Customer Lifetime Value (CLV) driven IT | CIO Talk Network
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Customer Lifetime Value driven IT

Others - Customer Lifetime Value driven IT
Customer Lifetime Value driven IT

If you don’t know what a customer is worth, you don’t know what you should spend to get or keep one. How can IT be re-engineered and run with core focus on maximizing Customer Lifetime Value?

 

Top 5 Learning Points

  1. How can companies align the technology decisions to the business need, linking customer value to their success?
  2. In order for IT to be successful, the companies need a 360 degrees view of the customer and their references.
  3. How can firms leverage data for deeper understanding of customer preferences, and how they can institutionalize this process?
  4. How can companies ensure a pragmatic usage of technology so that while it helps customer service, it does not distract from a direct interaction?
  5. How to ensure that IT and business are on the same page, so customer data collected is useful for creating the strategy, and there is less redundancy.

 

Show Notes

  • Customer lifetime value does bring out the return on IT investment and we have to move in that direction, even if we can’t get there right away.
  • Business never internalizes IT and their plans, even as the IT leadership sits in a closed room, they are still taking bits and bytes and the geek talk. How can we involve them on the front end?
  • There’s still that last mile to go there in making sure that we’ve coordinated what’s happening on the technology side with how it can work best for business.
  • There are a lot of metrics available now, but at a higher level in the organization, having a compelling story that links together the metrics is important.
  • There are only three ways to grow revenues, acquire new customers, keep the customers you’ve got longer, grow the gross margins from your customers to cross selling and up selling.
  • Sharing customer reference data with front line teams add great value to their ability to engage better.
  • Managing the mix of small, medium, large and very large customers is a very smart strategy for resilience during difficult business times.
  • While IT helps in creating and retaining customer lifetime value metrics, at no point should it overpower simple communication between service and customer.

 

Transcript Summary

Companies need to create a strategy to collect data, collate customer preferences and ensure that all business planning is done on the basis of this metrics. While technology can be the driver for creating the customer value metrics, it really will need to be identified by business teams internally. The first step would be to have teams that can analyze the customer needs and convert it into structured data. Deriving a 360 degrees view of the customer- preferences as well as forecasting of buying patterns helps to strategize better. Sharing this data with the front line teams ensures the insights from this data are ploughed back into creating much more meaningful customer relationships, hence better market value. Teams need to be on the same page as the business focused teams. The role of technology here is to aid in data collation as well as dissemination of insights. The IT tea, There are two significant aspects to this exercise of assigning a metric for customer value. The key is to identify data that is actually relevant, and to be able to convert that into actionable insights. The second thing is to be able to follow up on these insights with backend support that will never leave an unsatisfied customer.

Armed with a customer value metric, the front line staff should be able to provide near perfect service. However, it is important that while technology has a stake in this exercise, at no point should it become a distraction for human interaction.

In terms of business environment, today is the best time to think through some of these different options, in terms of how it’s used to get the needle point right ahead on customer lifetime value.

 

Transcript:

Sanjog: The topic for today is Customer Lifetime Value Driven IT, and our guest for the show is Ruth Bolton, Professor of Marketing at the WP Carey School of Business, Arizona State University.

In today’s digital age, IT can touch and improve anything. Everything in the business can be improved using IT. It’s always been a rather fuzzy science, where we do not know, if the investment in terms of dollars or efforts justifies the returns in dollars and cents. This has been an age-old problem. But can we use the customer lifetime value, a metric used in at a business level as a quantitative metric to assess the IT value delivered?

We would like to discuss different angles, but then we have to know the business needs, if we are focused on customer lifetime value. We say we are aligned to it, but there may be certain areas where we’re not to doing it. What would those areas be?

Ruth: I agree with you. We’re not where we need to be. The challenge right now is, a lot of times when we make technology investments and manage technology, we’re focusing on metrics that are intermediate outcomes. As you say, we’re not actually thinking about customer lifetime value or the ultimate goal, we need to be aware of how we’re making progress in the right direction. But my managers tell me, they have a shortage of people who understand both the IT side and the customer side, the business side. It’s because the environment changed so rapidly. They haven’t been able to hire the people that have both those capabilities – the technology and the business side.
But you’re right, customer lifetime value does bring those things together and we have to move in that direction, even if we can’t get there right away.

…customer lifetime value does bring those things together and we have to move in that direction, even if we can’t get there right away

Sanjog: When we do talk even in business terms, just for us to be able to measure customer lifetime value, we need different functions. We could start with marketing or customer service or internal operations, in a certain alignment. Then you can develop that formula for customer lifetime value. But then do you think we are even thinking of that direction, even at a business level, let alone IT?

Ruth: Well, you have to remember where most companies started, which is being product focused. With the idea of customer lifetime value, we started looking at all the products that the customer bought, summing across all revenue streams, products, and services. That was a radical new thought for a lot of people. A lot of companies didn’t have all that information in one place, they were siloed. They were organized around products and their technology and their databases were set up that way. So there’s been a huge effort and we’ve come a long way. We can now have a 360-degree view of the customer, so you can actually understand the customer from all these different lenses. You can look at it from the marketing, from the IT, and finance and all other touch points. But it’s been difficult to get there, moving away from legacy systems and siloes that we had in the past, to get this viewpoint.

A lot of companies didn’t have all that information in one place, they were siloed. They were organized around products and their technology and their databases were set up that way. So there’s been a huge effort and we’ve come a long way.

Sanjog: Even today, it’s not that we have moved away from products. Yes, service has become a little more complex, but you still have to be able to deliver that customer lifetime value. What you mentioned is that we’ve put systems, it doesn’t start giving you the measure. You have to have the right measures in place to identify with systems that you put. Whether it’s a third-party vendor or you who builds it, do you think we actually have the goal of a clear measure? I don’t see either business or IT, whether a product or a services company, to have that focus.

Ruth: No. One question that might get to the core of this is, with the technology in databases and systems you have right now, are you able to cross sell and up sell? That would validate all the different ways that you’re serving the customer. If you only have a partial view of the customer, you aren’t able to do that well. That’s almost like a test question. Do you have this 360-degree view of the customer, or only a tiny slice of what they are and what the relationship is with you?

Sanjog: When you are looking at customer lifetime value in general, it’s like a dollar value of a customer relationship. It’s not always it is easy for you to put a number on things. Is that why we have been shying away or even dropped the ball on this because, it’s not happening or did we not try hard enough?

Ruth: It also depends on the industry sector. For example, if you’re in financial services, they tend to be far ahead on this because their data is excellent since they use upgraded systems. We have to think about the challenges of different sectors. But the one thing that I would say is, let’s think for a minute about what the definition of customer lifetime value is. We could call it the dollar value of the relationship. What is that stream of cash flows over time in the future? What is that stream going to be? How much is it? It’s not the current value of the customer, but what you’re getting from the customer this year, or in the future? It’s calculated by taking the revenues and subtracting the cost, so what’s that net profit stream?

The problem is, of course, most firms can’t calculate that. They’re trying to create a proxy measure, some kind of surrogate as an indicator of what that dollar value of the customer is. That’s okay, actually. The trap is to oversimplify a bit on that because when you talk about customer lifetime value, you’re forecasting about that stream of cash coming from the customer in the future. Of course, a forecast depends on certain assumptions and conditions which can change. There isn’t one customer lifetime value measure for each customer, there’s actually different forecasts for different conditions.

Now stop and think if you’re in the technology area, the forecast is going to depend on how you use that technology. It’s going to depend on the strategy how you leverage those capabilities. That’s where people start to go wrong. They decide too soon on what they think is a good approximation of customer lifetime value. They don’t consider if the forecast can be used for retaining this customer. That’s a challenge.

…a forecast depends on certain assumptions and conditions which can change. There isn’t one customer lifetime value measure for each customer, there’s actually different forecasts for different conditions.

Sanjog: To that end, what you mentioned definitely is an issue. When we say we want to forecast, it may be a challenge because their systems doesn’t give them enough data or they have not figured out their strategy. It could be the fact that they don’t want to put a stake in the ground. What do you think is happening at the business level in the corner office?

Ruth: For starters, costs are always easier to understand than revenue potential. There’s a tendency with technology to focus on cost minimization, cost to serve, how to reduce cost. That’s good, but the issue is that though we’ve got through a lot of the productivity issues, there’s now a need to change the focus to think more about the revenue potential of strategy and of technology. Technology can do many things, but it’s not a substitute for employed labor. But, it can be a way to leverage your employees so that they can generate much, much more revenue. There are ways to customize the customer experience as well. There has to be a shift away from thinking about saving money. For this, there are some ways we can leverage this data and information, to deliver better customer experiences and thus, generate extra revenues.

Sanjog: I would want to give benefit of doubt to all people in business and technology that they would love to do what you just mentioned. Deploying a strategy of service on a monthly or a quarterly basis is becoming the norm because people are going agile, pushing their projects forward. But within half a year, you can see fundamental shifts in the way a customer would look at a product, buy or not buy a product or look at a newer version. . It’s becoming ... Read Full Transcript v  

Contributors

Ruth Bolton, Professor of Marketing at the W.P. Carey School of Business, Arizona State University

Ruth N. Bolton is Professor of Marketing at the W.P. Carey School of Business, Arizona State University. She is the recipient of the 2016 American Marketing Association / Irwin / McGraw-Hill Distinguished Marketing Educator Award and the 20... More   View all posts
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