Customer equity and market value: Two methods, same results?

Abstract

Although researchers have developed a variety of methods to model customer equity (CE), producing simple and robust models is a difficult task. Often, researchers have to compromise simplicity in favor of robustness or completeness. This paper empirically investigates two CE-based methods to compute proxies for market value. The models differ substantially in terms of complexity and the type of information they use, but their result is equivalent. Both models use Gupta et al. (2004) CE approach, and use data from the Brazilian Telecom Industry. The results show that CE, under the simpler, static approach, when added to net equity, is a good proxy for market value and reasonably equivalent to Gupta et al.'s (2004) CE under the dynamic approach. While the dynamic approach requires some technical training and substantive customer information that might not be readily available, the static approach is simpler and easier to compute.