Emergic: Rajesh Jain's Blog

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Customer Value

March 9th, 2007 · No Comments

Nicholas Carr writes:

A recent paper by three business-school professors – Sunil Gupta, Carl Mela, and Jose Vidal-Sanz – offers a new approach for estimating the value of nonpaying, or, as the professors term them, “free,” customers. The authors created a mathematical model of a hypothetical firm, with a business similar to Monster’s, and used it to calculate how much every new buyer joining the company site is worth and how that value changes over time.

Some of the results were fascinating. The professors found, for instance, that the value of each nonpaying customer (buyer) was actually slightly higher than the value of each paying customer (seller) – even though there were far more buyers than sellers in the company’s marketplace.

Tags: Management