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.
2 Replies to “Pay Attention to Profitable Customers”
I agree to the fact that customers are not always right, to the point that I believe that whoever came with this states of “the customer is always right” is ridiculous. Customers don’t know what they want to begin with. its when the product is out, the customer gives feedback and marketer abide them to make it better. That’s how you keep customers coming to the company. If customers was always right that it would be a different look in the market today. As EA’s biggest game is FIFA, there are many users that play this game and is one of the biggest cash cow for the company, when it got released first customers loved, as time when on EA and its user communicated and improved on the game and more and more people came to play the game. That’s how you bring in customer to buy your product.
I would agree CLV is the most important strategic concept that businesses in all departments should be using to drive innovation and product development. Though to say “the customer is always right” is not correct seems to be far fetched. Customer feedback is important for product improvements. In addition, appreciation and maintaining satisfaction can keep a customer longer which then has implications to the CLV model. The famous cliche is you can’t be everywhere and be successful and that goes for you can’t target everyone and be successful.