Customer Value and Profit: Modelling in an Economic Approach

Abstract

Customer value (CV) is a central concept in marketing; most research hypotheses are developed through conceptual discussions in positive linear relationships. This article explores the relationship between CV and profits using mathematical and economic substitution methods. Two models of CV to profits are benefit-based (Model-1) and price-based (Model-2), which reveal the relationship between CV and profits can be positive or negative, quadratic or concave. There is a CV paradox expressed in propositions intended to warn of possible threats to profitability. A three-dimensional graphical CV surface is depicted to facilitate understanding of the results and then used to develop guidelines for avoiding paradoxes. This article also explains several important strategies and practices in creating CV and company profits.

Keywords

Marketing customer value paradox theory customer value strategy value space differentiation strategy price strategy causal linkage customer value and company profit

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