Customer Lifetime Value on a Surprisingly Broad Scale

There, he made it a mission to take models of a customer’s lifetime value (CLV) and educate companies about all the things they could do if they only knew the value of their customers.

“The results were awesome,” Fader said during a recent talk at the TEDxPenn conference in Philadelphia.

Fader is the author of two books published by Wharton Digital Press: Customer Centricity and The Customer Centricity Playbook, coauthored with Wharton Interactive executive director Sarah Toms. Those books expanded on the theme of his groundbreaking research that has transformed how marketers think about customers.

But when he started putting models from his research to work at Zodiac, which eventually sold to Nike in 2018, Fader said that perhaps the nicest validation was to see the variety of use cases in which companies could put the models to work. Besides direct client engagements, Zodiac greatly enhanced the visibility of the models, which enabled a wide variety of researchers to become aware of them.

For example, one of the models was used in relation to animal tracking—researchers put tags on an animal’s ear and a sensor on a tree to try to predict whether and how frequently the animal would show up by the tree again.

And libraries used the models with their books to predict which titles would be taken out most frequently. The models helped them make decisions about which books to keep in their main library, which to put in a storage facility, and which to get rid of altogether.

“It’s incredible how this simple math can be broadly applied to so many other domains.” Peter Fader

Seeing how broadly the same behavioral patterns manifest across such different domains provided a reality check about Fader’s work. Seeing this kind of broad applicability not only supported the statistical models, but also suggested that the managerial implications that arise from them are easier to trust. So when companies have to decide on more mundane tasks—like which email they should send to which customer at which time—Fader believes they can do so with much more confidence than ever before.

“We’re looking to see how many times the thing has been done in the past, and we have the desire to project how often will it do that in the future,” Fader said in the TEDx talk. “It’s incredible how this simple math can be broadly applied to so many other domains.”

Indeed, Fader said during his talk that there are many different ways beyond marketing that a company can apply these principles:

• New product development: Fader mentioned video-game company Electronic Arts, which he and Toms chronicled in The Customer Centricity Playbook as a wildly successful turnaround story by becoming more customer centric. Fader said EA looks at the lifetime value of each of their customers around the world to determine which kinds of new games to come up with.
• Employee incentives: Merial, an animal health company that was purchased by Boehringer Ingelheim in 2017, used the models to incentivize and realign its customer service staff.
• Customer-based corporate valuation: The focus of Fader’s new company, Theta Equity Partners, is to bring marketing and finance departments closer together by directly tying customer-level behavior to overall corporate valuation. Creating this kind of cross-functional alignment is a major priority in the “Customer Centricity Manifesto,” (https://customercentricitymanifesto.org/) which Fader and Toms highlight in their book.

“If we can project how many customers you’re going to acquire, how long they’re going to stay, how many transactions they’re going to make, and how valuable those transactions will be, we can do a better job than the usual top-down ways of forecasting revenue.  Not only can we determine what the company as a whole is worth, but we can give marketing and operations executives specific guidance as to what they could do better,” Fader said.

You can watch Fader’s talk here or at the top of this post.