Increasing shareholder value through customers
In my organization, the needs of shareholders are often given priority over the needs of customers. What can we do to make sure customer loyalty and customer trust are given the same attention as shareholder value? Also, what impact does customer lifetime value have on the company value created for shareholders?

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Customer lifetime value is the same thing as the value that a company creates for its shareholders. Customers are really the only source of revenue that any company has. Our products don't pay us money, our brands don't pay us money, nothing else that we spend time doing, inventing, creating and working on day in and day out pays us any money except, by definition, our customers. Once you understand this it is easier to understand why customer value is so closely linked to shareholder value, and to accept that it is not only short-sighted but downright nonsensical to think that you can serve your shareholders well if you shortchange your customers.

Since that is the case, it's important to recognize that most companies clearly understand how much value customers are creating right now, this quarter. But what's not as clear to most companies is that today, customers go up or down in their ability and interest in doing business with us in the future. So, we should be every bit as interested today in the future value of our customers as we are in the current value of our customers. Once we realize this, we recognize that the numbers that we make this quarter can either come in addition to the building of customer equity and shareholder value or come at the expense of future customer equity and shareholder value. It's almost nonsensical for people at companies to be thinking separately about customer loyalty, customer trust and shareholder value. Instead we should think very closely about how what we do all day every day increases or decreases customer value this quarter and in the long haul. This is true whether we know it or not, measure it or not, do anything about it or not and whether or not we reward our employees for it.

So, we think that it's important to make sure that customer loyalty and customer trust are recognized as two of the very important ways that we are going to build shareholder value. They are not antithetical; one is completely dependent on the other. If we don't build customer value and customer equity, then our company has no future value or shareholder value. If we can recognize, measure and manage this then we'll find that shareholders are a lot happier precisely because customers are a lot happier. In addition, employees will be a lot happier and everyone who is a constituent of the organization will be served better because we are recognizing that customers are our source of revenue today and tomorrow.

This was first published in April 2008