Learning from Others: Information Sharing, Uncertainty and Heterogeneity in Customer-Base Valuation
Statistics Department; Faculty Adviser: Peter Fader
The value of a firm should be closely related to the net present value of all of its current and future customers. Fusing good models for future customer acquisition with good models for the value of individual customers is very important for retailers, making it possible to tie marketing actions more closely to shareholder value, aligning the incentives of the Chief Marketing Officer (CMO) to those of the CEO in growing shareholder value. Was a marketing initiative successful? Did the CMO do a good job this year? What are my most valuable segments right now? What will a 1% increase in customer retention do to the value of my company? To the extent that we can tie changes in marketing metrics to shareholder value, we can better answer these fundamental questions, which are of great relevance to retailers.
We build an entirely new customer metric-based valuation model `done the right way,’ addressing important shortcomings in current models. We will construct a principled customer- and firm-valuation framework, guided by financial theory. Our model will share information across many firms, learning about one firm from dozens of other firms. We will embrace uncertainty in the drivers of firm valuation, building that uncertainty into forecasts in a data-driven way. Finally, we will allow for the inevitability that customers are different or `heterogeneous.’
By managing customers as investments correctly, we will help retailers think about their businesses more intelligently, and improve their ability to grow shareholder value.
Publications, Presentations, & Awards
McCarthy, Daniel M., Peter S. Fader and Bruce G.S. Hardie (2017), “Valuing
Subscription-Based Businesses Using Publicly Disclosed Customer Data,”
Journal of Marketing, 81(1), pp. 17-35.
“CLV, Inside and Out,” Presentation at the QVC Headquarters, West Chester, PA, Mar 3, 2016
“Valuing Subscription-Based Businesses Using Publicly Disclosed Customer Data,” Marketing Modelers Group, Jan 14, 2016, New York
“Customer-Based Corporate Valuation via Data Fusion”, Marketing Science Conference, Baltimore (June 2015)
“Valuing Subscription Businesses Using Publicly Disclosed Customer Data,” Presentation at MoffettNathanson LLC, New York, NY, Nov 5, 2015
“CLV, From Inside and Out,” Presentation at the Baker Retailing Center Advisory Board Meeting, Philadelphia, PA, Nov 5, 2015