In an optimistic piece Keiningham, Aksoy, and Bejou outline what they think the future of customer asset management is. What should be expect for accounting measures of customer assets? How will such assets be treated?
Why Are Accounting Measures Of Customer Assets So Bad?
They note three big problems which have meant that (prior to 2006 and honestly still up to the present date) ‘customer assets’ have been managed pretty inadequately. They suggest that this comes down to
“1) inadequacy of technology, 2) managements’ internal focus on products (as opposed to customers), and 3) inadequacy of accounting systems.”Keiningham, Aksoy, and Bejou, (2006)
The authors make a lot of good points. It is amazing how blithely managers take decisions about their customers that are financially highly significant. Managers can make decisions often informed by limited financial estimates. Compare how we record customer assets to how much time business people spend managing their inventory. This is despite the fact that the inventory can often be a lot less valuable. Do some accountants spend longer valuing the staples and pencil sharpeners than attempting to understand the value of the firm’s customers? Sure, most I’d guess.
The authors are (understandably) positive about technological changes. While the type of technology used has changed it does appear that customer management has better tools now than a generation ago. I would agree that progress has also been made, indeed is being made, in focusing more on customers relative to product.
Probably the least progress had (indeed I would say still has) been made on accounting for customers. My guess is that the authors might have been a bit disappointed if you told them in 2006 what would be happening (or more accurately not happening) in 2020. That said, they suggest that change is inevitable, with better accounting for customer related assets.
“..asset valuation and management will evolve to the evaluation of a company’s most fundamental assets: its customers.”Keiningham, Aksoy, and Bejou, (2006)
They then proceed to use the term Manifest Destiny, which seems a little old fashioned nowadays.
Reasons To Be Cheerful?
While I’m not optimistic in the short term I do wonder how long business can continue with its current general failure to recognize the value of ‘customer assets’. Maybe the authors are right — things will improve. (At least eventually).
Read: Timothy Keiningham, Lerzan Aksoy and David Bejou (2006) The Future of Managing Customers as Assets, in David Bejou, Timothy Keiningham, Lerzan Aksoy editors, Customer Lifetime Value: Reshaping the way we manage to maximize profits, Routledge