Re: @d:tech World - The Experts' Secrets of Viral Success

From: Jim Novo <jimnovo_at_sprintmail.com>
Date: Mon 04 Dec 2000 11:40:10 -0500

ROBIN LASHER <robinlasher_at_hotmail.com> WROTE:
> Many dot-coms downplayed profit and replaced it with
> the elusive life-time value of the customer
> strategy. Although a key concept for long-term
> success, it_s a vague model often with dismal results
> for reaching necessary survival goals such as
> break-even in a highly competitive market.

While I would agree with most of this discussion so
far, I would disagree with Robin's point above.

First, the failure of most dotcoms to * include *
lifetime value as a concept in their business plans was
their downfall. It came into play very late in the
cycle, and only after Wall Street insisted. Only when
lifetime value was forced on them did you start to hear
about "the cost of customer acquisition", and it is
this metric that kicked off the realization many of the
biz models were unsustainable.

Second, the lifetime value concept has been horribly
abused and misunderstood from the beginning in dotcom
land. It is not necessary to figure out an absolute
lifetime value for a customer or wait "a lifetime" to
run all kinds of complex models. You can look for
"relative value" and compare it with customer behavior.

Here's a very simple example. Say I run the same ad in
two different newsletters and get response from both.
When I look at these responders, maybe a week later for
a content visit or 30 days later for a purchase, I find
a high percentage of repeat visitors or buyers from one
newsletter, and a low percentage from the other.

Repeat behavior indicates higher lifetime value, and
predicts future repeat behavior, regardless of what the
actual value is. I switch money out of the low repeat
newsletter into the high repeat newsletter. I know I
get higher ROI without having to measure anything but
repeat behavior.

The problem with most dotcoms was this: since they
didn't include lifetime value in their biz plans, they
didn't know what they had to track, and didn't track
it. If they had, they would have much more quickly
realized they were wasting a ton of advertising money,
and might still be in business today.

By the way, using customer behavior to predict the
future value and loyalty of customers is a 40 year old
technique still used by mail order and TV shopping
today. Large sites with CRM analytics are using these
techniques (known as RFM) to predict customer value and
response to promotions. Background info, links to
articles, and "how to" instructions for the average
small biz person are on my site for those interested in
more information.

Good luck all!

Jim Novo, Marketing Mercenary mailto:jim_at_jimnovo.com
Customer Valuation, Retention, Defection, & Loyalty
Author: Drilling Down - Turning Customer Data into Profits
http://www.jimnovo.com





Received on Mon Dec 04 2000 - 10:40:10 CST