The value of a "free" customer

Description

"Central to a firm's growth and marketing policy is the revenue and profit potential of its customer assets. As a result, there has been a recent proliferation of work regarding customer lifetime value. However, extant research in this area is silent regarding how to assess the profitability of customers in a networked setting. In such settings, the presence of one type of customer can affect the value of another. Examples of such settings include job agencies (whose customers include both job seekers and listers), realtors (whose clients include home sellers and purchasers), and auction houses (whose customers include buyers and sellers). Customers such as buyers of an auction house pay no fees to the firm making their value difficult to compute. Yet these customers generate value to the firm because their presence attracts fee-paying sellers. In this paper we consider the value of a customer in these types of networked setting. We compute the value of customers by developing a joint model of buyer and seller growth."

Subjects

Series Statement

• Working paper / Division of Research, Harvard Business School -- 07-035