As chief measurement strategist at Google, Neil Hoynes job is to understand customer behavior. During the 2021 CMO Club Innovation and Inspiration Summit he shared a story where he worked with an online retailer to determine why one customer visited their website 262 times before buying a particular pair of shoes.

Even though a sale was eventually made, “the company was actually bleeding money because the customer came to the website so many times,” he said. “By the time they ended up converting, they were unprofitable. The company was renewing their hope in an eventual transaction but never looked at the costs of the larger relationship.”

Neil talked with Jon Suarez-Davis, SVP, Marketing Strategy & Innovation at Salesforce, about why marketers need to redirect their efforts to discover the lifetime value of each customer relationship and, as a result, focus on those customers that matter most.

Recognize that all customers are not equal 

Companies should understand some customers just aren’t equally profitable. Yet many spend as much on those customers as they do on customers who will spend the most.

  • Marketers need to shift focus from short-term transactions to developing long-term relationships.
  • Quick, one-off sales might be the easiest to measure but may not represent the type of customer segment that leads to profitable growth.
  • Progressive marketers are already making the shift from transaction-based to customer-based marketing by making metrics, such as customer lifetime value, central to their decision-making.

Try not to fall into the trap of convincing yourself that you can easily convert poor quality customers into top performers.

– Neil Hoyne

Calculate customer lifetime value, then implement a new framework 

  • Start by understanding the lifetime value of customers. Calculate customer lifetime value (CLV) at the individual customer-level using an appropriate model. Many of these are available online as open-source software.
  • Start segmenting to highlight which segments are going to contribute the most to your business and how their behaviors differ from those which may offer less. Any observable attributes (acquisition channel, product purchases, coupon code usage) may help identify these behaviors. 
  • Start taking action. Use your insights to improve your marketing campaign performance, optimizing behaviors that may lead to higher-value customers.  

When we have the customer at the center and adopt an enlightened view of how to measure them, it opens up all kinds of relationships.

– Jon Suarez-Davis

Build an organization to match 

  • Focus on actions instead of channels. You will need to evolve your marketing organization to optimize through a different lens instead of traditional, overlapping channels.
    • Customer Acquisition: This team should examine longer customer relationships, those you can consider “better customers” rather than random buyers. They are responsible for getting the best customers possible.
    • Customer Development. How do you extract the most value from existing customers? What are the right features, tools, promotions for upselling into each relationship?
    • Customer Retention. Now that you’ve identified the most valuable customers, how do you keep them and when is the right time to intervene to do so? 
  • Pay it forward. Transitioning your business to become customer-centric is about more than adopting a new metric. Take the time to educate others about the fundamentals of CLV and the behaviors of different customer segments before making any dramatic changes to your organization. This will improve the likelihood of your long-term success.

Get more details in Neil’s upcoming book, Converted: The Data-Driven Way to Win Customers’ Hearts.

Watch the full conversation: