Are frequent customers always a company's intangible asset?. Some findings drawn from an exploratory case study
| Published date | 01 December 2004 |
| DOI | https://doi.org/10.1108/14691930410567031 |
| Date | 01 December 2004 |
| Pages | 586-601 |
| Author | Luiz Antonio Joia |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Are frequent customers always a
company’s intangible asset?
Some findings drawn from an exploratory case
study
Luiz Antonio Joia
Brazilian School of Public and Business Administration,
Getulio Vargas Foundation, and Rio de Janeiro State University,
Rio de Janeiro, Brazil
Keywords Intellectual capital, Customer relations, Customer retention, Retailing,
Intangible assets
Abstract Since the early 1990s research has been conducted in an attempt to establish a viable
and reliable manner of measuring the intangible assets, also referred to as the intellectual capital,
of companies. Several models have been devised, most of them using indicators to evaluate the
intangible assets of a given undertaking. In this article, exploratory single case study methodology
is used to analyse the behaviour of the “customer retention” indicator, which has been widely used
to evaluate a company’s relationship capital. One of the largest Brazilian retailing groups is
analysed, in order to obtain an in-depth insight into the behaviour of its frequent customers via its
digital channel. Conclusions are presented indicating that the role of the frequent customers in an
e-retailing company can sometimes be widely divergent from that presented in existing academic
literature. Some managerial implications of these conclusions are also presented.
Introduction
The consolidation of intellectual capital as an actual knowledge field is still in progress.
It should be remembered that years ago some mavericks foresaw the impo rtance of
intangible assets for a company, laying down the initial foundations for this very
recent discipline.
In 1945, Frederick Hayek presented research about the use of knowledge in society
(Hayek, 1945). In a seminal work, Fritz Machlup from Princeton University produced
an eight-volume work in 1962, under the general title: Knowledge: Its Creation,
Distribution, and Economic Significance (Machlup cited in Stewart, 1997, p. 11). In this
work, using data gathered in 1958, it was established that 34.5 percent of the gross
national product of the USA could be ascribed to the information sector. In 1993, Peter
Drucker analysed the new knowledge economy and its consequences (Dr ucker, 1993).
Consequently, academics, researchers and practitioners have increasingly highlighted
the importance of the intangible assets of a corporation and even those of both
countries and other organisations, including non-profit entities.
A watershed was reached in July 1994, when a meeting took place in Mill Valley
with a view to establishing how the knowledge of an organisation could be measure d.
Knowledge may be intangible, but that does not mean that it cannot be measured.
Markets do precisely that when they value the stock of highly knowledge-intensive
companies way above their book value.
In 1995, Skandia – the largest insurance and financial services company in Scandinavia
– released its Intellectual Capital Annual Report, based on its Navigator framework
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/1469-1930.htm
JIC
5,4
586
Journal of Intellectual Capital
Vol. 5 No. 4, 2004
pp. 586-601
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930410567031
(Edvinsson and Malone, 1997). Some other companies, like Dow Chemical, the Canadian
Imperial Bank of Commerce, Posco, etc., to name but a few, also entered this new era.
Several research articles have been published and timely praxis has been developed
to measure the intellectual capital of an enterprise, such as: Sveiby (1997); Roos et al.
(1997); Bontis et al. (2000); Guthrie and Petty (2000); Low (2000); Sa
´nchez et al. (2000);
Guthrie (2001); St Leon (2002); Rodov and Leliaert (2002); Hunt (2003), among others.
In order to understand the peculiarities associated with the measurement of intangible
assets better, this article sets out to prove that some indicators used to measure the
intellectual capital of a company cannot be taken for granted as effective measures for doing
so, nor can they be adopted in these valuation models as a rule of thumb. This paper posits
that more rigour is required to verify whether or not these indicators are truly valid, i.e. if
they really contribute to explaining the final results of a company, namely its financial
performance. The “customer retention” indicator – widely used in several methodologies to
measure intellectual capital – is specifically analysed in this paper, in order to verify whether
it can always be considered a valid measure for assessing intangible corporate assets.
The paper is organised as follows: first, a bibliographical reference section is
reviewed in order to elucidate the rationale used for this study; second, the research
design based on an exploratory single case study is described, as well as the
propositions to be tested; third, the case study itself is presented, as well as analysis of
the data-set collected, which leads to several findings. Lastly, conclusions are drawn
and recommendations made in order to reach a clearer understanding of the
conundrum of valuing a company’s intellectual capital.
Bibliographical references
Intellectual capital taxonomy
Based on research carried out by Edvinsson and Malone (1997), Roos et al. (1997),
Sveiby (1997), Stewart (1997) and Joia (2000), it is proposed that corporate capital
taxonomy be used in this article.
The taxonomy adopted is based on the following equation:
MARKET VALUE ¼BOOK VALUE þINTELLECTUAL CAPITAL ð1Þ
Equation (1) shows that stock value has a tangible portion (book value) in addition to
an intangible component. Hence, assuming that the intellectual capital is greater than
zero (IC .0), the market value/book value is greater than 1 (M=B.1) – the more
knowledge-intensive the company, the greater the M/B value.
The book value (also called financial capital) is then calculated using the following
formula:
BOOK VALUE ¼MONETARY CAPITAL þPHYSICAL CAPITAL ð2Þ
and intellectual capital, formerly called goodwill by accountants, is calculated using
the formula below:
INTELLECTUAL CAPITAL ¼HUMAN CAPITAL
þSTRUCTURAL CAPITAL ð3Þ
Human capital does not belong to the company, as it is a direct consequence of the sum
of the expertise and skills of its employees. Structural capital belongs to the company,
A company’s
intangible asset?
587
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