Tag Archives: Customer lifetime value

Why Habits are the Lifeblood of Your Business

Editor’s Note: This
essay is adapted from Hooked: A
Guide to Building Habit Forming Products
by Nir Eyal. Nir also blogs at NirAndFar.com.
Habits are one of the ways the brain learns complex
behaviors. Habits form when the brain takes a shortcut and stops actively
deliberating over what to do next.1 The brain quickly learns to codify
behaviors that provide a solution to whatever situation it encounters.
The success of many companies depends on their ability to
find a way to get users to go from infrequent use to being dependent on the
product. It is at the point when customers start to use it on their own, again
and again, without relying on overt calls-to-action such as ads or promotions,
that the product becomes a habit.
These habit-forming products change user behavior and create
unprompted user engagement.  Habit formation is good for business in
several ways. Building for habits increases customer lifetime value, provides
pricing flexibility, supercharges growth, and erects competitive barriers.
1. Increasing Customer Lifetime Value
Fostering consumer habits is an effective way to increase
the value of a company by driving higher customer lifetime value (CLTV). CLTV
is the amount of money made from a customer before she switches to a
competitor, stops using the product or dies. User habits increase how long and
how frequently customers use a product, resulting in higher CLTV.
Some products have a very high CLTV. For example, credit
card customers tend to stay loyal for a very long time and are worth a bundle.
Hence, credit card companies are willing to spend a considerable amount of
money acquiring new customers. This explains why you receive so many
promotional offers, ranging from free gifts to airline bonus miles, to entice
you to add another card or upgrade your current one. Your potential CLTV
justifies a credit card company’s marketing investment.
2. Providing Pricing Flexibility
Habits give companies greater flexibility to increase
prices. For example, in the free-to-play video game business, it is standard
practice for game developers to delay asking users to pay money until they have
played consistently and habitually.
Once the compulsion to play is in place and the desire to
progress in the game increases, converting users into paying customers is much
easier. Selling virtual items, extra lives, and special powers is where the
real money lies.
As of December 2013, more than 500 million people have
downloaded Candy Crush Saga, a game played mostly on mobile devices. The game’s
‘freemium’ model converts some of those users into paying customers, netting
the game’s maker nearly a million
dollars per day
.
3. Supercharging Growth
Users who continually find value in a product are more
likely to tell their friends about it. Frequent usage creates more
opportunities to encourage people to invite their friends, broadcast content,
and share through word-of-mouth.
Products with higher user engagement also have the potential
to grow faster than their rivals. Case in point: Facebook leapfrogged its
competitors, including MySpace and Friendster, even though it was relatively
late to the social networking party. Although its competitors both had healthy
growth rates and millions of users by the time Mark Zuckerberg’s fledgling site
launched beyond the closed doors of academia, his company came to dominate the
industry. Facebook’s success was, in part, a result of the more is more
principle ‘ more frequent usage drives more viral growth.
4. Creating Competitive Barriers
When it comes to shaking consumers’ old habits, better
products don’t always win ‘ especially if a large number of users have already
adopted a competing product. For example, August Dvorak designed a keyboard in
1932 that is far more efficient than the QWERTY most people use today. Dvorak’s
design of vowels in the center row proved to increase the speed and efficiency
of typists. However, despite having built a better product, the switch to his
keyboard never happened. Why? QWERTY survives because the costs of switching
user behavior after habits have been formed are too high.  
For many products, forming habits is an imperative for
survival. As infinite distractions compete for our attention, companies are
learning to master novel tactics to stay relevant in users’ minds. Today,
amassing millions of users is no longer good enough. Companies increasingly
find that their economic value is a function of the strength of the habits they
create. In order to win the loyalty of their users and create a product that’s
regularly used, companies must learn not only what compels users to click, but
also what makes them tick.
You can hear Nir speak
at the upcoming Future of Consumer Intelligence Conference 2014 in Los Angeles,
California.  The Future of Consumer
Intelligence 2014 explores the emerging role of decision science and the
convergence of knowledge points – insights, foresights, social science,
marketing science and intelligence with technology as a central driving force and
profound connector. For more information
on the event, click here to download the interactive brochure: http://bit.ly/1h9MG2Q
Register for FOCI and see Nir in person! http://bit.ly/1eozvcg

1. Dickinson, A. &
Balleine, B. (2002) The role of learning in the operation of motivational
systems. In Gallistel, C.R. (ed.), Stevens’ Handbook of Experimental
Psychology: Learning, Motivation, and Emotion. Wiley and Sons, New York, pp.
497’534.

A Look Back at TMRE 2009: Measuring and Improving the Long-term Impact from Marketing

The Market Research Event 2010 is taking place this November 8-10, 2010 in San Diego, California. Every Friday leading up to the event, we’ll be recapping one session from The Market Research Event 2009.

Measuring and Improving the Long-term Impact from Marketing

Measuring and Improving the Long-term Impact from Marketingfor Fast Moving Consumer Goods
Rick Abens, Conagra Foods

Customer lifetime value (CLV) is the value to the companies see on the P&L of measuring marketing efforts over time. Conagra Foods was trying to link marketing to P&L. CLV is a forward looking metric, it’s value is measured starting now until the end of the customers lifetime.

What’s the value have for teh entire supply chain for ConAgra foods? Their goals is to measure and improve marketing and drive long-term customer value and loyalty.

The mew Marketing Accountability Standards Board invited many individuals to join in the conversation including finance, marketing, researchers and academics. It was founded to help increase that status of marketing in the boardroom.

Key issues for packaged goods companies
-How do we drive long-term growth with marketing?
-How do we develop customer acquisition and retention marketing strategies that are impactful?
-How do we match the right offers of the most responsive customers?

Standard marketing mix modeling output: total volume and subdivide it into the volumes that are driven into trade, promotion, advertising and baseline.

If you look at the baseline as a function of long-term marketing, you can begin understanding it.

Sources of growth: acquire new customers, retain more customers or increase purchasing size. Many customers are flat lining, new customers equal lost customers and retained customers, includes Healthy Choice, and Maxwell.

Summary:
-Marketing is not about getting the next incremental sale, it’s more about getting new customers and making them loyal to your brand.
-Understand whether or not your strategies are working.
-Back to targeting, more aggressive media happening every day in the household. Cut some advertising and target the right people. Television is very important.

The Life Stage Marketing Summit Full Program and Early Bird Savings!

Understand and maximize your customer lifetime value by knowing your customers better than anyone else, anticipating their needs and satisfying them first.

Knowing your customers inside and out is the key to innovation. These days, we’re operating in a transparent “real time” world with abundant choice and increasing customer power. Identifying and focusing on core segments is critical. Understanding needs and behaviors and translating those insights into new business opportunities becomes the real foundation for achieving growth.
Are you ready to put 2009 to rest and focus on real growth in 2010?

Attend The Life Stage Marketing Summit
Exploring the intersection of life style and life stage marketing strategies allows you to deeply understand your customer segments beyond demographics. The key to achieving customer relevance means knowing your best customers even better so you can deliver on their current and future needs while identifying new high priority segments for new growth.

Event: http://bit.ly/509XjY
Brochure: http://bit.ly/6a0Lq0
Register Today: http://bit.ly/5zOvfP

Why Life Stage Marketing 2010 is a must attend:
?? Learn from the best… Practitioner speakers share real life actionable case studies on Innovation, Trends, Segmentation, Market Research and Marketing and Loyalty-
?? The IIR Motto: NO COMMERCIALISM from the platform
?? Featured topics include: Behavioral Economics, Applying Key Information into Actionable Strategies, Anticipating the Future, Leveraging WOM, The Power of Experience Design, Driving Brand Relevance and Growth across Multiple Categories…
?? Segments covered include: Millenials (Echo Boomers), Boomers, Gen X, Hispanic and Latin Americans
?? NEW 360 Degree Trends Panel and Multiple Interactive Real Time Exercises

Delve Deeper…
?? ALL Day Symposia Dedicated to Social Media & Technology

?? ALL DAY Ethnographic Workshop: Using Ethnography as a Tool for Identifying Opportunities and Building Customer-Relevant Strategies at the Intersection of Lifestyle and Life Stage

?? NOW CO-LOCATED with The Youth & Family Marketing Mega Event! The destination for those looking to deeply connect with all segments of the contemporary family to drive innovation, make smarter decisions and ultimately create what’s next first, before your competitors.

TMRE 2009: Measuring and Improving the Long-term Impact from Marketing

Measuring and Improving the Long-term Impact from Marketingfor Fast Moving Consumer Goods
Rick Abens, Conagra Foods

Customer lifetime value (CLV) is the value to the companies see on the P&L of measuring marketing efforts over time. Conagra Foods was trying to link marketing to P&L. CLV is a forward looking metric, it’s value is measured starting now until the end of the customers lifetime.

What’s the value have for teh entire supply chain for ConAgra foods? Their goals is to measure and improve marketing and drive long-term customer value and loyalty.

The mew Marketing Accountability Standards Board invited many individuals to join in the conversation including finance, marketing, researchers and academics. It was founded to help increase that status of marketing in the boardroom.

Key issues for packaged goods companies
-How do we drive long-term growth with marketing?
-How do we develop customer acquisition and retention marketing strategies that are impactful?
-How do we match the right offers of the most responsive customers?

Standard marketing mix modeling output: total volume and subdivide it into the volumes that are driven into trade, promotion, advertising and baseline.

If you look at the baseline as a function of long-term marketing, you can begin understanding it.

Sources of growth: acquire new customers, retain more customers or increase purchasing size. Many customers are flat lining, new customers equal lost customers and retained customers, includes Healthy Choice, and Maxwell.

Summary:
-Marketing is not about getting the next incremental sale, it’s more about getting new customers and making them loyal to your brand.
-Understand whether or not your strategies are working.
-Back to targeting, more aggressive media happening every day in the household. Cut some advertising and target the right people. Television is very important.

Understanding the Customer Lifetime Value

Earlier today I came across this post on Performix Integrated Marketing in which they highlight a recent article that Michelle Eggers of SAS Institute wrote about the importance of implementing marketing metrics and Customer Lifetime Value in your business.

Here’s a brief summary of the article as described by Performix:

  1. Look at the processes your marketing department is using. Are they ahead or behind schedule on jobs? Efficient, or chaotic? Keep a grasp on the people part of the process to be able to increase productivity.
  2. Distinguish between measuring campaign performance (e.g.. how the cross-sell campaign did online in the last 3 months) and look at the OVERALL effectiveness of all marketing programs, direct and traditional or broadcast media. You need to have the data on how all are performing in order to develop the right media mix.
  3. Develop and focus on broader business metrics that are not specific to any marketing program, like: sales growth, market share, total sales and total profits, Are they aligned? How do they interact?
  4. Look at the customer: except for managing marketing processes, all of the above relate to the customer. Are they affecting the customer positively or negatively? Create customer metrics, for things like: products (owned) per customer, customer profitability, customer satisfaction, net-adds, and customer lifetime valiue.

Does your business fully understand CLV?