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Synopsis (part of the teaching note)
In April 2014, after years of growth in customer acquisition, at rates well above the competition, and largely as a result of this; JAZZTEL, a Spanish company whose main line of business is the rental and operation of broadband (BB) telecommunications networks, news came of a possible takeover bid by Orange (France Telecom). One of the executives of the company (Juan) considered that the business model had run its full course and that it was time to sell. In contrast, another of the executives (Julia) thought that it was possible to adapt to the new circumstances, although with lower growth after the changes in the market due to: (a) the massive introduction of the new fibre optic technology; (b) the competitors' strategy of concentration; (c) the drop in market growth rates and also in JAZZTEL itself; and that if they had to sell, it had to be at a fair price for the shareholder. Against this backdrop, Elena, in charge of Market Intelligence, had to make a recommendation to Julia, indicating whether the possible offer would be a wise move or not, on the basis of the economic valuation of the company's BB customers, Customer Lifetime Value (CLV) and its portfolio, "Customer Equity" (CE) and justify her decision based on expected market circumstances.
Learning objectives
1. To explore the impact of marketing decisions on strategic and financial planning and the contribution of shareholder value.
2. To understand the importance of customer valuation in order to focus acquisition and retention marketing strategies.
3. To discuss the importance of retention rates as a source of value.
4. To calculate the CLV and CE of a customer portfolio and interpret its meaning.