Monday, May 14, 2007

If Lifetime Value Falls and Nobody Measures It, Has It Really Gone Down?

I’m starting to rethink my focus on lifetime value as the key to customer centricity. I’m still fully convinced of my position: LTV is the essential guide for customer level management. But that message just doesn’t seem to resonate, even among managers who have accepted customer centricity as their goal.

I haven’t quite figured out why this is. The specific objections—lack of data, no practical applications, need for short term results—all have responses that I find convincing. Others may not, but I sense the problem is less specific objections than a general sense that LTV is irrelevant to day-to-day needs. People get much more excited talking about a specific online marketing approach or new analytical tool. They don’t see lack of measurement systems as a problem, and therefore aren’t interested in LTV as a solution.

This makes me sad, since people who fail to address this fundamental issue can never fully succeed. But if people want to focus on immediate concerns, I can’t stop them. Perhaps the best I can do is to ensure any short-term solutions are compatible with LTV measurement, so it will be available when people decide they need it.


MRHoffman said...

Only the best performing companies leverage LTV and make it cornerstone of customer level management.

LTV may be more visible as a management metric at companies where the disparity between low value and high value customers is extreme - but the article below hints that The Customer Experience + LTV is a better - Using the entire customer experience to extract the fullest customer potential for an individual company and its partners.

Note a recent WSJ about service, "How Posh Hotel Sizes Up its Guests", it notes service at the Peninsula, Beverly Hills,

This excerpt hits LTV dead center - and that not only Peninsula but also Van Cleef & Arpels and the luxury community get the LifeTime Value formula and use it to their competitors disadvantage - "Diana Jenkins, the wife of a British banker, was slated to receive a $200 gift certificate to Escada -- until the hotelier connected the dots. He knew she sends expensive clothes to the hotel's in-house dry cleaner, and he'd seen her mentioned in the social pages. "She's a shopper and a very fashionable lady," he ordered. "Give her Van Cleef & Arpels." Thus the lady's smart appearance upgraded her to a $1,000 spending spree at the jeweler -- proving that an investment in fashion can pay dividends."

Do you know a company that allow discretionary spending and account management at this level - giving away $200 no $1,000 to guests? Hotel rates range from $476 to $1300 a night - so obviously CFO's didn't come up with the idea of handing out $$$ - But Peninsula hires CFO's and encourages management that get LTV - Oh, and the value of an article like this in the WSJ? Ask the Peninsula's competitors - 'Priceless'

Ron Shevlin said...

David --

You nailed the reason why many firms fail to adopt LTV a few posts ago -- it's a religious thing.

Adopting LTV is akin to adopting a set of beliefs about the way the world works -- i.e., a religion.

And no matter how right you think you are (or actually may be), you can't convert all the heathens.

But good luck trying. Somebody has to be the missionary.

David Raab said...

Somebody also has to feed their family. Not sure I can afford this missionary stuff.

Ron Shevlin said...

maybe you should give LTV a fancy new name and write a book about it (hey, it worked for Peppers & Rogers)