Wednesday, May 02, 2007

Still More Thoughts on Measurement for Product Managers

I think yesterday’s comments on lifetime value and product reporting need a bit of clarification. It’s important to distinguish measurements of customer acquisition efforts from measurements of other customer contacts. With acquisition, lifetime value in as a formal financial measure is very important and widely accepted, even though the actual calculation often does not include the full scope of future cross sales and other ancillary values. Here, the sort of attitude measures I was proposing as a more-accessible proxy for future value calculations are neither necessary nor appropriate.

Once a customer is acquired, it becomes much more plausible to consider each sale as independent. This is where product- and promotion-specific metrics are often used without consideration of their future value impact. It’s also difficult to measure the true incremental impact on future value of any one promotion or purchase (or other contact, such as product use or customer service.) Since future value is less obviously needed and more difficult to calculate, there’s little wonder it is used so rarely in these situations.

I haven’t changed my position: understanding the future value impact of each contact is still the only way to truly optimize business results. But this distinction does suggest that companies might start by improving the accuracy of their acquisition LTV measurements, for example by ensuring they include results across all product lines. This will be easier for managers to understand and accept, while laying the data and analytical foundation needed for the later, more challenging task of measuring incremental value changes from post-acquisition contacts.

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