Ep 1 | What is Customer Equity?
Host Allison Hartsoe explains the concept of Customer Centricity and how it relates to Customer Equity. She walks us through the six stages of Digital Maturity, and explains how companies can use their digital data to build revenue and market strength.
Podcast Links:
Why Strong Customer Relationships Trump Powerful Brands
Journey to Customer Centricity
Read Full Transcript
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 to episode 1 of the customer equity accelerator.
Today we’re going to start at the very beginning with the definition of customer equity and why you should care. Let’s start with why. On April 14th 2015 an article titled Why strong customer relationships trump powerful brands appeared in Harvard Business Review.
And don’t worry I’ll include the link in our podcast page but this article was pretty much revolutionary what the authors did is they took data from 6000 different merger and acquisitions that occurred between 2003 and 2013. So over a ten year period and they classified the value of brands expressed through trademarks and other things and the value of customers and they charted it over the 10 year period to see where the question was shaking out the question of since the birth of e-commerce. Is there more impact from customer equity or is there more impact from brand equity. And what was so fascinating in this chart that they created is the way that the two items started and how they moved over the 10 year period. So when you pull up the chart you’ll see something that looks like this. The percentage of enterprise value is on the left hand side and if the column goes up to about 25 percent. There’s a gray line that starts at about 19 percent and that is the line for brand value. There’s another line that starts at about 9 percent and that is the line for customer value. And year over year as they move forward they start to change. And right at about 2007 to 2008 maybe 2009 the equity lines change and customer value starts to grow and brand values starts to decrease. And they’ve been growing and decreasing all along. But the spot with which the switch is right around 2007 2008 and then they continue to switch it’s not like they stay interlocked and then kind of continue interlocked. Note they actually spread apart again until it’s almost a 100 percent flip the customer value ends up at about 18 percent and the brand value ends up at about 11 percent. So these two lines show the declining value of brands and the rise of customer relationship. Fascinating, but you have to ask yourself OK what happened at this time.
You know it wasn’t like the Internet was just invented at this time period, no. But you know some other interesting data I pulled on the side showed two things that happened at the same time period. One had to do with social media. You had the rise of social media that was you know well on fire in the early 2000s and started to really peak right around 2007 2008. So what social media means what the impact of that is the data coming in from customers is 1) bigger because it’s coming from mobile devices not just desktops and 2) geographically contextual because now I can tell you standing in my store if you’re standing around the corner if you’re standing somewhere else and the second piece that drove this or happened in correlation with this whole brand mapping was that mobile devices became larger than desktops in terms of the volume of activity coming through these devices. So it wasn’t just that social media was big it was that for the first time we actually saw more action on mobile devices than we ever saw on desktop. In fact today I think you’d be hard pressed to remember what it was like to always have to go back to your computer to look something up and not be able to do it on your mobile device. It’s just so inherently attached to us. So the why of customer equity. Just to summarize is if you’re not yet a CEO you should know that your CEO cares deeply about customer equity. Why. Because customer equity is how businesses are valued and when a business has high valuation that’s power its market power and it’s eventually money in the bank. So if your company is not paying attention or not paying enough attention to customer equity then you’re missing a big chunk of valuation and you’re probably slipping in the market as well. But we haven’t really talked about what customer equity is what’s the actual definition. So customer equity is actually the total lifetime value of all your current and future customers. It’s the sum of all value you’ll ever realize from your customers. Now you’re probably thinking oh my god I’ve walked into the accounting department. What does this possibly have to do with me as a marketer? Well I bet you’ve heard of customer centricity. Maybe it’s even been commonly talked about inside your organization. But I want to share with you the real definition of customer centricity which is taking actions to improve customer lifetime value. It’s not just putting the customer at the heart of your organization and you can tell the difference. Here’s what to listen for. You can tell the difference when you hear customer used as an aggregate. Like all customers versus when specific customers are being talked about. When you take each individual customer’s lifetime value an added up you get customer equity. The action of using that information to increase customer lifetime value is customer centricity and here’s the big connection. Remember all that digital mobile social e-commerce data that drove the switch in customer equity valuation that we talked about at the very beginning. Well when you use this data correctly it allows you to connect to your every day customer centric actions to customer equity and that’s not magic. It’s just a very specific journey that you can follow to get results. Some people call this digital transformation but I personally think that undervalues the customer and some people call it digital maturity. I like to call it the journey to customer centricity and I like to draw it out as a maturity curve. The journey to customer centricity charts completeness of customer view on the left or Y-axis and the speed with which you can take action on that information on the right or X-axis. Now I’ll provide a link on the podcast page to a short video that shows this visually. There are six stages and two pullbacks. You didn’t think it was all smooth sailing to the top did you. When I first put this chart together I actually looked at mountains and I thought about how people traverse up mountains and. I’ve actually climbed Mount Kilimanjaro and it was indeed uphill most of the way some parts steeper than others. And then there were some pullbacks. So I think it’s interesting how this is reflected in nature. Anyways, stage 1 is what I call the foundation. It is long and flat. You basically get in the game and you have to be able to hear and let’s say digitally see customers before you can build any kind of customer equity. Stage number two is early insights. These are pockets of insight that form when information starts to come through an organization. It’s a small uphill in shape and it might be something like You know you get a Web report you get a campaign report you get an email report and all those little pockets give you little bits of insight. But it’s hard to do a lot with them together but that actually leads into the first pullback which I call the pit of reporting despair. It is a representative of an explosion of reports where nothing really seems to fit together. You know you’ll have the paid search report and that doesn’t fit together with the transactional report and other than over time and other pieces of information just all flowing through and you end up with tons and tons of information and very confused stakeholders that just say oh my gosh could you please just put this together for us so that we understand more about what to do. And that leads to stage 3 which I call the departmental alignment. The departmental alignment is a very steep uphill. It’s when you need to snap together all your different marketing channels often around campaigns such as Web site email paid search maybe you can even put testing in. And some people call this multichannel reporting. But the challenge in this stage is always reaching across different parts of your department and getting everybody to kind of grow the same way. So if one group is really all interested in awareness they may not be thinking about things in the same way that another group might be interested in conversion. How do you knit all that data together. How do you give it the right context of the customer journey can be very tricky. That’s multichannel reporting stage 3.� Now stage 4 is about organizational alignment or promise that is longer and flatter than the other stages. In this part we’re bringing together cross departmental data such as sales information. Who did the sales force call on. What did that call look like what happened business intelligence information that might come from backend reporting systems or master transactional systems the marketing data is included there too but also support systems such as chat support or call center reports some very interesting call center files voice of the customer very prominent here. How do you form a more holistic customer view across all your different departments. That is of course where you need a chief analytics officer or sometimes a CEO to start to come in and reach across the different organizational silos and help them come together. But oh no. The next stage is a pullback and that’s often what the CEO runs smack into is what I call the pit of technology despair as we try to pull all these different pieces of data together. You quickly run into issues about storage and ownership and security and how does data connect and who has rights to change the data and how should the grain of data be expressed. Grain refers to the fundamental unit of the data. Is it a customer grain? Is it a hit grain? Is it an impression grain? Is it something else altogether? So all these things have to come together in order for data to make sense. Then we move on to Stage 5 which is the promise realized this is a steep uphill again and it’s where again led by the chief analytics officer or the chief data officer the organization starts to say okay we’ve got data together but now we need to give it meaning. And when we give it meaning we have to align it to the company’s strategic vision and the way that gets aligned is what I call snapping together organizational metrics into the critical few. And this is a very challenging stage takes a long time to accomplish but it aligns the organization and starts to realize the promise of all that data. Finally we have Stage 6 which is the pull back from executive leadership into everyday accountability. This is a flatter stage it’s still uphill but it’s not as steep and it’s the way things get done here is kind of what I like to call it the cultural change has happened. It’s the end point of culture change that’s been percolating all along. Now six stages has a lot to get through. Doesn’t happen overnight. It’s important to keep moving forward on these stages mostly for competitive advantage. And we talked about customer equity at the beginning but what’s really driving the urgency behind that is the competition and that includes the competitors you know as well as the fast movers that you haven’t even seen coming yet. Now in the podcast we have coming up I’m going to help you discover where your organization is and what you should be thinking about as well as what you should not be thinking about. We’re going to dive into each of these stages and help you understand what that stage sounds like what it looks like and what specifically you should be doing. So to summarize today’s podcast we talked about three points. Why should you care about customer equity. Well because it becomes real dollars and market strength. Number two what is customer equity. As we said at the beginning customer equity is the total lifetime value of all your current and future customers. That’s the sum of the total value you’ll ever realize from your customers. It’s really a big powerful number it’s usually measured in millions or billions. Good stuff. And finally what can you do. Well the maturity curve helps us understand that there is a roadmap customer centricity roadmap. It’s not magic. All you have to do is follow it and you can get results. So in the