“Customer
centricity can allow your organization to make far more money from your most
valuable customers who will buy from you more often and spend more when they do
buy from you.” --Peter Fader,
Marketing Professor, Wharton School
Customer Lifetime Value (CLV) is a concept that describes the
total worth of a business customer over the life of the relationship. According to an article in Harvard
Business Review (Jan/Feb 2010) CLV is the basis for marketing geared to
serving the customer as opposed to selling brands and products. This approach
is developing as the core concept for business long-term health and valuation
(along with competitive industry equity).
CLV makes a 180-degree shift: from quarterly profits on
sales to focus on long-term customer metrics, limiting spending to acquire new
customers by placing a premium on the existing customer. Customer profitability (CP) measures the past
profit; CLV looks forward to the future value that results from active
cultivation and deep knowledge. In this scheme, the relationship is lifetime,
not short-term, calling for a bird’s-eye view of every transaction as having
effects not just in the present but into the far future.
Case Study: Health Club Memberships. For nearly 20 years I’ve belonged to the
Bellevue Sporting Club, the premier health club in Center City
Philadelphia. It carries a hefty monthly
pricetag, which I’m always trying to work around by shopping some less
expensive options around town. But pool
and indoor track are hard to find downtown, which are the main club
attractions. When I heard that the pool
is now narrowing use to three lanes and requiring timed reservations for
swimming, I thought this was my signal to leave—after two decades. (For the Sporting Club, this represents over
$30 K in membership and monthly fees.) I
decided to disenroll.
I entered the sales office and spoke with two young sales
agents, explaining that the pool core of value to me now seemed too unwieldy
for my schedule. I was sorry to withdraw
my long-term membership, but it looked as if I wouldn’t be getting much pool
use (the track would be collateral damage because it could be replaced
elsewhere, at least 80%, by a treadmill).
Without missing a beat, the girls cheerfully explained how I could
easily quit online (no in-person apologies needed!) and handed me a multi-step
instruction card. Could I just sign
something, now that I was here in person? I asked. Not really.
Perhaps I’d like to go up to the business office, maybe get some help
there. Were they really saying goodbye
to a long-time loyal member so easily? Clearly
they wanted to close my case in order to get back to bigger things—like signing
up brand-new members.
In the business office, Bridget proved more helpful. First,
she asked what the problem was—something Sales didn’t really seem to care about. That was easy; the pool. She
pointed out that the lane shrinkage and reservations to swim laps were temporary,
imposed only as COVID measures. At some
point, pool life would return to normal.
The freeze I requested when the club closed down in mid-March could be
extended to January (I hadn’t even thought to request such an extension). Here was the Business office more aware and
proactive in customer retention than the sales team downstairs. The three-month grace period allows me more
time to re-think leaving and preserves my CLV – all to the club’s benefit. Why didn’t the gang in Sales do the same—assure
me that the pool program was only provisional?
Did Sales even probe to see why I wanted to leave—or care? Did they do any math, realizing it is five to
seven times more costly to recruit a new member than to retain and cultivate
those already on the rolls?
A health club is a great example of an experience-based
offering that benefits members for life.
The club is just the stage set shell of space and equipment; none of
this has any value without the energy supplied by the user. But blocks like COVID can interrupt lifetime
value unless companies appreciate their threat—and appropriate interventions--to
the User Experience equation.
These quitting points are known and predictable. Health clubs are well aware that New Year’s
resolutions last about six weeks, then wind down as the expected progress isn’t
rewarded in any quick progress toward goals. Far less than half of all members
even appear regularly. Currently, for many, the nonstarter is masking up while
exercising; for others, suspended showers or even towel service. Still more just don’t welcome the viral risks
of shared water or locker rooms.
In the Sporting Club case, this customer didn’t want to quit
the club—she just wanted someone to discover how to stay enrolled, and keep those
payments coming in. In this case, the
Accounting office showed a superior grasp of the long-term benefits of customer
retention. They apparently know where
the money comes from.
Plenty of companies pay lip service to a customer-centric
culture, but their behavior shows their ongoing dedication to sales rather than
service, and marketing those products versus cultivating their buyers. Social media has revolutionized interactive
(not one-way) communications. This is a
dynamic that deserves a totally revised orientation to the purpose of
business—to create value for its customers. This is the root of success for IBM
(B2B), American Express, and Nokia (with its Beta Labs in Asia) in understanding
and serving customer needs as they evolve by paying close attention to the
plentiful interactions that contain plenty of intelligence – when you know how
to read them.
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