To maximize profits, companies must pay attention to profitable customers. As we see below, firms should not pursue every customer. Indeed, they need to avoid some unworthy customers..
Related to today’s discussion, we have examined a very important topic. Customer lifetime value:
- Value of Shoppers SECOND Purchases
- How Do You Compute Customer Lifetime Value?
- Enhancing Customer Lifetime Value
A Cautionary Tale: Pay Attention to Profitable Customers
Earlier this year, the Wharton School Press published a book and an online story about customer lifetime value. And it noted the following:
“Wharton School professor Peter Fader made it a mission to take models of a customer’s lifetime value (CLV). And then educate companies about all the things they could do if they only knew the value of their customers.”
“During this summer, Fader made a Ted talk. He said there are many different ways beyond marketing that a firm may apply these principles. For example:
- New product development: Fader mentioned video-game company Electronic Arts, which he and Toms chronicled in The Customer Centricity Playbook as a wildly successful turnaround story. How? By becoming more customer centric. Fader said EA looks at the lifetime value of each of their customers around the world. By doing this, it determines which kinds of new games to devise.
- Employee incentives: Merial, an animal health company was bought by Boehringer Ingelheim in 2017. At that time, it used the CLV models to incentivize and realign its customer service staff.
- Customer-based corporate valuation: Fader’s new company, Theta Equity Partners, brings marketing and finance departments closer together. By directly tying customer-level behavior to overall corporate valuation. Creating this kind of cross-functional alignment is a major priority in the ‘Customer Centricity Manifesto,’ (http://customercentricitymanifesto.org/) which Fader and Toms highlight in their book.”
To read more on this from the Wharton blog, click the image. Then, view video highlights of Fader’s Ted talk.