Saturday, February 21, 2015
A Simple Story of Customer Lifetime Value
8:46 pm est
We don’t read much today about Customer Lifetime
Value. Maybe it’s not exotic enough to command much attention, but we all know it’s critical to business
success. Our friend, Tommy the barber, understands the concept completely though he won't use the term. Follow
with us through an example of lifetime value using Tommy's barbering business. We’ll not only consider the value
of a single customer over time, but also the added (and often overlooked) value of a customer's ‘multiplier effects’
that add far greater significance to a customer's value.
Our friend Art is a long-time customer of Tommy, an aging
barber in his little old-fashioned barber shop. Including tip a haircut at Tommy’s costs $20. At this price,
an individual hardly seems worthy of too much attention. But Tommy would be the first to point out the error in that
observation. Tommy knows that Art’s worth far more than the $20 he pays on any given visit. That’s
why Tommy will stay open a half an hour later if Art’s running late, and never hurries his attention to Art’s
cut – even when the waiting area is full.
Those $20 Bills Can Add Up!
figured things out. He understands that Art gets his hair cut every three or four weeks – like clockwork.
So, since he’s been a customer, Art’s value each year to Tommy has been about $300. And, because Art has
been a loyal customer of Tommy’s for the last 10 years, he’s put no less than $3,000 into Tommy’s old cash
register. This could be Art's “lifetime value”; an amount considerably more meaningful than the $20 transaction
for a single visit.
But There's More....
But Tommy would point out that Art’s
lifetime value is actually a lot larger. Not only is Art still a relatively young man with years of haircuts ahead of
him but his word of mouth is extremely valuable to Tommy's business. Art was responsible for recommending Tommy to us.
We subsequently recommended him to three others, who each became his customers. We know at least one of those customers
has recommended Tommy to two additional folks who also became customers. So the ‘snowball’ of positive word of
mouth accumulates adding an exponential amount to Art's own, personal contribution. The fact is, Art and the additional
customers he's sent to Tommy have been worth almost $6,000 - to date - and that amount grows each month!
articles and talks we’ve employed similar examples from local pizza parlors, gas stations, life insurance agents, etc..
These examples taken from businesses with seemingly small transaction revenues dramatically make the point that a customer
is worth so much more than his or her typical purchase.
No doubt you were ahead of us as soon as you began reading
this column. But, we hope Tommy’s appreciation for Art's value gives you some ideas about how to compellingly
communicate customer lifetime value to your colleagues and subordinates (sometimes even higher-level managers). It’s
a lesson that can’t be underestimated in its importance.
Thursday, January 29, 2015
Do Your Employees Know Too Much to Think Like Your Customers?
5:39 pm est
Mark Zuckerberg and
a coalition of technology companies (including Ericsson, Qualcomm, Nokia and Samsung) and nonprofits have teamed-up with the
aim of bringing the Internet to the two-thirds of the world’s population that currently doesn’t have it.
A lofty, admirable goal.
Beyond our respect for the societal benefits of this project, we discovered within reports
of the project an intriguing challenge they faced: getting ‘Silicon Valley types’ (who live with high, hi-tech
items) - to comprehend life in, say, a farming village in India!
While building a permanent lab to simulate
in-market technology conditions, Facebook became aware of the ‘disconnect’ between their view of their category
– as ‘insiders’ – and the perspective of their target customers. To Silicon Valley insiders
a 2010 Android phone is “ancient” but to many of their target customers it’s “high technology”.
When forced to interact with such hardware, staffers were heard referring to “low-end” phones and networks.
Of course for the majority of the world’s population a first generation Android phone is not “low-end” or
ancient but rather is current reality. And before the engineers could begin to conceive of how to tackle the adoption
problem, their mindsets had to be drastically altered. Rather than thinking and talking about “low-end equipment and
service” they needed to start referring to it as “typical hardware”.
Great, But What's This Got To Do with Your Business?
You aren’t tasked with bringing the Internet to the
world’s population, but we see an important lesson here. Just like those Facebook technologists, most business
executives and marketers are simply so close to and so knowledgeable about their products and category that they fail
to relate to and experience their category from their customers’ perspective. They’re
privileged to use the latest and greatest versions of their products and by doing so can be out of touch with their customers’
current perceptions and problems. Like Facebook’s technologists they are industry insiders and very different
from most of their customers and prospects.
Consider a few examples we’ve encountered in past assignments:
company executives observing focus groups conducted among their policy holders refused to believe they
were bona fide customers. Why? Because the participants hadn’t carefully read their insurance
policies and didn’t really understand the coverage they were paying for. (The executives, on the other hand,
lived and breathed the details, understood the terminology and legalese, and would never have bought a policy without
reading and digesting every word.) The executives weren’t bad people, they simply couldn’t comprehend
any customer not having the same information as they had.
- Auto executives found owners' descriptions of the Owner Experience
as inconsistent with their reality. In lengthy discussions it was learned that the executives had never
purchased a car in a dealership but rather selected their next year’s model from a company website and the
car was subsequently delivered to their corporate office. They hadn’t visited a dealership for service
because their Administrative Assistants scheduled their cars for servicing. The car was picked up at their office
and dropped off later the same day, washed and detailed to perfection. They knew all the design features and
specs and how their cars compared with the competition, but their corporate positions actually limited their opportunity
to experience their product in the same way as their customers.
Challenge Your Perspective, Step Outside Your Office and 'Look In'
We all want our executives and staff members to know everything
there is about our products and our category. Ideally we would like customers to share much of the same knowledge.
But pragmatics interfere; consumers interact with too many types of products and services and lack the time or the inclination
to listen, read, or digest the information available. The two realities are very different. Taking steps to help
management understand the experience of a “typical” customer, and even encouraging your internal partners to modify
the language they use to talk about it, as Facebook’s coalition did, can lead to progress in delivering higher quality
products and services.
Sunday, December 21, 2014
What Are Customers Saying About You? How Do You Know?
10:17 pm est
magazine’s September, 2014 cover was a photo of Eric Snowden, period. No photo caption, no headline, no copy whatsoever.
We won’t take a position
on Snowden or the cover. But as marketers we were intrigued by a follow-up story in Wired that
reported on reader reaction. But rather than the reactions themselves, what really caught our attention was how the
tonality of the received comments varied so much by medium. Wired was clever enough to track responses by each
platform. They reported on the seven most-used sources of feedback/word of mouth. These high-volume channels ranged
from Instagram to Twitter, to their own website and even traditional postal mail.
The strategically relevant
story, from a marketer’s point of view, is how much difference there was in the tonality of communications by channel:
analysis shows that relying on a ‘content analysis’ from any one source could lead one to drawing conclusions
that were completely unrepresentative of the overall sentiment. The diversity exhibited here clearly suggests the
need to monitor multiple social media channels to accurately determine what your customers may be saying about you.
It's What Many Brands Are Doing
But even if you include multiple
channels (as Wired did) you're still likely hearing only a fraction of what's being said. That's because customer
comments aren't restricted to only the public social media (Instagram, blogs, Facebook, Twitter, Reddit, YouTube,
etc.). Instead, research from multiple sources tells us that 80% + of all word of mouth takes place through private
social media (emails, test messages, phone calls, and plain old face-to-face conversations).
The Lesson from Wired's Analysis
Most astute marketers today understand
that consumers control the brand message. As a result most now make an effort to monitor social media and to respond
when and where appropriate. But the most important lessons the Wired story should teach us are:
one or two public social media platforms is not enough.
- Be sure to give your customers multiple channels to reach your brand.
And, be sure you are listening to all of them.
One Final Reminder
Wired did not consider it
in their summary, but you probably should. The 80%+ of word of mouth that circulates out of the public eye doesn’t
all take place through email and hard mail. The majority likely occurs in private text messages, phone calls, and face-to-face
conversations. If you truly want to understand the forces that are impacting your brand today, and those that will shape
the future of your brand, you need a broader, more objective, more representative measurement tool like our Buzz Barometer®.
You need to know how much word of mouth is circulating, through which channels, with what frequency, with what tone, and the
exact content that's being communicated
Monday, November 24, 2014
A Final Word About 'Firing' Customers
2:28 pm est
It should be simple;
some customers are costing you money, so fire them! Activity-based cost accounting has dramatically shown that for most
businesses 20% of customers generate all the profits, while 60% of customers help to cover fixed costs but are basically breakeven,
and 20% of customers actually are a drain on profits. With this ‘client topography’, it would seem logical
that all any business needs to do is jettison its unprofitable customers and watch the remaining dollars flow to the bottom-line.
But, of course, the devil is in the details. In particular, identifying costly customers and, for that matter,
identifying currently profitable and potentially profitable customers has been challenging. Some businesses naively
believe they know their best customers because they must be the ones spending the most, or those in the highest tiers of a
loyalty/points program. In most cases these indicators are overly simplistic and may not be accurate indicators of truly
Then, How Do You Identify Costly Customers?
To properly identify those customers that you might want to lose, and for that matter to identify those customers
who deserve extra effort to be retained (because they are most profitable) we have promoted a scoring system we call SLP2
(as in Satisfaction, Loyalty, Profitability and Potential).
Each component has its own source. Satisfaction is scores generated through survey feedback capture.
Loyalty is a measure of historical buying behavior. Profitability is modeled from
servicing costs including: discounts required to close sales and demands for after-sales servicing. Potential
is based upon the share of category spending currently allocated to the brand by each customer.
We've Come a Long Way
When we first introduced SLP2 to the world some fifteen years ago,
it was, to be kind, ahead of its time. We were frequently told (either correctly or incorrectly), “We can’t
access that information!” And in fact, most marketers lacked the systems to precisely track individual customer’s
buying behavior or to model profitability. But that was before CRM software and the popularity of ‘big data’.
With today’s information capture systems, most services and many goods manufacturers can now access an entire history
for every one of their customers! Further, most corporations regularly track customer satisfaction, and many no longer
shirk from asking share of wallet spending questions (to determine potential).
the potential for really making efficient and effective use of all that information. Identifying the most valuable
and the least valuable customers for the future of your business can take marketing and customer service strategy to a smarter
and more profitable level.
A Final Word About 'Firing' Customers
By the way, for all those who read to the end of this column, we at Customer Experience Partners, strongly
recommend against ever “firing” any customer. If possible, we recommend directing them to a product
and service mix that turns them into at least a breakeven customer for the company. Should that fail we recommend finding
a way to introduce and escort them to a competitor. It will save a lot of pain for everyone and avoid a lot of potential negative
word of mouth.
Monday, October 13, 2014
Not All Social Media Followers Are 'Equal'...
2:15 pm edt
To succeed in business today (and in politics as well) it’s good to have a lot
of Facebook likes and Twitters followers, right? After all, a large and active social media base leads
to greater awareness and consideration, and maybe more. But, perhaps we should consider the practical consequences of
attempts to aggressively build likes and followers.
The 'Business' of Exploiting
the Social Media
Tell a dedicated employee that it’s his/her job to
generate likes and followers, and it’s likely she will go out and find a way to get them. Pressure him to produce
even more and he will get you there as well. Unfortunately, unless you have made it very clear why you want them, and
what you expect those followers to do for your brand, the results may be deceiving and disappointing.
an investigation reported recently by Darren Samuelsohn of Politico.com that casts doubt (or at
the very least some skepticism) about the large numbers of followers reported by brands and personalities. In particular,
Samuelsohn found evidence that the number of followers presented by some of the biggest names in American politics are, shall
we say, slightly exaggerated. According to analysis from Politico, eager staffers
have likely been using bots and click farms to find ‘followers’. The result is astounding:
- 46.8% fake followers for @BarackObama
fake followers for @SenJohnMcCain
- 21.9% fake followers for @HillaryClinton
- 18.9 % fake followers for @Chris Christie
Bringing It Back to Products, Brands and Services...
But you aren’t
aiming to be the leader of a country or even a member of Congress, so how does this relate to your business practice?
- You need to think quality, not quantity in your social media strategy.
Whether you have millions or hundreds of likes or followers, what you really should be looking for are more opportunities
to cost effectively communicate with your customers and prospects.
- Fake followers and users don’t actually interact with your Twitter or Facebook accounts so they
aren’t sharing your comments or content. In fact, they are actually making your ratio of followers to
shares look worse!
- While you can buy fake followers fairly cheaply, they
have absolutely no value, and actually impose a cost. If your social media followers were ever subjected to careful
investigation, the revelation of your fake followers could actually do more damage to your credibility than your
accomplishments through your legitimate followers.
Authentic Ways to Build
Your Social Media Following
There are any number of legitimate ways to build likes and followers. The common
elements among the approaches is that they involve some hard work and require that you provide some form of value. That
value can be: a chance to win a contest, a special deal or discount, having access to information about your brand not available
to the general public, getting cool content to share, and receiving entertaining content that emotionalizes your brand or
Like so many other opportunities in life, the best social media followers aren't easily obtained....
the knack is in disciplining one's self to aim for quality over quantity.