Watch the webinar: http://monetate.com/webinar/how-can-customer-centricity-be-profitable/ Marketing leaders crave to know their customers better, focus on the right buyers, and maximize customer lifetime value. So how can you make being more customer-centric work for your business? Hear Peter Fader, Professor of Marketing at the Wharton School of the University of Pennsylvania, discuss the tactical “building blocks” underlying customer centricity as well as important insights about the interplay among them. Professor Fader will highlight a number of actionable suggestions to help companies make effective and efficient use of: • Customer acquisition programs; • Customer retention; and • Customer development. Learn how to understand your customers at a more granular level by discovering segments that are the most valuable, and then deliver different products, services, and offers to them. The result? Become more customer-centric and more profitable!

1. #monetatewebinar

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3. Peter Fader
Professor of Marketing
Wharton School at the
University of Pennsylvania
Bruce Ernst
Vice President
Product Management
Monetate
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4.
How
Can
Customer
Centricity
Be
Profitable?
Professor
Peter
Fader
The
Wharton
School,
University
of
Pennsylvania
Co-­‐director,
Wharton
Customer
Analy=cs
Ini=a=ve
faderp@wharton.upenn.edu
www.petefader.com
TwiCer:
@faderp
#monetatewebinar

5. “Customer
Centricity:
Focus
on
the
Right
Customers
for
Strategic
Advantage”
• The
tradi=onal
product-­‐centric
business
model
is
showing
some
cracks
– Commodi=za=on,
well-­‐informed
customers,
globaliza=on,
etc.
• Customer
centricity
is
a
promising
alterna=ve
but
is
not
clearly
understood
– Many
firms
that
are
touted
to
be
customer
centric
really
aren’t…
• Celebrate
customer
heterogeneity:
dis=nguish
the
profitable
customers
from
the
less
profitable
ones
– Emerging
metrics
such
as
customer
life=me
value
(CLV)
make
this
possible
• So
where
do
higher
profits
come
from?
– That
is
our
focus
today…
#monetatewebinar

6. Show
me
the
money!
Customer
centricity
can
lead
to
improved
profitability
through
greater
effec=veness/efficiency
in:
• Customer
acquisi=on
• Customer
reten=on
• Customer
development
You
can’t
expect
to
be
world-­‐class
on
all
three
dimensions,
but
doing
very
well
at
even
one
of
these
could
be
highly
lucra=ve
for
the
company
as
a
whole.
But
mastering
each
of
these
cri=cal
func=ons
is
a
lot
trickier
than
you
think…
#monetatewebinar

7. Mo
money
Balancing
acquisi=on,
reten=on,
and
development
requires
considerable
skill
(and
analy=cal
insight)
If
you
had
an
extra
dollar
to
spend,
which
of
these
ac=vi=es
would
you
allocate
it
to?
Let’s
examine
each
tac=c
separately
in
order
to
learn
the
answer…
#monetatewebinar

8. Customer
acquisi=on
• What
metric
is
used
by
most
firms
to
gauge
and
guide
their
acquisi=on
ac=vi=es?
• CPA
(cost
per
acquisi=on)
• Big
mistake!
• Would
you
use
it
for
other
kinds
of
acquisi=on
ac=vi=es
(e.g.,
employees,
technology,
lawyers)?
• Firms
should
focus
instead
on:
– VPA
– “Value
per
acquisi=on”
à
which
is
CLV!
#monetatewebinar

9. “Customers acquired from Google on average have a
higher lifetime value (mean CLV at $1,002) than
customers acquired from other channels (mean CLV at
$808). The difference is even larger for those whose firsttime purchase was off-line (mean CLV at $1,226 versus
$959, respectively)…”
Marke&ng
Science,
Sept./Oct.
2011,
p.
837-­‐850
#monetatewebinar

10. Customer
acquisi=on:
summary
• You
must
ac=vely
avoid
having
a
“CPA
mentality”
– Focus
on
ceilings
instead
of
floors…
• Celebrate
heterogeneity
by
using
CLV
to
drive
acquisi=on
strategies
and
tac=cs
– Be
more
pa=ent/forward-­‐looking
when
judging
acquisi=on
efforts
• In
general,
firms
tend
to
underspend
on
acquisi=on,
and
underachieve
as
well
#monetatewebinar

11. Customer
reten=on
• What
metric
is
used
by
most
firms
to
gauge
and
guide
their
reten=on
ac=vi=es?
• Churn/aCri=on
rate
(or
reten=on
rate)
• This
is
a
good
metric,
but
you
need
to
examine
it
at
the
right
level…
#monetatewebinar

12. Vodafone
aCri=on
rate
(quarterly
annualized
%)
Source:
Vodafone
Germany
Analyst
&
Investor
Day
presenta=on
(2004-­‐09-­‐27)
#monetatewebinar

13. %
customers
Celebrate
heterogeneity!
ACri=on
rate
Source:
“Vodafone
Achievement
and
Challenges
in
Italy”
presenta=on
(2006-­‐09-­‐12)
#monetatewebinar

14. Transla=on
to
CLV
Attrition
rate
% customers
Low risk
0.06
70
Medium risk
0.35
20
High risk
0.65
10
%
customers
Cluster
Average
aCri=on
rate:
0.177
(0.06
×
0.70
+
0.35
×
0.20
+
0.65
×
0.10
=
0.177)
Expected
life=me
using
this
average
aCri=on
rate:
5.6
years
ACri=on
rate
Ø What’s
wrong
with
this
calcula=on?
#monetatewebinar

15. The
key
insight…
Because
we
can’t
get
accurate
calcula=ons
with
averages,
we
must
work
with
the
actual
rates
for
each
separate
class
of
customers.”
“
Reichheld,
“The
Loyalty
Effect,”
p.
54
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16. Cluster
Attrition
rate
% customers
Expected
lifetime
Low risk
0.06
70
16.7
Medium risk
0.35
20
2.9
High risk
0.65
10
1.5
%
customers
Transla=on
to
CLV
Average
aCri=on
rate:
0.177
(0.06
×
0.70
+
0.35
×
0.20
+
0.65
×
0.10
=
0.177)
ACri=on
rate
Expected
life=me
using
this
average
aCri=on
rate:
5.6
years
Correct
average
life=me:
12.4
years
(16.7
×
0.70
+
2.9
×
0.20
+
1.5
×
0.10
=
12.4)
#monetatewebinar

17. Customer
reten=on:
summary
• There
is
no
“average”
customer,
and
calcula=ons
based
on
such
a
no=on
will
always
underes=mate
the
value
of
a
customer
base
– And
the
difference
can
be
huge!
• When
heterogeneity
is
accounted
for,
the
“aCri=on
elas=city”
is
much
lower
than
in
the
homogeneous
case
– Investments
in
reducing
aCri=on
will
have
more
modest
returns
than
expected
#monetatewebinar

18. Customer
development:
quick
summary
• It
is
useful
to
look
for
development
opportuni=es,
but
the
upside
to
these
ac=vi=es
is
more
limited
than
most
managers
think
• Due
to
massive
customer
heterogeneity,
there
is
more
opportunity
to
“move
the
needle”
via
acquisi=on
than
development
• S=ll,
it’s
important
to
pursue
development
tac=cs,
but
think
about
them
as
“icing
on
the
cake”
#monetatewebinar

19. Balancing
acquisi=on,
reten=on,
and
development
If
you
had
an
extra
dollar
to
spend,
which
of
these
ac=vi=es
would
you
allocate
it
to?
Not
to
minimize
the
importance
of
reten=on
and
development,
but
at
the
margin
I
favor
acquisi=on…
Consider
the
conven=onal
wisdom:
“it
costs
5-­‐10
=mes
more
to
acquire
a
new
customer
than
to
retain
one,
so
work
hard
to
keep
the
ones
you
have…”
This
may
be
true,
but
it
totally
misses
the
point:
focus
on
value
instead
of
costs
#monetatewebinar

20. Overall
summary
• Customer
centricity
can
only
succeed
by
“celebra=ng
heterogeneity”
• The
greatest
upside
to
improve
customer
profitability
arises
through
“smart
acquisi=on”
• Don’t
overspend
on
reten=on
–
the
flighty
customers
will
fly
away
no
maCer
what
you
do
(or
they’ll
be
unprofitable)
• View
development
as
“icing
on
the
cake.”
ACemp=ng
to
turn
persistent
“detractors”
into
“promoters”
is
a
difficult
task,
and
the
resources
required
to
do
so
can
be
beCer
invested
elsewhere
• Don’t
have
blind
faith
in
the
conven=onal
wisdom
about
these
tac=cs
#monetatewebinar

21.
Professor
Peter
Fader
faderp@wharton.upenn.edu
www.petefader.com
TwiCer:
@faderp
“Customer
Centricity:
Focus
on
the
Right
Customers
for
Strategic
Advantage”
hCp://bit.ly/FaderCC
#monetatewebinar

22. Customer
Centricity
in
the
Digital
World
Bruce
Ernst
Vice
President,
Product
Management
Monetate
#monetatewebinar

23. #monetatewebinar

24. 40%
Marketers
who
don’t
target
any
customer
or
visitor
segments
to
create
personalized
website
experiences.
Econsultancy,
The
Reali&es
of
Online
Personaliza&on,
2013
28%
Marketers
who
say
they
do
not
know
which
high-­‐value
customers
to
focus
their
markeKng
on.
BRITE/NYAMA
Marke&ng
in
Transi&on
Study,
2012
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34. SegmentaKon
•
Is
Real
•
Is
Possible
•
Will
make
a
difference
to
your
business
#monetatewebinar

35. Questions & Answers
Peter Fader
Professor of Marketing
Wharton School at the
University of Pennsylvania
Bruce Ernst
Vice President
Product Management
Monetate
#monetatewebinar