Investing in Customer Capital

Firms invest heavily in customer capital, and such investment is a main source of intangible capital value. This study measures investment in customer capital using sales and marketing expense from income statements, information on salaries paid to workers in sales and marketing, and text from annual 10-K SEC filings describing firms’ sales and marketing strategies. Firms emphasize brand value, sales force, customer service, advertising, and the acquisition and use of customer data as sales and marketing strategies. Industries focused on platform business models, online sales, and the production of high tech manufactured goods invest most heavily in customer capital. Industry-level variation in the intensity of sales and marketing expense and R&D expense explains a large amount of the variation across industries in the value of intangible capital. Residual sales, general, and administrative expense after removing sales and marketing expense is uncorrelated with intangible capital value. Industries that invest most heavily in customer capital are growing as a share of aggregate revenue and enterprise value.