Thinking in Terms of Assets

The Value of the Customer
January 18, 2018
When Risk Becomes Revolution
January 9, 2018

Thinking in Terms of Assets

Adapted from Dr. Claes Fornell's book | January 15, 2018
The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference


Managers who improve customer satisfaction will create shareholder value. Investors who pay attention to the health of the firm's customer relationships will make better investment decisions.

Rather than thinking in terms of creating products for which there is a great market need or trying to figure out how one can buy cheap and sell dear, it's more useful to think in terms of economic assets.

How do I get, develop, and control relevant assets?

An economic asset produces future income for the owner of that asset. So if I own or control a good asset, that's what's going to happen. I will make money in the future. Asset pricing has little to do with the past. We may have assets that produced great returns in the past, but the past matters only if extended to the future.

For example, Apple had record profits in the fourth quarter of 2006. Sales reached record levels as well. Analysts' expectations were exceeded by a wide margin. You'd think stock price would go up. Well, Apple's stock plunged. Stock prices don't have much to do with past profits or exceeding expectations. But they have everything to do with expectations about the future. In this case, the future prospects suggested by past performance were trumped by a disappointing forecast.

Tapping the sources of cash flows is what Customer Asset Management is about. Its objective is to increase the level and speed of net cash flows and to reduce the uncertainty (risk) associated with them. This is different from expressing business objectives in terms of sales, revenue, market share, or even bottom-line profitability, but it is consistent with creating shareholder value.

Our research findings point to two key factors that lead to shareholder value:


1

CUSTOMER RELATIONSHIPS

2

CAPITAL EFFICIENCY


If financial reports included information on customer relationships, there would be a much better understanding of the link between the firm's current condition and its future capacity to generate shareholder wealth. Managers who improve customer satisfaction will create shareholder value. Investors who pay attention to the health of the firm's customer relationships will make better investment decisions.


CFI Group offers expertise in designing experience measurement solutions that help you manage customer relationships. Contact us for more information on how we can help you improve customer satisfaction and create shareholder value.

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