Dr. Peter Fader, an expert in customer lifetime value, discusses the importance of prioritizing CLV in marketing strategies. They explore the shift towards customer centricity, choosing the right customers, and the value of customer behavior over demographics. The chapter also highlights the intersection of customer centricity and service design, the validity of CLV, and ends with interesting recommendations for listeners.
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Quick takeaways
Customer centricity is about recognizing that some customers are more valuable than others and building products and services that cater to their needs.
Companies should prioritize efforts towards high-value customers while still addressing the needs of so-so customers.
Striking a balance between prioritizing high-value customers and addressing the needs of so-so customers is crucial for stability and predictability.
Deep dives
Focus on the Right Customers for Strategic Advantage
Customer centricity is not about providing super customer service or putting the customer at the center of everything. It is about understanding that not all customers are created equal and placing disproportionate attention on the high-value customers. This approach involves recognizing that some customers are more valuable than others and building products and services that cater to their needs. It also means being mindful of the less valuable customers and finding cost-effective ways to keep them engaged. Ultimately, customer centricity is about strategically choosing the right customers and aligning business decisions around them.
Challenges of Customer Development
While customer development is an important aspect of customer centricity, it is often difficult to transform so-so customers into highly valuable ones. Companies should still invest in understanding and catering to so-so customers, but they should prioritize their efforts towards the high-value customers. Customer development should be seen as an opportunity to unlock the value that already exists in high-value customers rather than trying to transform low-value customers. It is important to find the right balance between prioritizing high-value customers and addressing the needs of so-so customers.
The Paradox of Customer Centricity
The more a company focuses on their high-value customers, the more they understand their preferences and behaviors. However, this does not mean ignoring so-so customers who contribute to overall revenue. Companies should find cost-effective ways to cater to so-so customers while prioritizing high-value customers. The paradox lies in the fact that the more attention a company gives to high-value customers, the more they need so-so customers for stability and predictability. Therefore, the challenge is to strike a balance and derive insights from both customer groups.
Combining Attitudinal Metrics and CLV
Net Promoter Score (NPS) is valuable as an attitudinal metric to complement customer lifetime value (CLV). NPS measures customer satisfaction and likelihood to recommend, while CLV focuses on the actual value each customer brings to a company over time. Both metrics provide different but valuable insights. While CLV provides a financial behavioral perspective, NPS captures aspects of customer sentiment and loyalty that may not be reflected in CLV. By leveraging both metrics, companies can gain a more comprehensive understanding of their customers and make data-driven decisions.
The Fallacy of Demographics in Customer Centricity
Demographics should not be the starting point when it comes to customer centricity. Instead, companies should focus on what customers do rather than who they are. While demographics can be useful at later stages to validate differences among high-value and low-value customers, they should not be the primary driver of customer-centric strategies. Customer lifetime value should primarily be driven by behavior, transactions, and perceived value, rather than solely relying on demographic characteristics. Demographic information can be used to develop personas, but only when they are based on actual customer behaviors and preferences.
Is your organization customer-centric? Does your product team dive into the demographics of your customers to figure out what features will make them as happy as possible? If so, then you're doing it all wrong! Perhaps. On this episode, the gang chats with Dr. Peter Fader about putting customer lifetime value (CLV) front and center when it comes to developing and executing marketing strategies.
For complete show notes, including links to items mentioned in this episode and a transcript of the show, visit the show page.
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