Using Customer Lifetime Value to Create a Data-Driven Culture

Recent research shows that businesses have made some progress with their Big Data and analytics projects, but success is mostly limited to expense reduction initiatives.  Business transformation efforts and new revenue streams continue to lag.

Analytics Projects Still Expense-Driven

The results from a New Vantage survey of Fortune 1000 executives regarding their Big Data projects shows that “decrease expenses” was an area the showed the highest response (49.2%) for “Started and seen value.”  The responses for “Add revenue” and “Transform the business for the future” received the highest responses for “Not started.”  Interestingly, “Establish a data-driven culture” received the highest response (41.5%) for “Started and not seen value.” 

The report hints at the potential problem:

“In spite of the successes, executives still see lingering cultural impediments as a barrier to realizing the full value and full business adoption of Big Data in the corporate world.”

If one assumes that Big Data or advanced analytics is a major element of any business transformation that will create differentiation and competitive advantage, then removing the impediments to this transformation is paramount for execs. The key to creating a data-driven culture may lie not in focusing on data per se, but on customers and the value they create for your firm, and the value you deliver. Paradoxically, focusing externally on your customers may be the best way to drive internal cultural change.

Using CLV Metrics to Drive Change

MIT’s Michael Schrage talks about how companies can use customer lifetime value (CLV) to bring a more rigorous, data-driven approach to customer relationships focused on long-term relationships. Talking about the value of CLV, he noted:

“By imposing economic discipline, ruthlessly prioritizing segmentation, retention, and monetization, the metric assures future customer profitability is top of mind.”

He also notes the CLV is not enough: “While delighting customers and meeting their needs remain important, they’re not enough for a lifetime.” He argues that CLV metrics should measure how effectively “innovation investment” increases customer health and wealth.  From his workshops, he found that clients talked about how customers become more valuable to a company when “they buy more stuff,” or “they pay more” or “they’re loyal to our brand.”  All of which are traditional CLV type metrics.  He advocates going beyond these measures of value to incorporate more of an “investment ethos,” that looks at customer value created when customers:

  • Share good ideas
  • Evangelize for you on social media
  • Reduce your costs through self-service
  • Introduce you to new customers
  • Share data

By expanding the notion of what constitutes customer value companies can start to rethink segmentation, pricing, and promotions. It might also educate and better align your employees— regardless of their job title—with a complete view of customer value and the importance of measuring and tracking it. This investment view of CLV will help sales understands how new customer introductions create new opportunities; marketing can appreciate how evangelizing on social media drives more leads; product development gets new ideas; and customer support becomes more efficient resulting from greater customer self-service.  Once employees see the potential benefit to them, they just might be more motivated to seek out and use these metrics, thereby creating the data-driven behaviors and decision making that is key to transformation.

Schrage observed in one of his workshops how participants kept interchanging references to the creation of lifetime value as when “we” do something, or when “they”(customers) do something. He noted that there were much broader and deeper discussions around how to engage with and invest in their customers. And more comprehensive CLV metrics are the method for tracking how well the company is engaging and investing.

Conclusion

Cultural change is and has always been a difficult proposition for companies of any size.  Using a broader definition of CLV and the metrics to track it, could help align multiple areas of your organization around customer value that could jump start the data-driven cultural change that will drive transformation.  By clarifying what customer value means, how it is measured, and how each employee impacts these metrics you have a chance of creating a broader sense of purpose -- increasing customer value -- around which your team can rally.