Ep. 18 | Driving Value with CLV with Neil Hoyne

Can you build value through CLV?

Your customers want deeper, more personalized relationships with you. What are you doing to make your top customers feel special? Driving value through customer lifetime value (CLV) is the most powerful way to deliver long-term and sustainable impact in a business. Neil Hoyne, Chief Analytics Evangelist and Head of Customer Analytics at Google, explains the tangible value organizations can achieve, the impact CLV can have, and several concrete steps you can take. Neil shares how CLV delivers a clear signal of customer behavior to understand what customers want. Using the data, companies can deliver the experiences that drive business impact. He stresses the importance of organizationally aligning the entire company. Everyone must come to the table not with solutions, but with questions about what is being seen and how to respond in ways that relate to the customer.

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Allison Hartsoe – 00:02 – This is the Customer Equity Accelerator, a weekly show for marketing executives who need to accelerate customer-centric thinking and digital maturity. I’m your host, Allison Hartsoe of Ambition Data. This show features innovative guests who share quick wins on how to improve your bottom line while creating happier, more valuable customers. Ready to accelerate? Let’s go!

Welcome, everyone. Today’s show is about why CLV customer lifetime value drives tangible results for organizations. And to help me discuss this topic is Neil Hoyne. Neil is the chief analytics evangelist at Google and also the head of customer analytics. He’s someone I met years ago when initially exploring this topic. Neil, welcome to the show.

Neil Hoyne – 00:56 – Hi. It’s a pleasure to be here.

Allison Hartsoe – 00:58 – Now, tell us a little bit more about your background and how you were originally drawn to this topic, and I know you love it as much as I do because we’ve been circling around it mutually for so long.

Neil Hoyne – 01:08 – Well, we have. So this topic was actually really serendipitous, so when I was at Google came there about seven years ago, my entire focus, the mandate of my work and my mother was just to understand marketing performance to understand it. If all the ads people were clicking on and interacted, did that change any customer behavior? If it did, how did it change and then how would that impact the relationship those customers had with a particular business agency, nonprofit going forward and a lot of the tools that we started using it at time, but really internal facing, what can we measure, what could we test, but it always seemed that something was just missing from that picture because a lot of what we measured was to say somebody clicked on the ad, we bought the product and let’s compare them to the propensity to somebody who didn’t see or click on it add to also buy the same product and you start thinking that’s great from a transaction basis. But what happens about that longer term relationship? Where do the loyalty and retention commit? They were largely absent.

Neil Hoyne – 02:07 – So I ended up in the back about 2012, ended up giving the presentation to a large group of business executives, about four or 500 people out of mountain view. And I noticed the agenda right before my presentation actually had a Wharton professor who I never met, never came in contact with this gentleman, Pete Fader.

Allison Hartsoe – 02:24 – No way.

Allison Hartsoe – 02:26 – I would sound exactly. I would sound like a similar subject. And, and I was thinking at the time, and I said, well I’m pretty comfortable with the techniques and the methodology’s at one, but when you’re following an academic who’s dedicated quality 30 years with his wife studying, learning everything about the same field, how closely do our viewpoints align? So if I’m thinking about this, well, how do we factor in loyalty and retention and relationships into understanding marketing performance, how does that match with a Wharton professor studied this entire career who’s arguably talking about some of the same stuff, some of the same content. And so I ended up having a call for the conference just to talk about agendas, and I thought it would be contentious that we’d have a lot of different points of views and we have to change your content. It ended up being perfectly aligned what we saw advertising market is going towards what they were trying to understand they were trying to get past this transaction.

Neil Hoyne – 03:23 – And what Pete was doing in his side as he was already working at a solution. Uh, he knew how some of these models and these questions could be answered, but I think were his major challenge was how do you take these ideas and these findings is that evangelize them back to the advertisers who were looking for the same opportunities. And so that’s what really kicked it off. And that we found out a lot of this work has already been done. The large challenge about understanding lifetime value’s not so many calculations in the modeling. Those things are largely completely. They work wonderfully well, but it’s also saying, how do you get them inside an organization so that it makes sense that organizations can move from measuring transactions. And measuring ad clicks to a more longterm sustainable value.

Allison Hartsoe – 04:08 – So the internal adoption, is that sort of what your team does now, how does that experience relate into what you’re specifically doing today at Google?

Neil Hoyne – 04:17 – You know, it’s turned out to be a huge part of what our team does, which is known to say we’re trying to solve lifetime value for advertising, but we’re trying to help them embrace those techniques and strategies. Is that what really helps them understand who their customers are, the relationships they have with them, and then how to measure the impact of their advertising along the same spectrum. So really moving away just from this transaction oriented relationships did something that’s really about the customers and understanding who their best customers are. Lifetime value plays a huge component as this organizational buying and data structure, but we also look at some other components. When you’re looking at things like machine learning, can you start scoring leads better before somebody becomes a customer? Can we use things like ml to understand which creatives are going to reach customers at a better time in a better way? How should it impact your website? So it was the best way that we like to describe it is that we like to help our advertisers understand the value of the customers and then understand how to provide better experiences to them.

Allison Hartsoe – 05:17 – I like that term about providing better experiences to them and let’s use that as a way to roll into our first point, which is about why should I care about this subject? We’ve covered a lot about the basics of CLV with Pete on this show and with Dan McCarthy on this show. Tell me a little bit more. If my role as a marketer is to provide good experiences or my role as an advertiser is you think I should care about CLV. Why is this so important? Why now?

Neil Hoyne – 05:50 – It’s an interesting question, Alison. I haven’t read it. The advertiser hasn’t met a marketer that would argue against the importance of lifetime value. I think the challenge though is transitional from what they’ve done historically and had we kind of roleplay with them. Now and then we’ll say, you know, we’ll give them CLV. It’ll come back and say scuba. What you’re telling me is that you’ve created a metric that supposed to look into the future about how my customers are they behave and as a result of that metric, what you built, you want us to give you more money and then to trust that these customers are going to continue to behave this way as opposed to the model today where we just invested in. You see the return on the same day, the same week that I go, why would we change our behavior So, a lot of it’s just a question to say, you know, how are they approaching CLV? What’s the role that lifetime value currently has an organization? If it’s just one of those metrics and says, look, it’s forward-looking. It’s nice to know. It’s going to be tough to build off of that.

Neil Hoyne – 06:49 – So what we try to do to push out the employees first when it comes to lifetime value in general, we actually stopped recommending specific marketing things and instead if we’re able to use some of these models and things that I’ve worked on in their entire academic clues, we kind of put them out and we say, here’s what we can understand here is a decile segmentation of your customers by lifetime value. And on the top, they usually see customers as a topic and spent several thousand dollars with them over their lifetime. And then on the bottom customers are to spend maybe just a couple of bucks, and that’s generally where we stop, and we say this is where marketers start to pay attention to you and say, wait a minute. It becomes real where they say their customers will actually spend and behave differently. And then we ask them, we say, well, given this understanding and assuming that you trust the bottles and everything, it’s been published in peer review. You believe in the accuracy of the goodness of these models.

Neil Hoyne – 07:47 – What are you doing today that makes those customers on the top feel any different than those customers on the bottom and that’s where the cracks in the current approach start to come. We talked about customer experience. You said, well, actually supposed to provide a great customer experience. If you’re running an ab test where you’re looking at the content on your website, the right messaging, are you looking at all the participants on a test as being equal or are you customizing your content just to the your entire customer population or do you think it’s more effective to build creative to build content and website experiences and mobile applications that really appeal to the customers that are going to be spending the most amount of money with your firm?

Allison Hartsoe – 08:26 – Okay, so what

Neil Hoyne – 08:28 – You can kick anybody out, but you need to value a little bit differently.

Allison Hartsoe – 08:32 – Completely agree. I mean that’s one of the core concepts of Heterogeneity, but what do you say to the firm that says, well, we are treating them differently. If they viewed xyz page, then we serve them tea content, so that’s how we’re running our different segmentations. What do you say to that group?

Neil Hoyne – 08:50 – Actually, that’s a great start and that even goes back to some basic segmentation for those customers but aren’t getting lifetime value. Maybe sometimes they’ll look at just RFM segmentation, understand who they should be targeting, really should be adding onto these lists. That’s a fine place to start, but we can get so much better, and we use weddings as great examples. When I was getting married, you could look at some of these vendors we purchase from. It’d be like, wow, in the past 60 days we’ll spend a lot of money, but if you were to look at lifetime value like he’s not coming back, so he’s like, oh, not coming back. Spend more money. So those targeting paths with apply. So even in a case where people do simple, they clicked here, they visited our site twice, they added something to a shopping cart. Those are better approaches when you consider doing nothing at all, but you really want to start forecasting what’s happening going forward and what’s your value. It just gives you a much better perspective.

Neil Hoyne – 09:45 – And all those previous things. The reason we’re all perfectly valid, but when we look at it from a larger perspective, most advertising online is a digital auction. Nike’s you want better information and you want to make better decisions than your competitors and this type of segmentations. Adding something to a shopping cart, you, every market goes into the status quo today. She, oh, he offers you a path by which you can differentiate your business’s decisions that they’re making, the customers you go after. We’ve put a lot of overhead. It is just being able to have the flexibility to say the return that you’re looking for may not come today, but you will see it longterm and the sustainability of your business.

Allison Hartsoe – 10:20 – That’s tough for most businesses because it requires them to pause, pivot, and take a leap of faith and there’s always the quest for the next dollar, but now you’re asking them to believe that not all dollars are equal, but more than that. I want to circle back to one thing that you said which you almost never hear in the quantitative space is you said a few minutes ago. How do you make your customers feel differently, and I think that really touches on the forward-looking behavior, we can’t usually measure, or we can’t measure very accurately unless I could somehow attach through the keyboard and the mouse and tell exactly how you were feeling at a time. We don’t always know that, but I think that’s important or it seems like you’re stressing that that might be an important piece of what customers want.

Neil Hoyne – 11:11 – It’s a critical piece, and that’s critical because. Exactly what you just said, that it’s hard for customers to be measured in that perspective. So it’s easy for businesses to forget that it matters. And it’s funny because in a strange way, a lot of the people that we work with, a lot of companies, either brilliant people, it’s difficult for them to invest in areas and in programs where they can’t see it immediate ROI. And I know Allison, you and I joke a lot about airlines business models and whether we always come back to is mobile applications where we pull audiences, and we do. These gentlemen will get nearly everyone has used the mobile application, uh, for an airline as a boarding pass. And you think about what it offers, how easy it is to get to the airport, especially if you’re flying into a place like New York. You always seem to show up a half hour before your flight is leaving. You need to get through security. It is a godsend to have that. And we often talk to a lot of these agencies and other lines behind the APP, and they say, you know, it’s great that people have our mobile app, but they’re not buying tickets.

Neil Hoyne – 12:11 – And I said, but you’re offering other services and things that are supplemented that relationship and then providing value. Yeah. But from an ROI perspective, we need them to buy tickets, but that’s not how they want to engage with your brand. And we can see that. We can see what tools and activities and it’s interesting to watch him struggle to say, well how do we invest? Or it had experienced because we can’t directly tie it to increases in ticket revenue. And then you start doing segmentations while having you ever looked at the lifetime value differences between customers that have your mobile application and those that don’t, and if you see that difference and you should, it should lead to more positive experiences with your customers. Once you have that, maybe you want to take this on because of customers. These are customers that haven’t downloaded the APP. Let’s see if we get it in front of them is that changes the relationship they have with our airlines or any other business for that matter.

Allison Hartsoe – 12:59 – I love that example.

Neil Hoyne – 13:01 – There’s just so much had just so much on near-term ROI, and I understand why they have to do it there. The relationship between CFOs and CMOs is historically very tense, right? You have a CFO who can measure product output in factories in real estate and understand what they’re getting back and what the return is on those investments. Do you have a marketer comes in and says, well, is there how many transactions you had it sometimes you’d see them degrade? Social media metrics saw CMO one time that put on a presentation for the board and said, look at the improvement to the number of likes and followers on social media.

Allison Hartsoe – 13:33 – Oh gosh.

Neil Hoyne – 13:35 – You see CFO say, I’m not sure I understand how to value these numbers, but I know how to value immediate money, so if you said somebody clicked on your ad, or they bought a ticket, I might be willing to give you that, but I think we’re finally getting to the point now where CFOs are starting to look to say lifetime value makes a lot more sense not only because it captures so that immediate transaction value. It also gives us a sense as to the incrementality to say people are going to click and continue to buy even if maybe we don’t advertise to them and also to say, you put the money that we’re investigating service. The money that we’re investing in it, it’s supplementary functions start to have assessed what that’s doing for our overall customer base.

Allison Hartsoe – 14:15 – Yeah, I love that and I want to shift over to ROI impact in just a second, but before we do, I want to call out something that is a definition of how you look at the personalized relationship and in your example about the mobile app ticket buyers not only was the CLV and incredibly clarifying metric for how to understand the business, but it was also the definition of what’s personalization. We often think personalization is just, Oh, I’ve modified an email. Do you have a particular record of what you might have looked at before and are you in buying that again, but in your definition of personalization, it’s more comprehensive. I’m not even sure I would use the word personalization. I would almost just think about it as relationship building. It’s so much more.

Neil Hoyne – 15:04 – I would agree with that. I wouldn’t grow up before maybe say that one thing was personal. I think if you’re taking customer level data and you’re trying to use that and apply it in some way that’s more meaningful to the customer. I could see personalization being one of those tools. I think the argument that I would make is that, and this is kind of what you lose, that I would say it should be more comprehensive and simply customizing the name and the subsequent of that email. I think the easiest way for audiences that are needed to understand it, it just almost took it from a digital perspective and brought it into a real-world perspective, which is to say if you went to the same store over and over again and you felt you were one of their best customers, you always bought a particular product from them. You spent a lot of money with them over the years and the only thing they seem to remember about you, what’s your name? And that’s the only thing that they changed about your experiences walking into that store, and you interacted with the same clerk dozens of times.

Neil Hoyne – 16:03 – They’re like, oh, hi Heidi. Nice to have you back. It might be personalized, but that’s not going to really shape the relationship. I mean, I guess it’s better than to say a higher. They introduce themselves over four of the empty time, but you can say, well, how do you drive that relationship a little bit farther forward, so they recognize that you a valuable customer, get a lifetime value calculation. Maybe not, let’s assume a valuable person. They say, okay, well what’s going to be meaningful first? Maybe they’re going to find other products. Is that your interested in so we know you bought these products. Let’s make other recommendations that are called TV. Maybe they’re going to notice to say, well wait for a make you purchase a lot from us in the past, but we haven’t seen you for the past couple of weeks. Maybe they might be worried that there are competitive actions that are coming after you that they should try to improve those. Maybe, and this is even more of a forward-looking perspective. Maybe they’re going to offer you something of value that has now resulted in immediate transaction on their side.

Neil Hoyne – 16:58 – And that I think is probably one of the biggest keys is to say, is there anything they can deliver it to you that will bring you into closer relationship with different perhaps teaching you how to use products, helping you find a product that made it be a special order, something that’s not profitable to them, but it makes you feel good at this. Pete talks about it a lot is this idea of surprise and delight. Is that what’s necessary that you should look at the side. She says, Oh, here’s your name. Say based on all your activity with us, all the signals that you send, this is something that we think will strengthen and make the relationship more meaningful as opposed to just a templated approach that we take with our other customers.

Allison Hartsoe – 17:34 – I love it.

Neil Hoyne – 17:36 – Those stand out to customers because they’re so rarely done. Thinking about it, what was the last time you received the email to say, this is something where we’re just trying to add value to your life? Not necessarily. We’re pushing the product with a limited time offer. It was a very good and if you get the mark was right, if you understand what’s adding value to them and those are skills that are meaningful, you almost get the sense that that business gets you more than other companies you interact with today. I like these people. I want to keep keeping it by maybe didn’t have a slightly higher price, and then we start getting into that area of loyalty.

Allison Hartsoe – 18:08 – A great example of that is I have a story I shared previously about Marriott and the way they got me as a customer, and they’re pretty effective I think in the way that they understand their customer base, and oftentimes with hotels and airlines, they’ll send you this email ahead of time that says you’re going to Philadelphia. Here are things that are happening in Philadelphia or like here’s the surrounding of different activities and other things that you want to know, but if they knew I was a business traveler, they would know that I have no time to go visit the museum and run up the rocky steps. You know, I’m not interested in that, but what’s helpful to me is where are the good business dinner locations near me or where are good transportation options or other things that I might need as a business traveler and that’s a perfect opportunity to personalize or perhaps surprise and delight based on a category or a purpose of why somebody traveling to a particular location and half the time when you make a reservation they ask if your business or if you’re traveling for pleasure, so it seems like a good thing that they could start with that meets what you just described.

Neil Hoyne – 19:16 – It’s exactly that and one of the rules that we always stress with companies as well as-as you’re collecting data on customers and not only should they know what data you’re collecting, but you have to give them something back. If you’re going to ask you questions about my flight, about like European, I don’t mind. I think either the airlines. I know southwest always notice when I’m asking are you traveling for business or personal? I never know what happens to that information, so not necessarily inclined to fill it out,

Allison Hartsoe – 19:37 – but you know what you gain.

Neil Hoyne – 19:40 – Right. I know what I gain him like I answered that question and I assume it’s either marketing segmentation and pricing models. Our business travelers, perhaps they’re less price sensitive and personal travelers, but it’s surprising when you talk to companies, airlines in particular, how many signals they they could be missing. And I’ll give you one right now out of, out of personal experience. Uh, I am in the process of changing airlines just because you know, some routes work better, but the airline I flew with last year, I flew probably close to a hundred 25,000 miles with them.

Allison Hartsoe – 20:12 – Nice.

Neil Hoyne – 20:13 – A pretty regular flying two or three flights flight to them every month around trip. I haven’t booked anything with them, I think. I don’t think I’m out of bookings for the next six or seven months. Nothing, nothing on the calendar. They haven’t seen me in a month and a half

Allison Hartsoe – 20:28 – You’re off Cadence.

Neil Hoyne – 20:29 – I haven’t heard from them. I haven’t had it single email. David said, hey, we haven’t seen you in awhile. What you’re, you’re veering off course may have predicted that you were going to be one of our better customers. What happened? Um, but that’s, that’s when they should be doing some information gathering. They spend so much time and so much money acquiring customers. What do you think about those costs? Yeah, and what’d he say historically has, you know, I’ve seen estimates from five, 10 to 20 times more to acquire a customer versus retaining an existing customer. One of the things that are interesting is that a lot of companies when they’re looking at these customer relationships, did they like to keep their existing customers, but they always have the idea that they can go out and it’s like, well, we’ve always been able to acquire new customers. There’s always going to be new people entering the market. So I think it’s part of the city to be a stronger emphasis. Also on the retention portion, say, are there signals within your business? And it’s something if you’re a subscription-based business, if you’re and if you’re a Netflix or Hulu, where somebody says, I’m leaving you as a customer.

Neil Hoyne – 21:26 – That’s a discrete signal, but I chose a lot of businesses that are starting to think about lifetime value of these customers don’t ways and thinking, so what signals do you have a that are reliable that says either this customer is leaving or more importantly, do you have any. This customer relationship is not as strong today as it was with your from a year ago.

Allison Hartsoe – 21:49 – Yeah. Yeah.

Neil Hoyne – 21:51 – How does that prompt action?

Allison Hartsoe – 21:53 – So that’s an excellent point. I’m going to bring up two points behind that. So we’ve shifted over into the ROI impact, which I love. This is exactly the heart of why you should care about LTV and why it’s so important when you talk about people wanting to acquire just another customer. There’s a premise there that all customers are equal and I can just get another fast buck. But are we actually saying that there is a limited supply of good customers? And then second behind that, you’ve mentioned retention, and there’s a secondary concept that if you’re going to turn, you’re going to churn and there may be nothing I can do to stop you. So first, are there a limited supply of good customers and if there are a limited supply of good customers and I start to lose them, is there anything I can do actually to keep them?

Neil Hoyne – 22:45 – So generally my experience has been that yes, there are limited numbers of customers, but I will qualify that a little bit more by saying there are a limited number of customers for your business that’s conditional upon the products and services you offer is the airlines case, the routes that they fly.

Allison Hartsoe – 23:01 – But you didn’t say, good customers, you said customers for your business.

Neil Hoyne – 23:04 – I would start there and say, well there was always a limited pool of customers. So keeping with the airline example for a moment, if you’re only flying from New York to Chicago, there are customers in each market, you’re not going to be able to bring in customers from San Francisco with your current product offering. It just won’t work. And within those groups, there are going to be at behaviors customers with some will spend more and some will spend less. And when you look at that segment of how many customers are going to spend x amount of dollars over their lifetime with you, that’s a finite amount. New customers will, of course, come into the market, new customers will leave, but I don’t think it’s going to change the dynamics of your business that much by customers literally dying off and new customers entering the business market. I don’t think that’s a place you want to play now, but I believe yes, there are a finite number of customers and I think the longer that your business is around, I think if you’re not expanding and providing new value and new products and new services, I think you can reach a limit where you’ve extracted as much value from those customers is care.

Neil Hoyne – 24:07 – Which almost leads into the second part of your question, which is to say no matter who the relationship is with the strength or how much people are spending. One of the conditions of lifetime value is that there is a particular value amount associated with those customers. It’s not open-ended. Not Saying these customers will perpetually spend more and more and more with you, but just you have a sense to say, for this particular group of customers, this is a dollar amount that we’re fairly confident as to how much you value these customers have and over time is that relationship unfolds. Is that value will be captured by your firm as Pete calls it? That’s money in the bank. After that money is exhausted. After you’ve captured all of that, there’s not a lot left in that relationship for you to get, which is you know, some companies they would say, well, these people have always been a great customer of ours. We’re going to continue to get those customers, and if they leave, we’re going to try to win them back. You have to be careful because if you’ve extracted all the value from the relationship, that’s all there is and you’re not gonna be able to capture it for those customers going forward; they’re going to be lost. You will have to go back and find new customers to replace them, which could be a difficult premise if you’re not used to doing that.

Allison Hartsoe – 25:17 – I give a great example there because when I was a younger girl, I used to get the magazine Seventeen and there is an interest in point when the magazine Seventeen is relevant to a young girl, but it’s not when you’re 17, it’s when you want to be a 17-year-old and so at the point that you start to get closer and closer to the age of 17, you don’t want that magazine anymore, but yet they really didn’t have anything to push you into after you’ve kind of exhausted the value that you got from the Seventeen magazine, but it fits your example perfectly. There is no more value. I was going to get out of that magazine. I didn’t care

Neil Hoyne – 25:55 – and I’m not sure I can comment about that particular one. Now think about it. Wouldn’t it be sad if every year from that point afterward, Seventeen to sending you a package like police who wish you become a subscriber again? Are you subscribing for four or five years? We’d we’d love to have you back. What can we do? We get back at you and like, what was this? This just, this product doesn’t fit my life at this point. Then you start to see it, unpack the intricacies of it, but they need to understand first of all day your value, your lifetime value to them. There’s probably been captured. There’s not a lot of residual value after that relationship with them. We have to make a decision to say for as a company, you’re lost as a customer, so the choice will either be you can go out and find more people, acquire new customers, which is an expensive proposition we talked about or there products and services that would sit to the next phase of your life that they should offer. Now, these are reasonable questions, and you can apply to extrapolate them out to almost an infinite number of business models and then let’s go back to almost where we started.

Neil Hoyne – 26:57 – Imagine if you’re just sitting there at the Seventeen office and you’re thinking, well, how do we get one more subscription without consideration as to where our subscribers are in their life? How our products fit, what they might need next and just going out and saying the only numbers we’re looking at or how many subscribers we have. You think about it, what are your lessons are lost, and it almost especially gave the. Because it was a wonderful example that you also with the magazine, you gave a very real scenario to what the life cycle of that relationship could be with a magazine that could be completely overlooked just because you’re looking at transactional metrics. How many subscribers do we have today and those will be two different decisions in different marketing campaigns, different forms of segmentation.

Allison Hartsoe – 27:40 – Well it’s almost like bad business practices versus good business practices know good business practices. Our customer relationship building and part of that is also acknowledging when the value of the customer is exhausted, and there really is no justification for a relationship with your business. It’s time to let go, and part of that is also, I imagine on the acquisition side too.

Neil Hoyne – 28:01 – Exactly, but we could go deeper into the acquisition side, but I think fundamentally we’ve touched on those key areas that you’d say he needs to look in three years and she’s the acquisitions, the development of those relationships. Are there retention to the customers or not? When do you let them go where that relationship is just exhausted.

Allison Hartsoe – 28:18 – Got It. So about the acquisition side, what do you typically see? Any. Especially from Google’s perspective? Yeah. You mentioned the marketing purview that you have. Do you see that there are better practices that some businesses have for acquiring customers and where do they commonly miss? I mean other than they’re going after the transactional, you know, quick dollar, what’s a better way to do it?

Neil Hoyne – 28:46 – I’ll actually start off with a few worst practices that we’ve seen. Great. Because we can learn, we can learn a lot. So some of the worst practices and where we’ve seen people say, well the lifetime value of these customers is expected to be x. Therefore we can spend up to x acquiring those customers.

Allison Hartsoe – 29:05 – Got It.

Neil Hoyne – 29:06 – No, the best thing to do. Generally, it turns out to be incredibly inefficient both from a targeting side and an acquisition side and also very little room for error, um, but generally the ground and say we’re having a lot of success because we’re just throwing a lot of money at our top customers. So Jeremy, what you want to do is you want to quit in focus required an additional incremental investment that then by all means, as long as you can prove that you’re successful in your acquisition efforts, but it would be, it’d be foolish just to set that as an upper bound for marketing spend for a particular group of customers just because of some of the risks involved with the uncertainty of targeting.

Allison Hartsoe – 29:40 – Well, and you’re saying that because lifetime value, in that case, is a generic average, not a precision calculated future lifetime value. Is that right?

Neil Hoyne – 29:51 – Was it a. If you look at the lifetime value with a single individual, there’s going to be a lot of volatility that comes with it when you look at them regarding the set; these are our highest lifetime value customers. They tend to be pretty stable with the questions are that we try to explore, for instance, can just travel work so clearly here is that we work with some companies when the hotel and airline side and say, look, we’ve identified our best customers are frequent travelers, are frequent flyers. We want to get more people that spend that amount of money, and we’re going to spend whatever it takes possible to do. First of all, you have to see we can find these people in the market, but then could you imagine if you have a particular loyalty status with an airline? I imagined how much money a competing airline might have to spend to win you over products even line up. There’s so somebody you may be able to identify customers that have similar attributes to high-value customers, but the likelihood that there’s going to eat exact match, either they’re going to that, and then you acquire them and then they spend the same way.

Neil Hoyne – 30:53 – There’s always going to be some error in that question to say, are you truly acquiring those, those right customers? Now, over time, if you work on this, you’re going to get better signals. He was going to look at the performance, say, looks, we launched this promotion where we said, for instance, if you were a high-status customer with competitor a, we’re going to match that status, and you may think, well, the only people were bringing over are they’re valuable customers. Maybe they’re going to come over to your business, and they’re only going to transact with you one or two times during the year. Well, so now you acquired someone you thought was going to be high value. They’re just behaving differently because of your products and services are the reasons why they were required to begin with. Especially if you start offering discounts and coupons. So you want to get yourself a little bit of room to say, we want to focus on these customers, want to understand these customers, but then we also want to see how they behave and transact without business and if you just get to the maximum, that means you’re spending as much money as you cancel with them over rolling out the red carpet. I didn’t take advantage of that because that’s a compelling offer.

Neil Hoyne – 31:51 – But you don’t necessarily know how they’re going to behave with your firm, so you want to look at this as being a very dynamic process and simply because you identified the most valuable customers. Sometimes there’s a case to say they’re not the customers you need to go after. Sometimes you are just looking at customers that are slightly better than the people you’ve been acquired into the past or maybe you’re going to reduce the costs of, of targeting people who are going to be in the lower buckets of the customers and the value they could provide. So those types of incremental changes tend to be a lot more stable for business, and we learned a lot from him. The third mistake that we see customers make, and this tends to be with earlier stage startup type companies, is that they get VCs and private equity funds fixated on this idea of acquisition and where they say, well, you know what? We’re going to focus on growing our customer base. 2 billion customers, and then one of two things happens.

Neil Hoyne – 32:44 – Either they say later on we’re going to figure out how to monetize them, or two, they offer an average lifetime value and the start with the latter one, because this has been prevalent to the past 10 years and a lot of the issues that I see, they come in and say we are acquiring customers for $5 a customer and based on this lifetime value calculation, these customers will spend 10 times as much of this $50. So for every $5 you put into customer acquisition, we’re getting 45.

Allison Hartsoe – 33:11 – A startup has no real data to look at by definition. Right? How are they making that projection?

Neil Hoyne – 33:19 – Did you know? There were. Let’s actually kind of a funny that I’ve talked to a lot of going deeper to say, how did you calculate lifetime value? They’re just saying, oh, well you looked at lifetime value. We’re going to assume you put some rigor. One the standard one size fits all formula into that. You weren’t at MBA programs, and we’re gonna apply it, and we get an average lifetime value. We ignore the differences between individual customers, and now you could think about, and if you got a couple of quarters with those firms, they acquire a whole bunch of customers. They hit their target for acquisition. Let me actually run a sensible lifetime value calculation for them. They realize that a lot of the people that $5 are actually worth much, much less than that. They have a customer base they can’t monetize it isn’t going to provide lasting value for them, and then you ended up back with a push and pull to VCs and say, well, we thought these customers are going to spend 50. Then we actually found out a majority of them are going to spend too. Did you think about that? What that has the implications found, the findings that we take are that first of all, companies regardless of size, at least know how to calculate lifetime value properly.

Neil Hoyne – 34:22 – If they lack the data to do it, and we’re not talking about huge data requirements. Usually in six months and a year of transaction data could be sufficient. We see per some mobile gaming companies, two or three weeks might be enough to get started, even if they don’t have enough data, they know what they should be collecting, and they can start to see the accuracy of their models early on and then they at least have a goal and a target towards what they’re building towards and they’re going to embrace a lot of these practices and back as to why I focused on the bad practices. They’re not going to go into their investors into a board meeting saying, we have a rough approximation of lifetime value, and we’re going to split it up into that about to acquire customers. It can be very careful about the value of the customers. You could do RFM. Segmentation is a way to get started, but you’re not going to fall into the trap of saying we have an average value that we can extrapolate out to anybody that we acquire anybody at frying up for our product. I think just take it a little bit easier there.

Allison Hartsoe – 35:17 – Got It, got it. So let’s say that maybe I’m not a startup, let’s say that I’m a general, you know, maybe a $30 million to 700 million dollar company. I’m in the thick of it regarding US businesses. Let’s say that I want to get started and I’m really happy to roll this out. Where should I focus? How should I make it tangible to my business?

Neil Hoyne – 35:42 – We always recommended, I mean there’s gonna be a few components of it. First is you’re going to have to understand how these models and forecasts are built. As you can calculate lifetime value accurately, there are a few external companies will also do a wonderful job at this that they could part of the risk, but you’re gonna need to be able to calculate that number reliably for your own business, which requires you to have that data in place, but that at least gives you a true north as to how your customers would be similar to that example I gave you before. It’s easier just to say this is what our current customer base looks like and to promote those discussions internally than it is to say we’re now going to be customer-centric and focused on lifetime value. Understand the models, understand the data inputs coming in, understand what your current customer base looks like.

Allison Hartsoe – 36:24 – These models are. I mean they’re packaged models, but they’re not simplistic models. I just want to emphasize that and as we’ve seen in the conversations, the podcast conversations earlier with Dan McCarthy and Peter Fader, there are these by to you die models, and they have subscription basis, a non subscription basis, and then there are other intricacies to it, so getting the math right isn’t rocket science, but it is important.

Neil Hoyne – 36:51 – It is important. It’s important. It’s also important to respect the complexity of it, especially in the difference between these traditional MBA models where people are guessing since rate the discount rate it just throws them into the formula.

Allison Hartsoe – 37:02 – The land of agribusiness.

Neil Hoyne – 37:04 – Exactly. The math is hard, but it’s also something that’s so powerful to your business. You want to make sure you get it right. Yeah. Yeah, and then once you have it right, then the important part is not to rush into immediately build a marketing plan, operational plan around it, but together, stakeholders in different parts you business representing marketing product finance it to say, if this is our business today, and we trust these models or the accuracy of what these projections represent, what does this mean to the future of our business and it almost all. Then go back into audit what your current marketing activities or you could product activities are built around. So on the marketing side, we already talked. Are you building the same campaign for everyone? Are you targeting everybody equally? What do you do if somebody leaves, what are those retention?

Allison Hartsoe – 37:47 – I can’t emphasize how important that is to gather the teens and focus them. This is almost never done.

Neil Hoyne – 37:55 – No, you need them in the same room or on a common language, and it’s best to make sure if you look into this, let’s do this. I’m about to come in with solutions as to how you’re going to apply this because then it favors your team and then the product team is saying, well, we’re being left behind just to say this is what we believe to be the truth about our business. It had asked the product people ask them to say, are you building products to see what’s going to shift the most units or the products that are going to meet the needs of our very best customers because in they stopped reading magazines, what do we have for them or do you just have another product that’s supposed to be targeted at teenage girls or do you have to save? What’s the next step in that life cycle and that relationship and make sure that we keep those customers around to work as a team to work as an organization. These things cannot be done in silence, so it’s really those two parts is to understand the technical model because it’s important to get accurate, reliable forecasts. It’s also been published in a peer-reviewed, not a black box. It didn’t need to have everyone around the table saying if we believe these models, what does this mean to our business and how do we respond? Those steps are usually about to get people talking. I’ve never seen someone walk away from discussion to say, well, I believe it’s number, but I’m not going to change my behavior, and I’m still going to treat all of our customers.

Allison Hartsoe – 39:09 – Got it. Is there a third piece to it?

Neil Hoyne – 39:11 – You know, the third piece that I could push on if I really wanted to know the application side, which it gets a little bit technical, but like once you have a plan of action, and again going back to the marketing side of the most brilliantly, you aside and say these are valuable customers are the people that we want to go after is the harder part can be, well how does this actually become real? What should we look at when we’re running say, a marketing campaign? What should we look at regarding our ROI and what are those metrics? What are those benchmarks? Do we look at it strictly as lifetime value? How long are we going to wait until we expect that campaign, the payoff, how aggressive do we want to be on retention campaigns? Those are really where we’re taking lifetime value, and we’re saying, well, if we’re doing less than value, how are we going to start putting money behind provoking different actions from our customer base? If we’re going to reduce costs for lower value customers, how far are we going to reduce those costs and how are we going to run a test to know those investments on exact productive and the reason why that’s a harder area.

Neil Hoyne – 40:14 – The science and the theory behind it, pretty simple, but everybody’s learning about these ideas and public at the same time, so a lot of the larger marketing applications, a lot of the ad stack providers haven’t necessarily embraced lifetime value themselves. They’re good. It’s still forcing in the transactional model so you can have to do a little bit of the math and say, well, how does this apply to products that are still focusing on just that next subscription, next order as opposed to the lifetime value side?

Allison Hartsoe – 40:39 – Well, you know, we have a whole session at the conference at the customer centricity conference of which Google is our partner. Thank you very much. Where Joe Stanhope from Forrester and other folks are going to be talking about the future of Martech and a big part of that as the tools and the way the tools are structured. So I don’t want to brush that aside, but it is a very rich topic that we’ll definitely be hitting on some more. Very cool. So now Neil if people want to reach you, what is the best way for them to get in touch with you?

Neil Hoyne – 41:09 – Well, I wish I was going to be a fantastic conference. It looks like to be called out to London that week, but if anybody wants to reach out to you definitely find me on Linkedin. You keep definitely finding much less active Twitter account. The people are always also free to send me an email, a google account, which is just my first initial and last name lhoyne@google.com. Always happy to answer questions, comments, get your thoughts. We’ve learned so many other people who are interested in this space that it’s always a pleasure to reach out and get in touch with new enthusiasm and people that are working in a company to learn where they’re finding success, where they’re having difficulty in seeing how we can partner and work together.

Allison Hartsoe – 41:44 – I know, I appreciate that. So let’s summarize a little bit about what we covered. So first, why should you care about the tangible value of CLV customer lifetime value. And I think the most important piece we hit on here is that customers don’t just want a deeper sense of personalization or a great experience. They actually want to relationships. So behind those words, we’re not talking about just simple tactical changes. So that’s a great place to start. It’s the relationship building that really drives the business and the value that you can get out of CLV, understanding what those customers want from you. And along with that line, we talked about the ROI metrics are often very transactional. The data may be unclear in that kind of ROI structure, but CLV gives you a very clear signal. So again, when you’re building those relationships, and you’re trying to get better experiences, having that clear line of sight to what customers want in those different segments is an excellent way to go, and it drives right to business impact as we’ve discussed on the other podcasts with the show.

Allison Hartsoe – 42:54 – Second, what kind of impact can I get out of this? Well, certainly keeping more of the good customers in the market is a theme that I’m starting to hear more and more, I think their customers come and go regarding the timing of when they’re ready and when they’re not ready for your product. We talked about how much value they might have with your business and when that value might be spent, but in the meantime, there will always be a certain pool of customers that you want that is going to treat you well, and you have a great relationship with and going after those customers. By not overspending on the acquisition and knowing the right kind of customer that you want, not just on the transactional level, but on the behavioral level is where we start to get to this dynamic process of understanding our customers over time.

Allison Hartsoe – 43:41 – And third, we talked about some concrete next steps in terms of technically calculating the model correctly and organizationally, this is a point we haven’t hit on as hard before, and I think it’s incredibly important about aligning the entire company, bringing everyone to the table, not with solutions, but with questions of here’s what we’re seeing, what does this mean to our business and how should we respond, and then finally with the application, once you get everybody aligned, moving them into, okay, how do we tactically take this into the way we relate to our customer base and weave it into processes and tools. Did I miss anything there, Neil? Did I capture the general just?

Neil Hoyne – 44:24 – That’s fantastic.

Allison Hartsoe – 44:26 – Good. Well, as always, everything we discuss is going to be at ambitiondata.com/podcast. Neil, thank you so much for joining us today. It’s always a pleasure.

Neil Hoyne – 44:37 – Likewise. Thank you so much for the invitation as well.

Allison Hartsoe – 44:40 – Good. Remember everyone, when you use your data effectively; you can build customer equity. It’s not magic. It’s just a very specific journey that you can follow to get results. Thank you for joining today’s show. This is Allison. Just a few things before you head out. Every Friday I put together a short bulleted list of three to five things I’ve seen that represent customer equity signal, not noise, and believe me, there’s a lot of noise out there. I actually call this email the signal things I include could be smart tools. I’ve run across articles, I’ve shared cool statistics or people and companies I think are doing amazing work, building customer equity. If you’d like to receive this nugget of goodness each week, you can sign up at ambitiondata.com, and you’ll get the very next one. I hope you enjoy The Signal. See you next week on the Customer Equity Accelerator.