Finanzmanagement aktuell

Purpose – This paper integrates the use of financial concepts in contracting and in marketing decisions. Acquiring, sustaining or giving up a customer represent options. The relationship and contractual provisions also may create or alter options. An option has value. The authors illustrate a technique to calculate the dollar economic value (DEV) of a customer relationship – and the value of an option to terminate the relationship.

Design/methodology/research – The paper is interdisciplinary, drawing on fundamentals of marketing and applied economic analysis. The sample customer project integrates the concepts of customer profitability, net present value, decision tree analysis, simple option valuation, and value-based marketing. The paper develops and then illustrates the techniques with application to a customer project. The principles, techniques and methods of application are of interest to marketing and finance professionals as well as the general manager intent on making decisions that add value to the company.

Findings – The authors demonstrate how the ability to abandon a poor customer can turn a value-destroying customer relationship into a value-creating relationship.