Notes

[MUSIC]
Well, it's good to see everybody once
again.
Let me remind you of where we've been and
then talk about
where we're going for the remainder of my
portion of the course.
So, here's where we've been.
We've been talking about customers
centricity.
we've been motivating it by the fact
that the traditional product-centric
model, while it's still
common, still the way that most businesses
operate, there are some cracks in product
centricity.
Issues like commoditization, well informed
customers, globalization, and so on,
they just take some of the edge off of
product centricity.
And so customer centricity is emerging.
It seems to be a promising alternative but
it's not well understood.
So people, companies are using a lot of
different words for
it, whether it's customer intimacy,
whether it's customer centricity, customer
focus,
[INAUDIBLE]
people using a lot of different words and
people are employing a lot of different
concepts.
For me, I've offered a very, a, a very
clear definition of
what customer centricity means, and, and
why companies would want to consider it.
and, and for me, the key to costumer
centricity is a celebration
of customer heterogeneity, an
acknowledgement that
customers are different from each other
and
instead of viewing that as a nuisance, oh
we have to treat them differently, it's an
opportunity.
It's a terrific opportunity to say, hey,
some customers are more valuable than
others.
Let's really focus on them to create and
extract some of that value.
Let's find more customers like them, and
let's find ways to continue to have
relationships with the other customers but
not necessarily on the same terms as
those really focal customer.
And at the heart of that argument was the
concept of Customer Lifetime Value.
The idea that we're going to judge the
goodness of a customer not
so much on the amount of, of, of money or
value that
we've already extracted from that
customer, of the amount of money or
value that we think we can extract and
will extract in the future.
So its this future looking idea we're
going to judge customer based
on what we think they will be worth to us.
And that's just really critical and we're
going to continue to
really focus on how that forward looking
COV orientation is
going to effect, and in some cases
radically change the
kinds of decisions we make about how we
run our business.
And I mentioned very briefly some of the
tactics that we
tend to focus on, things like
customer acquisition, customer retention,
customer development.
But
I haven't given a lot of specifics yet
about how we
manage those tactics, how we gauge our
success at those tactics, and
how we balance them off against each other
in order to
really understand our customers, and again
create and extract all that value.
That's what we're going to be doing now.
So, so this module is all about show me
the money.
This, this module is all about and
how to really, really understand
acquisition, retention
and development in a very new way, because
as
I've said before, those tactics by
themselves aren't new.
Companies have been acquiring customers,
they've been retaining and, and
inc-, increasing the value of customers
for a long, long time.
But we want to elevate the importance of
those ideas.
We want to develop metrics and managerial
guidelines
to, to really understand those tactics
better and
drive the business using them, not just
using them kind of
at the margin to, to squeeze a, a few more
dollars.
So we're really going to dive deep into
acquisition,
retention and development, that's what
this module is all about.
Ideally, a company would aspires to be
world class
on all three of those dimensions
acquisition, retention and development.
But that's tricky.
In fact, it's, it's tough enough to master
any one
of them, much less two or even three of
them.
So what we're going to do is we're
going to examine them one at a time.
But we do want to understand the
inter-play among them.
We do want to understand some of the
trade-offs that companies face.
And in fact, I want to begin by asking you
about one of those trade-offs.
So let's imagine that your running a
company.
Many of you are or you're involved with a
business and, and your out
there, you, you have your marketing budget
and you're, you're spending it
appropriately on acquisition,
retention, development, but then the CEO
comes down and says, you know what?
I'm going to give you an extra dollar or a
$100,000, you get
the idea, I'm going to give you a little
bit of extra money.
Which one of those three tactics are you
going to spend it on?
Now those all three are important, but at
the margin which one do
you think is most deserving of that
incremental dollar that you might have.
And in fact I really want you to think
about
this, I want to make this a little quiz
question.
So in fact I, I will pause for a second
and I, and I want you to vote, okay.
So I want, I'm, I'm, I'm counting.
So I want you to, to raise your hand.
So, so which one is the most important
tactic at the margin?
So how many of you would say it's customer
aquisition?
[BLANK_AUDIO]
Okay.
How many say customer retention?
Raise them high so I can see.
Okay.
And how many say customer development?
Okay, I got it.
Alright, so, if I, I tallied up your votes
here, and it looks like
[INAUDIBLE]
approximately 5% of you voted for customer
acquisition.
And of the rest of you, the remaining 95%,
it looks like it's a pretty even split.
So 47.5% for customer attention, 47.5% for
development.
At least when I ask this question to, to
students, to managers, to
senior executives, different companies all
around the world, that's the basic split
that I get.
Most of the attention seems to be on
retention and development, and just
a few oddballs who are saying, we should
spend that extra dollar on acquisition.
So I want to come up with a crisp answer
to that question, okay.
I, I don't like, it depends.
I want to say at the margin which one of
those would be most important for our
ongoing activities.
So here's what I want to do.
Let's dive into each one of
these three tactics, and understand it
really
carefully, but understand it in a new way.
because again, the basic words,
acquisition, retention, development aren't
new.
But how do we see these differently when
we
look at them through the lens of customer
centricity?
Or more specifically, how do we see them
differently in a world where we're
celebrating heterogenity?
Okay, so that's the theme that's been
running through
my portion of the course so far and will
continue, because now we're going to see
the big payoff from that celebration of
heterogenity.
So here's what I'm going to do.
For each one of those tactics, I'm going
to lead by asking
the same question, and then we're going
to, dive deeper from there.
So here's the question.
Let's start with customer acquisition.
What metric do firms use to gauge and
guide their acquisition activities?
Okay, so there's a lot of different
metrics
out there that firms use to evaluate how
well they're doing different parts of
their operations.
But when we look at customer acquisition
in
particular, what's the metric that tells
us how well
we're doing and gives us a forward looking
indication of how well we think we'll be
doing?
Now, for some of you, you might even have
a, a readily available metric for it.
But for many of you, especially those of
you well, firms that work
in the digital world, very often I ask
this question
and I'll come up with the answer to it
right away.
And it comes in the form of three letters.
C, P, A, CPA.
And I'm sure many of you know what I'm
talking about there, cost per acquisition.
Many firms gauge and guide their
acquisition
activities based on CPA, cost per
acquisition.
One of the reasons why they
do it's because it's just so visible,
especially in
this day and age where it's much easier to
track
not only the behavior of customers after
we acquire them,
but the cost of acquiring them in the
first place.
So, many companies out there are
constantly looking at their
CPA and trying to think about ways to
lower it.
How can we get that CPA down?
How can we bring in more customers for the
same number of dollars?
Again many of you who are out
there working and especially focusing on
marketing or custom
acquisition activities in particular, know
what I'm talking about.
But here's the important point that I
want to make.
Focusing your business using CPA to gauge
and
guide your acquisition activities is a
big, big mistake.
I'm not just saying that it's an imperfect
measure.
I'm saying that it's actually a grossly
misleading
measure if you're using that to guide your
acquisition activities.
So that's a very radical statement and I
want to explain myself how I
come up with that logic and, and, and what
you should do about it.
So let me step back for a second and, and,
and focus on issues that
I've raised previously which is the idea
of thinking about our customers as assets,
right?
Our customers as assets.
And in many cases that's the most
important asset that we have.
Now I'm not necessarily saying that we're
going to put
customers, formally on the balance sheets,
although there's a lot
of discussion about doing just that,
taking customer equity and
really using it as, as a, as a formal
measure