Social Media and Customer Lifetime Value

For a while now, I've been interested in Customer Lifetime Value and I've put this blog post together to give you an idea of how I see CLTV in the new omni-digital world.

You see, for years companies have been using CLTV to manage customer segments. For those who are uncertain about how CLTV works, essentially it's the process by which you take the total amount of revenue a customer is going to give your company, subtract the total cost to serve that customer, multiply that by the lifetime of the relationship and wham - if it's positive, you're good to go, if it's negative, you choose how to grow the value, or how to distance yourself from the customer/segment.

It's a pretty straight-forward calculation, and it looks like this:

Where,

m is the average gross margin
i is the discount rate (or cost of capital)
r is the customer retention rate

However, I see things a little differently. With social media taking over, and the internet morphing into what people are beginning to label the "splinternet" (where the conversations between customers are happening behind log-in pages), CLTV is shifting away from just a customer-brand relationship.

I propose companies look at CLTV in a different light. I believe that if a company is going to manage by CLTV, it should have an eye to levels of influence among its customers.

Here's the way I break it down:

CLTV (the old way of calculating lifetime value)
AI (the ability to influence your social network in a %)
SN (the number of people in your social network)
UI (the universal probability that people who are influenced will act, also %)

Such that, my new social-media influenced CLTV equation that looks like this:

New CLTV = CLTV + {[CLTV x AI x SN] x UI}

So you're going to ask - how does this change matters? Before I answer, I'd like you to watch this video: (http://vimeo.com/10104695)

New Era 59fifty Customer Interview from 80/20 Solutions Inc. on Vimeo.

So, here we have a kid who buys $1500 worth of ball caps. We could assume that his value to the company is $1500 and be done with it. He's a profitable customer, no doubt, but I argue that 59fifty should treat him a little bit differently based on his ability to influence others.

Assume, he had an ability to influence at 80%. And that he had 20 people in his social network. Also, and I'll just take a stab at it (I'm sure you could find loads of psychological probabilities out there), but let's say the ability of a boy 12-18 years of age is 95%. And if you wanted to go further, you could also include the # of 12-18 year-olds turn 19, so that you have more accuracy.

The equation looks, then, like this:

New CLTV = $1500 + {[$1500 x 80% x 20] x 95%}

The NCLTV would be $24,300.

With today's marketing tools (e-mail, sms, mobile, etc.) it is very easy for companies to segment their customer database a million different ways. I suggest that companies who use CLTV to understand how technology and social media have changed the landscape and made it easier for companies to attribute values to different members of their database.

Thoughts?

What the York are you?

Last week I was invited to sit at a round-table to help envision a future strategy for York University. From what I know, this round-table was one of three that the president's office had put together to gain insight from a variety of qualified (you had to apply) stakeholders.

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For anyone unfamiliar with York University, let me fill you in (for those that know York, skip to the next section). York University is one of three universities in the greater Toronto area. It employs nearly 50,000 people and has an operating budget of nearly $800M. It is the least accessible of the three universities in the GTA. It is the middle child - middle in age, middle in size. Students of York come from the poorest families of all University Students across Canada. In recent years, the university has been plagued by labour disputes - One in 1997 lasting eleven weeks (only the 2nd university strike in Canadian History) and one in 2008, lasting 85-days after which a $250,000,000 class action lawsuit has been filed for damages.
--

Excited for the opportunity to flex my brand-building muscle, I put out a few feelers to my network to see if anyone had any insight on what York University meant to some of them or some of their colleagues. I searched social media sites for associations of current, former students, and the public at large. I wanted opinions, in the hopes that they would force the president and the future VP of University Relations to act. It's my belief that you can't predict where you're going without a view to the past. What was York's value proposition?

I received a variety of answers to my questions, but mostly they revolved around statements like: "The strike really hurt them", "They used to have a great history program", "shitty football teams", "concrete jungle", "dictatorial", and a "lost liberal arts focus." Clearly, there was some dissent.

So I considered myself armed and ready for this round-table - a chance to sit with the Prez and a handful of other stakeholders. (As a sidenote, I was the only alumni to apply to sit on the panel - heavy, eh?)

The discussion began with Budget talks. Some 3.5% of funding is being cut and the professors in the room wanted to ensure that their college (Glendon) was not going to suffer worse than any other of York's Colleges.

From there, we got on to discussing research. It became very apparent that Dr. Shoukri's vision for York centres around its growth as a research-heavy institution. This idea was immediately met with some resistance as the older professors were not at all interested in researching, but more in teaching.

Here's essentially why York wants to be a leader in Research:

1. A researcher/professor teaches an undergrad course, and a graduate course. The researcher engages in conversation with the students and can ensure that the curriculum benefits his/her research domain.
2. The researcher's will leads him/her to set up the Institute of ________ and starts to position him/herself and the school as thought-leaders in _________. The school and the researcher get great publicity out of the endeavour.
3. More students flock to the school because this institute of _______ has some ties to their future aspirations.

Make sense?

The current York Professor-Student model looks like this:










Not a lot of work for the professor.


The proposed York Professor-Student model looks like this:











Much more work for the tired professor.

The Change can happen, but it won't be successful if it's revolutionary. It'll have to be evolutionary - through hiring practices that reflect the strategy of the university.

So - want to be hired on at York? Show them an interest in RESEARCH.

(we're moving on - and I appologize for how long this is - that's why it's taken so long to post)

From there the discussion turned (inevitably?) to Collective Agreements. First was the security employee. Then the custodial worker. Between the two of them, they commandeered the conversation. Allegations were flying - of bullying in the workplace, threats, and work-environment influenced drug-use, undue stress, depression, lack of authority - these two were matching grievance for grievance in a back-and-forth until I thought I was going to lose my shit.

And the President? He accommodated them. Everyone else at the discussion sat in their seats awestruck as he noted and commented on all of their concerns. Soon enough, the round-table had run its course, and the President was leaving.

And with that, as I was leaving with a handful of the other round-table members, it became very apparent that York will not become a viable Research-heavy university. Instead, York will continue in its determined path to not ruffle feathers, condemning itself to being the "default university" by its inability to effectively deal with its employees.

So I propose the York University Institute of Failed Labour Relations as the first of the York Institutes to come out of Dr. Shoukri's proposed strategy. Happy 50th, York.

Just a thought.

Patience is the Weapon of the Watch..

Take it easy, Watch. Your time is coming.
(I can come up with millions of these puns)

This weekend my cousin was showing me some cool new shit coming out in the software industry. Always on the lookout for something slick and cool and conspicuous, I was interested in the new VAIO P series from Sony. This thing is tiny, but can't run CS3/4 nor Virtual DJ so it's pretty much just a tease for me, but things are changing.

What got me, though, was how small it was. Anyone could carry that thing around. It's almost small enough to fit in a pocket - and it can certainly fit in a purse..

And so it got me thinking: a professor of mine was commenting on how 'cellphone' replaced 'watch' because watch was too busy worrying about 'other watch' as competition, and failing to realize that 'other watch' was not its only competition, but that 'cellphone' was essentially going to wipe 'watch' out. It's a classic example of myopia.

However, watch may be on its way back (and this will thrill all of the product lifecycle advocates). If this Sony Vaio is just the latest in the growth market catergory that is "mini computers", then maybe someday soon, your mini computer will replace your cellphone. 'Cellphone''s (awkward use of quotations) competition might just be computer.

You're all saying "yes, but I'm not going to hold up some 8-inch computer to the side of my face".. (I know, those days are gone, thankfully) .. but with governments the world over making cellphone use while driving illegal, I can see a day when everyone has a blue-tooth ear-piece. Yes, like this douchebag. They may get cooler. Please, let them get cooler.

Anyway, if you didn't have to dial (voice activation, my friends), you could just carry around your bluetooth headset and your computer in your purse, briefcase, or murse. There, you'll have all of your contacts, the ability to send/receive emails, surf the net, listen to music, and check your schedule..

but what you won't be able to do is...

...

...check the time!

Ha. While you're walking around on your bluetooth headset, talking on your computer, you won't be able to accurately tell your co-conversationalist what time it is! So, you'll need to suck it up and buy a swatch, or a timex, or a whatever..

and so, the product lifecycle (or maybe category lifecycle) comes back in to play, and the watch finds itself out of the sock-drawer, and back on the wrist..

The watch is dead, long live the watch.

(insert joke here about calculator watches, too)

DIY - or will it build itself? The Brand.

To borrow a line I once heard: Brand is a set of associations attributed to the firm in the minds of consumers.

Building a brand, then, is a difficult task. It's like solidifying a national identity.

I went running with a friend yesterday and we passed by a inukshuk at a park called Inukshuk Park and we chatted for a bit on how distinctly cool that symbol is, and how much it stands for. While an inukshuk may not have stood for much to, say, my grandparents, lately it's becoming a symbol of Canadian pride.

There are two nation-building theories out there and they work well with Brand. The first is Sovereignty - or Territorial Integrity - where the head-of-state has supreme power over the territory and people, and can enforce a top-down approach to nation-building. The second is national self-determination - and it comes from the idea that the people are free to choose their own national identity, boundaries, etc.

(you can likely see where I'm going here)

A country can choose an anthem, a flag, a name, and can promote the nation through nation-building exercises. The culture is more-or-less dictated. And the government has enough power to enforce the culture. In the other sense, national self-determination, it is the people who create the culture - or what it means to be "x".

It's the same with Brands. Building a brand takes a lot of time - you create a Brand Identity through logos, wordmarks, service-scapes (if it exists), websites, copy, and all other marketing collateral. However, once created, the brand belongs to the people. And it's important to let the brand grow on its own.

So why am I writing about all of this?

Because GM Chairman Ed Whitacre recently re-visited the GM brand identity and altered it forever. It's a crucial time for GM. They're not the heavy-hitting, third-of-the-big-three, un-touchable company anymore. For years North American companies lived by the "we know best" mantra. And waited until they were near bankruptcy to swallow some pride and ask for some help. They're at a point now where the public is shaping the direction of the company. And it'll likely be a good thing, too.

But GM's move to put Ed Whitacre in an ad was a sketchy move. He may be one of the brightest minds in North America - or maybe he's just supported by them. But he's not the GM brand. And he became the GM brand overnight. And so here's my thought (finally)..

If the ideal is to create the Brand Identity and then let the Brand create positive associations through performance, what are the ramifications of changing the Brand Identity? Graphic designers (who all hopped on the Branding bandwagon over the last few years) will tell you that re-branding is inevitable or a natural part of the process.. but if a logo/wordmark/flag/anthem is created well to begin with - it should never be changed, it should never be altered, as the firm no longer owns the brand.

If positive associations have been created - why change them? I'm sure I don't have to remind anyone about the backlash suffered by Tropicana who changed its product packaging..
http://www.underconsideration.com/brandnew/archives/in_brief_tropicana_hits_comman.php

It leaves me wondering - if a brand ain't broke - why fix it.

Now this brings me to another point. If your brand is dead - or dying - is Brand Identity re-design the best way to save it? Or is it the brand equivalent to putting lipstick on a pig?

just a thought.

Thinking in Threes..

So here I am, starting a blog - is it vanity? Who knows. But for now I'm just going to keep it as a space where I can store the bagillion thoughts that run around my head every day. A Cameron Couch thought-repository, if you will. Are you going to read it? likely not - but I will - and well, as it stands now - it's a blog for me, anyway - not for you.

I was thinking in nines this morning, as I think everyone else was - even momentarily. I'm not sure I'm affected by it, but it is moderately cool to think that I'll be the ripe old age of 1031 the next time we get a uni-numerative date. (Yes, I just made that term up). January 1st, 3001. *Shudder*

Perhaps it's because three is the square root of nine, but after reading the Globe and Mail this morning about the takeover bid Kraft Food Inc. is offering Cadbury PLC, I'm starting to think in threes.

Is it possible that there exists room only for three options in any given category any more? Are we weary of too much competition in a given space? Is the ideal competitive space one in which there are only three players, and where they've driven up the cost of entry (almost solely in the domain of top-of-mind brand awareness) so that new entrants aren't even considered? Name the space, and it seems there are only three players.

Music Labels: Sony, Universal, EMI.
Pornographic Magazines: Hustler, Penthouse, Playboy
Canadian National Newspapers: Star, Globe, Post
Canadian Federal Political Parties: Conservative, NDP, Liberal
Major US Networks: CBS, NBC, ABC
Shoe Companies: Nike, Adidas, New Balance
Canadian Wireless Companies: Rogers, Bell, Telus
Dare I mention Automobiles?: Ford, GM, Chevy (this is still playing out)

Why am I mentioning this? If this takeover bid goes through, Kraft-Cadbury becomes the confectionery market leader with a combined share of 14.8%. Mars Inc, who currently enjoys a leading share of 14.6% will fall to 2nd place. Nestle remains third, but is small potatoes with less than 10%, and Hershey, Ferrero, Van melle, and Lindt are left struggling for power with less than 5% each. So this begs the question: What about three?

If Cadbury and Kraft merge, that drops the number of players from 8 to 7. If Nestle counters and buys up Hershey, it'll remain third, but with a significantly greater piece of the pie and the number of players falls to 6. But will Mars relinquish its dominant space? If Mars buys Lindt, they're back on top, and the number falls to 5, etc.

With the economy supposedly back on the mend, is it possible that banks will be more willing to lend takeover money to support the perhaps natural competition quota-leveling to three?

Do you build a strong brand by only having 2 competitors? Just a thought. One of many.


for more information on the globe's article:

http://www.theglobeandmail.com/report-on-business/deal-making-back-in-style/article1280133/