About the Customer Value Index
Often we hear Wall
Street analysts talk about "fundamental" analysis. Unlike the way in which that
term has been defined in the past, in today's markets it has become synonymous
with company level financial analysis. This process by its very nature is a
"downstream" view, or lagging indicator of a company's ability to create future
cash flow.
Our analysis looks at something much more...fundamental if you will - a
company's ability to create authentic, engaging, long-term and emotional
relationships with customers - and management's consistent ability to do
so in an economically profitable manner. We believe this is an "upstream" cue or
leading indicator of sustainable cash flow creation. Managing the customer
portfolio has always been a fundamental component of any company's ability to
create future cash flow.
Now, as Roger Martin, Dean of the Rotman School of Management at the University
of Toronto points out in his 2010 HBR article, The Age of Customer Capitalism,
we are experiencing a dramatic shift of power in the marketplace from seller to
buyer. Social media is accelerating this shift. As companies recognize this and
look for ways to continually build and deepen the customer relationship, social
media is also supercharging the efforts of the most customer centric
organizations. Allowing the best to get even better. This added transparency
also creates an important listening post investors can use to peer into the
conversations and uncover those companies that excel at creating authentic
customer engagement.
The Customer Value Index
(CVI) is based on the notion that companies best positioned to outperform in
today's turbulent markets are those that create exceptional value for customers
by operating with a sense of authenticity, transparency, empathy and societal
purpose.
They are developing "Social Capital", creating more emotional, less
transactional relationships and increasing the annuity value of their customer
asset.
We believe those companies best able to exploit this reality will see an
explosion of, and an increased connection between, social capital, competitive
performance and stock price performance. Social media-fueled customer engagement
is changing the underlying risk and growth profiles of companies and
accelerating the value creation and erosion process. As a result, investors need
to start looking beyond traditional quantitative analytical and valuation
metrics and include more qualitative cues to a company's ability to create
future cash flow.
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