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This blog is coauthored with Massimiliano Bonacchi
In recent years, several firms have witnessed a period of transformative developments that emphasize the central role of customers in all industries. Consumers hold far more power than ever before in today’s ultracompetitive and fast evolving business landscape as suggested by a recent Forrester report. The transition from a product-centric, transaction-focused business model to a more relationship-oriented or customer-centric view appears as a necessary condition to sustain long-term business performance. Disruptive developments in digital technology, Internet of Things sensor data and the social media have accelerated the shift towards customer-centricity on an unprecedented scale and pace. For example, Tesco and IBM make increasing use of Big Data to deliver contextual insights about purchase behaviors and marketing response. Subscription-based firms like Spotify or Netflix track marketing interactions, clicks, web or mobile navigation patterns. Several firms are also spinning up new investigative computing or data science practices rooted in artificial intelligence (AI), deep learning and other highly dynamic and multidimensional forms of advanced analytics. Half a decade ago, none of these disrupting technologies was available.
Against these radical and fast developments, the Marketing literature has started to investigate the real impacts and the organizational steps critical to initiate and sustain customer centricity. On the contrary, there is a dearth of knowledge about the business processes with which CFOs and management accountants interact and coordinate with CMOs and marketing managers to monitor the attraction, conversion and retention of customers through marketing campaigns and reliance on customer analytics. The say ´Accounting is from Mars, Marketing is from Venus´ used a decade ago in Gleaves et al. (2008) unfortunately still seems to apply in describing an apparent disjunction between these two core functions. Moreover, Accounting textbooks tend to cover traditional techniques of customer profitability analysis and only marginally treat contemporary topics in customer value management and the various facets of customer intelligence that applies Big Data to Marketing decisions. In a nutshell, Accounting is clearly lagging behind.
In our recent monograph “Customer Accounting: Creating Value with Customer Analytics” just published by Springer we attempt to fill this gap. We designed a book to meet the needs of CFOs, accounting and financial professionals interested in leveraging the power of data-driven customer insights in management accounting and financial reporting systems. We rely on state-of-the-art academic research and real-life examples to demonstrate the power of customer analytics as a source of value creation. The core of the book is the introduction of the highly useful concept of customer lifetime value (CLV), which for many enterprises is their largest and most consequential, value-creating asset. We further cover the computation of customers’ value (Customer Equity, CE), and the various applications of this key metric in management and capital market investment decisions.
NYU Stern Professor Baruch Lev claimed in “The End of Accounting” (Lev and Gu, 2016) that over the last century financial reports have become less useful for making capital market decisions. We are convinced that metrics like CLV and CE are particularly important to investors and corporate managers, given the sharp decline in the relevance of traditional accounting and financial variables applied in investment and decision analysis. Therefore, we hope that fellow academics will find our book useful to introduce customer accounting and related customer analytics in the classroom. Business students, both at the undergraduate and graduate/MBA levels, will benefit considerably from this book in Accounting, Finance and Marketing courses. We also encourage academic research that enhances our knowledge at the interface of Accounting and Marketing. The monograph provides a few avenues of research in this area that we deem highly relevant in the next decade.
Gleaves, R., Burton, J., Kitshoff, J., Bates, K., & Whittington, M. (2008). Accounting is from Mars, marketing is from Venus: establishing common ground for the concept of customer profitability. Journal of Marketing Management, 24(7-8), 825-845.
Lev, B., and F. Gu (2016). The End of Accounting and the Path Forward for Investors and Managers: John Wiley & Sons.