Tag Archives: Marketing research

Rocking It With High Customer Lifetime Value

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The reward system for CEOs and CMOs is heavily structured toward short-term (quarterly) revenue and ROI. And the degree of success is often determined by comparison to the recent past. One of the most valuable future-looking metrics we have is Customer Lifetime Value.

The Marketing Accountability Standards Board defines it as “the present value of all the cash flows attributed to the consumer during their entire relationship with a company.” Why should you care?

CLV is critical business information for:

  • Determining how much to spend on support.
  • Developing products that meet the needs of your best customers.
  • Assessing marketing spend to acquire a customer.
  • Helping sales hone in on the most profitable customers.
  • Improving efficiency by not wasting resources on non-productive customers.

One common example is the price shopper (P), who is loyal only to the lowest price, not the brand. He/she isn’t a good candidate for a repeat sale unless you can cough up another deep discount.  At the same time, another customer (V) understands the true value of your product and will buy it at any reasonable price. Consider the dollars at stake if this were an automobile purchase.

Research your existing high value customers, and have the tools and knowledge to identify them during the selling process.

Customer (P) will buy a blowout special car, which he has negotiated to the lowest possible price. You’ll never see him again. Your CLV is simply the price he paid. Meanwhile, customer (V) will pay a fair price for his original car, and purchase three more during his driving career. In addition, he’ll recommend your brand to friends, family and colleagues. He’ll also generate additional revenue streams for scheduled and unscheduled maintenance.  By this measure, customer (V) is worth 5 times more to the company than customer P, but both showed up as individual and equal sales in your first quarter.

So, how do you sell to high customer lifetime customers?

  • Train salespeople to sell benefits – not price.
  • Don’t nickel and dime your best customers. Give them something for free every now and then.
  • Research your existing high-value customers, and have the tools and knowledge to identify them during the selling process.
  • Guide these customers down the full path of products and services you offer.
  • Know when the acquisition and maintenance cost of a customer is unprofitable and drop him or her.

To quickly understand your product’s CLV, use this simple calculator. Or put your data analyst (if you have one) to work on algorithms that might identify profitable and unprofitable customers earlier in the sales cycle.

By focusing on the lifetime value of customers, you can focus on marketing strategies that result in long-term profits, not just a sale.

To find out how computers and algorithms might be used to predict high and low-value customers, read “The Executive’s Guide to Machine Learning from McKinsey.

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Will Your Advertising Work without Integrity?

Only 4% of Americans believe that the marketing and advertising industry acts with integrity, according to a 2015 study by the 4As entitled “Sex, Lies and News.”

News is beyond my purview, so let’s start with sex. Consumers who see sex in advertising say it cheapens products and makes them question the creative abilities of the advertising agency. Who knew?

Don’t feel too badly about the lack of integrity thing, because the U.S. Congress only has 2% more credibility points than the marketing industry.

I’d say that makes consumers pretty astute.

So what happened? With social media, review sites and easy access to information, the baloney churned out by agencies has been exposed, if not blown up.

It’s ironic that everyone is racing to make their brands more authentic, when the public thinks we’re lying to them. What happened? I’d say our work has turned into 50 Shades of Fudging It. The reasons are plentiful:

  • Pressure internally and externally from clients to amp up claims and language.
  • The misperception that we work in a Mad Men Style la-la land, which encourages us to take poetic/artistic license.
  • Other brands are lying, so we need to lie just to keep up.
  • We’re kidding ourselves that we know the consumer. And why is that? We believe that research has all the answers.
  • And finally, I think it’s laziness. We don’t fact check, consult multiple sources, go out in the field and interview consumers, and we take our clients’ word for it.

If authenticity is the benchmark now, how do we turn this around?

  1. Hire journalists. They’ve been trained to search for truth, and a lot of them are unemployed.
  2. Use facts instead of adjectives. Prove that a product or service works in the way you’ve claimed, or don’t make the claim. The last line in most pharmaceutical ads is “may cause death.” This is very disturbing. At least give me the Vegas line on surviving.
  3. Understand that great branding is based on reality, communicating it, and integrating it throughout a company. When advertising is more enticing than the consumer experience, watch out. You’re about to take a hit in the integrity category. BP has a beautiful tree-hugging logo, but it sure doesn’t make them environmentalists.
  4. Use facts in advertising, and, when you can, cite your sources. And give credit and links anytime you borrow anything you didn’t produce.
  5. Know that consumers are way smarter than we think. We need to get closer to them. The annual focus group isn’t enough. We need resources to get to know and observe them.

Aren’t these just common sense ideas? Then let’s make it an industry goal to body slam Congress in 2015.

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