Do we live in a current economy where we have no customer life time value?

customer-lifetime-value (1)With the ever-changing and fast-speed of the internet and technology, every company and product is interested in selling products and services, but are we missing something?

Research shows that in industry, students have been barraged by an ongoing stream of news and facts, stretched over years, if not decades across what motivates customers to buy. Its ‘customerising’, gearing a company up to focus exclusively on your customers that matters, you need to build a customer-driven company, the results speak for themselves a company that focuses on its customer’s needs will embrace customer loyalty, increased performance and a healthy bottom line.

In marketing, customer lifetime value (CLV) (or often CLTV), lifetime customer value (LCV), or user lifetime value (LTV) is a prediction of the net profit attributed to the entire future relationship with a customer. The prediction model can have varying levels of sophistication and accuracy, ranging from a crude heuristic to the use of complex predictive analytics techniques.

CLV has a central strategic importance for a company, and more and more managers are discovering that their most important asset is not the company’s inventory but its customers… that matters!

The Pareto Principle states that, for many events, roughly 80% of the effects come from 20% of the causes. When applied to e-commerce, this means that 80% of your revenue can be attributed to 20% of your customers. While the exact percentages may not be 80/20, it is still the case that some customers are worth a lot more than others, and identifying your “All-Star” customers can be extremely valuable to your business.

Taking CLV into account can shift how you think about customer acquisition. Rather than thinking about how you can acquire a lot of customers and how cheaply you can do so, CLV helps you think about how to optimize your acquisition spending for maximum value and not minimum cost.

Some seasoned entrepreneurs may say “break even” or some other number is the most important metric, but I believe “lifetime value” is perhaps the most significant measure to benchmark. I also know it is one of the most overlooked and least understood metrics in business, even though it is one of the easiest to figure out.

Customer journeyWhy is this particular number so important? Mainly because it will give you an idea of how much repeat business you can expect from a particular customer, which in turn will help you decide how much you’re willing to spend to “buy” that customer for your business.

Once you know how often a customer buys and how much he or she spends, you will better understand how to divide your resources in terms of customer retention programs and other services you’ll need to keep your customers, and importantly – keep them happy!

Once you have some idea of the lifetime value of your customer, you have two options in deciding how much to spend to acquire him or her:

1. Allowable acquisition cost: This is the amount you’re willing to spend per customer per campaign — as long as the cost is less than the profit you make on your first sale. This is a shorter-term strategy that makes the most sense when cash flow is a concern.

2. Investment acquisition cost: This is the cost you’re willing to spend per customer knowing that you’ll take a loss on an first or even later purchase. But you have the cash flow and other resources to absorb your initial marketing investment with this longer-term strategy.

The point is that you’ll never know how to develop an optimal marketing budget unless you know what the return on your investment needs to be. This knowledge is vital because it will help you make marketing decisions based on the reality of your own numbers and not the promises of some new media program.

Knowing lifetime value also lets you see how, or if, you can discount. It will help you avoid the potentially disastrous effects of discounting when your business needs cash flow to survive. In addition, you will find innovative ways to build value upfront and create offers that drive enough volume to support and eventually increase your overall lifetime value number.

So take some time to work the numbers in the very simple lifetime value equation, especially if you’re still in the planning stages for your business. Remember to build in some variation and see if your current plans support the numbers you come up with. If so, that’s great. If not, that’s also great because you’ve determined on paper what you need to change to make your numbers work.

Investing to earn the loyalty of your customers often requires trade-offs—you must decide which of the many investments you could potentially make will result in the greatest return. A clear understanding of your company’s loyalty economics will help you make those decisions. It will give you a quantitative basis for investments in long-term customer assets and provide a defense against the short-term, sub-optimal, “quarterly earnings” mind-set that often tempts leaders to generate “bad profits.”

It is possible to calculate loyalty economics with great precision, if you have the resources and the tools to do so. If not, you can also make rough estimates that can help guide decision-making. This page describes a relatively simple way to get reasonable, rough estimates of the potential value that can be created by improving your company’s Net Promoter score and earning the loyalty of more of your customers

Share of wallet and number of products purchased: calculate how the annual purchases of your promoters, passives and detractors vary. This will help you estimate revenue differences. If you have actual revenue per customer, you’ll be able to estimate more precisely, of course.

In the end, it’s the lifetime value numbers that will determine the ultimate success of your company.

Human extinction – what are the effects of living to 200 – is it possible?

Tech-Head-with-Tech-glasses_500A Japanese woman, recognised as the oldest person in the world, died early in the morning of Wednesday April 1, 2015, at the age of 117.

Experts put Japanese longevity down to the nation’s comprehensive healthcare system, the support of the community, encouragement to stay physically active until they are quite elderly, a sense of being part of a family and a healthy diet that has traditionally been heavy in fish, rice, vegetables and

Additional research has suggested that people who were in middle-age during the years of food shortages during the Second World War have subsequently enjoyed better long-term health than people who never had to go without.

But Yasuyuki Gondo, an associate professor at Osaka University who specialises in geriatric psychology, says there is much more to longevity than merely a good diet and advanced medical care

Aubrey David Nicholas Jasper de Grey is an English author and theoretician in the field of gerontology and the Chief Science Officer of the SENS Research Foundation. He is editor-in-chief of the academic journal Rejuvenation Research, author of The Mitochondrial Free Radical Theory of Aging (1999) and co-author of Ending Aging (2007). He is known for his view that medical technology may enable human beings alive today to live to lifespans far more than any existing authenticated cases.

De Grey’s research focuses on whether regenerative medicine can thwart the aging process. He works on the development of what he calls “Strategies for Engineered Negligible Senescence” (SENS), a collection of proposed techniques to rejuvenate the human body and stop aging. To this end, he has identified seven types of molecular and cellular damage caused by essential metabolic processes. SENS is a proposed panel of therapies designed to repair this damage.

So what would be the ratifications is a human could live to age 200?

life expectancy graphSo far as scientists know, the last hundred years have been the most radical period of life extension in all of human history. At the turn of the twentieth century, life expectancy for Americans was just over 49 years; by 2010, that number had risen to 78.5 years, mostly because improved sanitation and basic medicine. But life extension doesn’t always increase our well-being, especially when all that’s being extended is decrepitude. There’s a reason that Ponce de Leon went searching for the fountain of youth. If it were the fountain of prolonged dementia and arthritis he may not have bothered.​

Humans as early as next year, following a key discovery that saw the ageing process reversed in mice. The study, involving Harvard University and the University of NSW, discovered a way of restoring the efficiency of cells, completely reversing the ageing process in muscles.

Two-year-old mice were given a compound over a week, moving back the key indicators of ageing to that of a six-month-old mouse. Researchers said this was the equivalent of making a 60-year-old person feel like a 20-year-old.

It’s hoped the research, published in Cell, will be expanded to humans as early as next year, with scientists set to look at how the theory of age reversal can be used to treat diseases such as cancer, dementia and diabetes.

The research focused on an area of cells, called mitochondria, which produce energy. Over time, the communication between this area and the cell nucleus degrades, leading to the ageing process.

Researchers injected a chemical called nicotinamide adenine dinucleotide, or NAD, which reduces in the body as we age. The addition of this compound led to the radical reversal in the ageing of the mice.

Over the past twenty years, biologists have begun to set their sights on the aging process itself, in part by paying close attention to species like the Lobster, which, despite living as long as fifty years, doesn’t seem to age much at all. Though some of this research has shown promise, it’s not as though we’re on the brink of developing a magical youth potion. Because aging is so biologically complex, encompassing hundreds of different processes, it’s unlikely that any one technique will add decades of youth to our lives. Rather, the best we can hope for is a slow, incremental lengthening of our “youth-span,” the alert and active period of our lives.

Some ethicists have pointed out that death is one of the major forces for equality in the world, and that welfare disparities will be worsened if some people can afford to postpone old age, or avoid it altogether, while others are unable to.

There is research available and concerns when scientists develop any kind of medicine or any kind of technology—the concern that these things are going to widen welfare gaps. The story of industrialisation is that the people who could afford the cars and machines and factories in Western countries were able to produce a lot more and generate a lot more wealth than people in poorer agrarian economies. That’s a serious issue. It’s probably true that if people in the first world were, through some sort of medical intervention, able to live to be 200 years old and people in Bangladesh were still dying at a relatively young age, that would tend to widen the distance in personal wealth.

So how will employers, government and financial service organisations deal with an aging population?

Older people also report, to pollsters and psychologists, a greater sense of well-being than the young and middle-aged do. By the latter phases of life, material and romantic desires have been attained or given up on; passions have cooled; and for most, a rich store of memories has been compiled. Among the core contentions of the well-being research of the Princeton University psychologist Daniel Kahneman is that “in the end, memories are all you keep”—what’s in the mind matters more than what you own. Regardless of net worth, the old are well off in this sense.

Should large numbers of people enjoy longer lives in decent health, the overall well-being of the human family may rise substantially. In As You Like It, Jacques declares, “Man in his time plays many parts, his acts being seven ages.” The first five embody promise and power—infant, schoolboy, lover, soldier, and success. The late phases are entirely negative—pantaloon, a period as the butt of jokes for looking old and becoming impotent; then second childishness, a descent into senile dependency. As life expectancy and health span increase, the seven ages may demand revision, with the late phases of life seen as a positive experience of culmination and contentment.

Further along may be a rethinking of life as better structured around friendship than around family, the basic unit of human society since the mists of prehistory. In the brief life of previous centuries, all a man or woman could hope to do was to bear and raise children; enervation followed. Today, life is longer, but an education-based economy requires greater investments in children—contemporary parents are still assisting offspring well into a child’s 20s. As before, when the child-rearing finally is done, decline commences.

But if health span extends, the nuclear family might be seen as less central. For most people, bearing and raising children would no longer be the all-consuming life event. After child-rearing, a phase of decades of friendships could await—potentially more fulfilling than the emotionally charged but fast-burning bonds of youth. A change such as this might have greater ramifications for society than changes in work schedules or health-care economics.

Regardless of where increasing life expectancy leads, the direction will be into the unknown—for society and for the natural world. Felipe Sierra, the researcher at the National Institute on Aging, puts it this way: “The human ethical belief that death should be postponed as long as possible does not exist in nature—from which we are now, in any case, diverging.

Left brain or right brain – can you still innovate?

innovationInnovation and creative thinking go hand in hand. But today’s corporate leaders are not always encouraged to use their imaginations, especially when it comes to major business deals and decisions. During uncertain times, innovation can take a backseat to well-tested and proven methods of delivering assurances. But novel ideas—and the creative thinking that goes along with them can be the most effective ways to differentiate your corporation or brand in a competitive economy.

When it comes to idea generation, we typically consider ourselves to be either right-brained people or left-brained people. Left-brained thinkers tend to use logic, facts, and objective means to assess the world, whereas right-brained thinkers are known for using imagination, possibility, emotion, and subjective measures. Left-brainers are methodical and verbal while right-brainers are intuitive and visual.

Certain industries are often thought of as being appropriate for right- or left-brained thinkers. Artists and entrepreneurs are creative types who heavily rely on the imaginative sphere of the right brain. Business executives and managers are frequently logical types who may use the left brain for deductive reasoning and analysis. Of course, all humans use both parts of their brains on a daily basis, but the idea of engaging the right brain more readily is one to seriously contemplate, considering ideas are the global currency of today’s ‘creative economy.’

Your brain is divided into two completely separate hemispheres. Each hemisphere processes information differently. Your left hemisphere processes information in series. It thinks in language. It works linearly and methodically. Your right hemisphere processes information in parallel. It thinks in mental images. It ‘sees’ the big picture.

One side of your brain or the other is dominant. In itself, that should not be surprising, since it’s consistent with another well-known human trait: Some people are left-handed and some people are right-handed. In a similar fashion, some people are left brainers and some people are right brainers.

Left brain vs right brain, what are you?

If you’re the CEO of a major corporation, chances are good you are a left brainer. Before you make a decision, you want to be supported by facts, figures, market data, consumer research. It couldn’t be otherwise in a world where the ultimate measurement is the stock price and the bottom line.

If you have a job in marketing, chances are good you are a right brainer. You often make decisions by gut instinct, with little or no supporting evidence. It couldn’t be otherwise in a creative discipline like marketing.

Another striking difference: Left brainers have a strong preference for verbal thinking, while right brainers favour visual thinking. When a management type makes a speech, he or she usually stands behind a podium and reads a script or the words on a teleprompter (or uses PowerPoint slides with nothing but words). When a marketing type makes a speech, he or she usually stands in front of a screen and makes a presentation using dozens of visuals.

Because they are verbally oriented, left-brain people are usually good talkers. Salespeople, for example, are often exceptionally good talkers but notoriously bad at the paperwork or writing part of their jobs.

Right-brain people are usually good writers. Why? Because arranging words on a page is as much a visual challenge as it is a verbal one. In letters and e-mails, for example, right brainers will often arrange the words so that each line contains a complete thought.

Most managers are verbally oriented left brainers. Why is this so?

Because of the way people move up the ladder in the corporate world. The general principle is: You don’t get promoted, you get elected.

business-model-innovationManagement is like politics. Your fellow workers determine whom they would like to work for. A left brainer is an extrovert, particularly good at schmoozing with people. A right brainer is an introvert, totally outclassed when it comes to office politics. As companies get older and bigger, their upper levels tend to be staffed almost exclusively with left brainers. As a result, the innovators (primarily right brainers) tend to leave or get pushed out.

What saves the situation, as far as the economy is concerned, is entrepreneurs such as Bill Gates, Steve Jobs, Michael Dell, Herb Kelleher and dozens of others. Entrepreneurs are invariably right brainers who often turn out to be exceptionally good marketing thinkers, too.

Take Steve Jobs, who at one time was fired from Apple. Jobs is a classic right brainer with a intense focus on a product’s visual appearance and a disdain for the consumer’s opinion. “Steve Jobs doesn’t do market research,’ said venture capitalist and former Apple employee Guy Kawasaki. ‘Market research for Steve Jobs is the right hemisphere talks to the left hemisphere.’

“People don’t know what they want,” Jobs once said, “until you show it to them.”

Once again, what are you? While it would be nice to think you could operate both sides of your brain with equal facility, the facts suggest otherwise.

Most management publications are also focused on execution. Fortune magazine once reported, “Ninety percent of organizations fail to execute on otherwise well-planned strategies.”

But if they fail to execute the strategies, how does one determine they were “otherwise well-planned”?

How do marketing people deal with CEOs who have the power to make strategic marketing decisions without the experience only a lifetime of marketing can accumulate? It’s not easy.

The next generation of entrepreneurs seems especially ready to recognise the value of whole-mind thinking when it comes to innovation. Young entrepreneurs like Twitter founder Jack Dorsey often have a deeply methodical side (he began as a programmer), but also a complementary creative side that grapples with problems nonlinearly while embracing uncertainty.

So while some well-established business leaders may still believe in a mutually exclusive right-brain/left-brain dichotomy, the more progressive approach is realising that creativity actually exists in many different forms. Considering what it has done for social media and other channels of e-commerce, promoting this type of holistic-minded business philosophy is essential to better innovation in almost every industry.​

Is Micro-Management delusional or can it be effective?

micro managerLast year I wrote a blog on Micro-Management, looking at the bigger picture, whilst as a leader and manager I have never deployed a working philosophy across micro-management, the question has been raised is micro-management delusional or can it be effective?

A famous quote by Lt General Gus Pagonis, once said ‘I never tell a subordinate how to carry out a specific goal. Dictating terms to a subordinate undermines innovation, decreases the subordinate’s willingness to take responsibility for his or her actions, increases the potential for suboptimization of resources, and increases the chances that the command will be dysfunctional if circumstances change dramatically.’

Micro-management can be advantageous in certain short-term situations, such as while training new employees, increasing productivity of underperforming employees, controlling high-risk issues, and when there can be no question of who is in charge. However, the costs associated with long-term micro-management can be exorbitant. Symptoms such as low employee morale, high staff turnover, reduction of productivity and patient dissatisfaction can be associated with micro-management. The negative impacts are so intense that it is labelled among the top three reasons employees resign.

Ultimately, micro-management leads to decreased growth potential in a department. Managers who put too much emphasis on daily operational details can miss the broader picture and fail to plan for departmental expansion. Eventually, many micromanagers find themselves at considerable risk of burnout. Changing behaviour associated with micromanagement can be a lengthy and difficult process. As with most problems, the first step is to realise that there is behaviour that needs to be changed and to understand how it negatively impacts the department.

Conducting a self-assessment of one’s leadership style can be advantageous in this process. The true task is to find a balance between effectively performing daily obligations and strategically planning for the future. This task typically involves proper delegation of duties, and that in itself is a difficult challenge. Proper delegation of tasks may be the primary key to combating micro-managing behaviour, however, some other suggestions include:

  • 1. Develop a vision of what the department will look like in the future.
  • 2. Hire people with the right skills for the job.
  • 3. Develop a policy and procedures manual.
  • 4. Develop solid lines of communication between managers and subordinates.
  • 5. Expect some employee errors.

Mistakes are an important process in the learning experience and should be viewed as a training expense. Employees who are allowed to be self-directed will be motivated to be more productive. Staffing issues such as low morale and high turnover will decrease; patient satisfaction will increase simultaneously

Let’s look at some of the positives across Micro-Management:

Putting Micro-management to Good Use

Each leader develops techniques, procedures, and processes to accomplish their art.  Seen as tools in a toolkit, they use each one when the situation dictates to generate trust, produce a vision, or motivate a subordinate to deliver their goods.  In this vein, micromanagement is nothing more than another tool in your toolkit.  You use it when the situation dictates.

micromanager2015When is micro-managing good?  In situations like these:

High-value, Critical Project.

When there’s a high-value, critical project underway in your area of responsibility you do not have an option of failure.

Fulfilling Expectations of Superiors. Call it self-preservation. Call it pandering. I call it ‘smart’.  Micro-management sometimes needs to be deployed to satiate superiors who themselves wield micro-management as their normal operating mode.

Inept Staff.

Not a happy situation, but you may have staff members that aren’t up to the task.  Yes, you need to fix that either through training or getting new talent.

If you have to micro-management ensure you do it correctly.  Most people react to micro-management negatively, so ensure you do the following:

Let your team know you’re going to deep dive and why.  Subordinates may not enjoy the extra involvement, but most often they’ll accept it if they know why you’re getting into the weeds.

Train your team so micro-management goes away.  If you’re team is new or not seasoned enough, get to work training them to anticipate what questions to answer and what information to push forward.  Micro-management is used most often when there’s a lack of trust in a subordinate’s skill or blind spots in a projects path.  Provide the training/mentoring necessary to in still the needed skill and give your team the recipe for what information is needed to illuminate the key aspects of the project.

Do not micro-manage as Standard Operating Procedure (SOP).  Using this tool is good if done so sparingly.  If you’re using it on every project, then it’s time for some self-analysis.  Constant micro-management comes from a lot of bad stuff on behalf of the leader:  lack of self-confidence, lack of knowledge/skill, perfectionism, ego/arrogance, etc.  If you find yourself in the weeds constantly, step back and ask ‘why’.

Always remember, leadership has sometimes been described as taking people to a place that they would not normally go to on their own. Once a sound strategic planning process has determined what that place should be it is the leader’s prime and fundamental responsibility to assure that the full resources of the organisation are effectively brought to bear to achieve that destination.

An effective planning process can and will systematically examine the company’s situation, its assumptions about the future and its current and required competencies. It will then bring the management team to consensus on a future course and direction for the firm.

The output should be a vision: a realistic, credible, attractive future for the organization. An effective planning process will also be participative in nature. A team of people will provide input from different functional and personality perspectives and their participation will create the buy-in necessary for successful implementation. But at the end of the day it is the organisation’s leader who has to be the chief steward of the vision. It is he or she who has to be obsessed with the desired outcome.