicesintroducedoverthepast
decade, suchascellphones, satellite radio,cableTV,financialservices(e.g.direct
banking)andinternetservices(games,music,entertainment,etc.)(Libaietal.2009).
Atthesame time,theinformationtechnology(IT) revolutionintroduced extraordi-
nary improvements in methods of collecting, storing, analyzing, and transmitting
hugeamountsofinformation(Varian2006,2009).
Firms realized that this presented great opportunities to invest in IT to manage
customer relationships, since data could reveal actual customer preferences rather
than merely their intentions, making sampling unnecessary since information on
customer behavior became available for the entire population of customers (Gupta
et al. 2006). For instance, advertising models evolved from a focus on “brand
awareness”to“directandmeasurable”customeracquisitions(Economist2006a,b,
2007; Epstein 2007; Epstein and Yuthas 2007; French 2007). Unlike television
advertising,Internetadvertiserspaidonlywhenauserclickedthroughtotheirweb-
site, gaining a reliable measurement of customer acquisition costs (Court 2005;
Laffey2007;Mulhern2009).
In recent years, firms have continued witnessing a period of transformative
developments that emphasize the central role of customers in all industries. We
©TheAuthor(s),underexclusivelicencetoSpringerNatureSwitzerlandAG2019 1
M.Bonacchi,P.Perego,CustomerAccounting,SpringerBriefsinAccounting,
https://doi.org/10.1007/978-3-030-01971-6_1