How Can Customer Centricity Be Profitable?


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Watch the webinar:

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!

Published in: Business, Education

How Can Customer Centricity Be Profitable?

  1. 1. #monetatewebinar
  2. 2. Tips for Webinar Attendees •  Audio problems? Click the “Problem Dialing In” link or switch to the webinar phone bridge and make sure your phone is muted. •  Use the “Question” box within GoToWebinar to ask a question or use the webinar hashtag #monetatewebinar •  A recording of the webinar with the slide deck will be available at within 1 or 2 business days. #monetatewebinar
  3. 3. Peter Fader Professor of Marketing Wharton School at the University of Pennsylvania Bruce Ernst Vice President Product Management Monetate #monetatewebinar
  4. 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   TwiCer:  @faderp         #monetatewebinar
  5. 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. 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. 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. 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. 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. 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. 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. 12. Vodafone  aCri=on  rate  (quarterly  annualized  %)   Source:  Vodafone  Germany  Analyst  &  Investor  Day  presenta=on  (2004-­‐09-­‐27)   #monetatewebinar
  13. 13. %  customers   Celebrate  heterogeneity!   ACri=on  rate     Source:  “Vodafone  Achievement  and  Challenges  in  Italy”  presenta=on  (2006-­‐09-­‐12)   #monetatewebinar
  14. 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. 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   #monetatewebinar
  16. 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. 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. 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. 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. 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. 21.     Professor  Peter  Fader   TwiCer:  @faderp       “Customer  Centricity:  Focus  on  the     Right  Customers  for  Strategic  Advantage”   hCp://           #monetatewebinar
  22. 22. Customer  Centricity  in  the  Digital  World   Bruce  Ernst   Vice  President,  Product  Management   Monetate   #monetatewebinar
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  24. 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   #monetatewebinar
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  34. 34. SegmentaKon   •  Is  Real   •  Is  Possible   •  Will  make  a  difference  to   your  business   #monetatewebinar
  35. 35. Questions & Answers Peter Fader Professor of Marketing Wharton School at the University of Pennsylvania Bruce Ernst Vice President Product Management Monetate #monetatewebinar