#142: An Innovative Loyalty Model from Wharton's Professor of Marketing, Peter Fader (Short Summary Show)

As loyalty marketers, it’s essential that we have access to both the financial models and the financial language we need to educate senior executives on the incredible value generated from our loyal customers, and ensure that our customers are valued as the “strategic asset” they are.

Academic leaders such as Peter Fader, Professor of Marketing with the Wharton School at the University of Pennsylvania, are increasingly helping both companies and investors to understand the future lifetime value of customers (not just historic revenues) when valuing a firm.

This work has led to innovative concepts such as “Customer Based Corporate Valuation” (CBCV), an industry-leading concept that will undoubtedly become an essential framework for future loyalty marketers.

Listen to learn about Professor Fader’s fascinating work across the loyalty industry with implications for both the academic and business sides of our industry.

Show Notes:

1) Professor Peter FaderProfessor of Marketing, the Wharton School of the University of Pennsylvania 

2) Harvard Business Review – Jan/Feb 2020 issue articles – “The Loyalty Economy.” 

3) Theta Equity Partners 

4) Customer Centricity: Focus on the Right Customers for Strategic Advantage – 2012 Edition (New Edition Scheduled July 2020)

Audio Transcript

Speaker 1 (0s):

Welcome to “Let’s Talk Loyalty”, an industry podcast for loyalty marketing professionals.

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This episode of “Let’s Talk Loyalty” features an interview with Professor Peter Fader, the Professor of Marketing at Wharton University in Pennsylvania, where he has been teaching for the last 33 years.

Alongside his incredible academic credentials, Professor Fader is a successful author and businessman proving just how much value can be created when academic insights and rigor are tested and applied in the real world of business.

Professor Fader began his career in marketing and in business quite unexpectedly, having started studying mathematics at MIT, a distant world away from loyalty marketing, certainly it was back in the 1980s.

However, he discovered how powerful those math skills could be when applied to customer and commercial data with the ability to create powerful predictions that are extremely valuable in explaining how successful a company can be in the future, by understanding where it is currently creating the most value for its shareholders. He first chaired his models in a book entitled customer centricity, which explained how to focus on the right customers for strategic advantage. And then Pete realized how much more useful it would be to build a company that leveraged those models as a strategic marketing service to companies. So he built a firm called Zodiac, which was incredibly successful, delivering unique and useful insights. It was so successful. It was very quickly acquired by Nike professor faders key message remains convincing companies, how important it is for their customers to be seen as a strategic asset whose value can be monitored on modeled in order for the company to effectively plan their business growth. And yet he says to this day, many leaders remain skeptical, convinced that their company challenges are different in some ways, but pressure is growing from all sides. It’s coming from investors who are looking for deeper insights on potential companies. They are considering adding to their portfolio. It’s coming from the accounting standards boards and other regulatory agencies. The concept of customer based corporate valuation or CBC TV, which professor fader is currently working on is now in fact, a powerful way for CMOs to support their finance colleagues by showcasing where the value lies in their customer base. It’s an incredible way for marketeers to get the attention, the traction and the credibility they deserve. But as we know, so often they struggle to achieve theta equity partners is Pete’s new company that uses customer data. In order to understand whether a company is correctly valuing its customer base by essentially reverse engineering, the lifetime values of its customers. This methodology has been shared in a series of articles in the Harvard business review, which Pete has written and published in partnership with Dan McCarthy, his former PhD student and Rob Markey of Bain and company together. Their goal is to ensure that C-level executives realize how powerful these insights are for their business, firstly, internally, and then they hope they will take a further giant leap forward to share more of that customer data externally over time for now, most companies are far too nervous to take that next step, but it does create a significant opportunity for owners who are really confident about their business to overcome any reluctance from investors on funding, the company, as we go forward, those investors are anyway, increasingly saying, if you want our money, you must start to reveal more customer metrics. The key point that I really learned from professor fader is how marketers need to find a common language to work more effectively with our finance colleagues using, for example, CBC TV, as a tool to move our conversations up the ladder, helping CFOs understand the value of each of our customer segments, our geographies business units, and really showcase where the company is creating value. Of course, the methodology has to be extremely robust with some examples of high profile, publicly listed companies like Peloton, who in one example, didn’t factor in the time value of money in their estimates, leading to a loss of investor confidence. Other examples were for companies who only focused on historical profitability rather than future projections. So Pete emphasized that our customer lifetime values must be forward-looking and that we can no longer rely on outdated or overly simplified formula. If we expect to achieve consistent credible data as loyalty marketers, we have to choose powerful models as well as powerful words in order to shine a light on the extraordinary work that we continue to do. That’s it for this episode of let’s talk a little loyalty. If you’re interested in the whole discussion about this emerging field of customer based corporate valuation, you must listen to my interview with professor Peter fader Horton business schools, professor of marketing it’s episode number 40 on let’s talk loyalty.com. That’s it for today as always. I’m your host. Paula Thomas joined me this Thursday for my next interview, which features another great story about subscription loyalty or paid loyalty programs. This show is sponsored by the wise market here. The world’s most popular source of loyalty, marketing news insights and research. The Y’s marketeer also offers loyalty marketing training through its loyalty academy, which has already certified over 170 executives in 20 countries as certified loyalty marketing professionals. For more information, check out the wise market tier.com and loyalty academy.org. Thanks so much for listening to this episode of let’s talk loyalty. If you’d like me to send you the latest show each week, simply sign up for the show newsletter on let’s talk loyalty.com and I’ll send you the latest episode to your inbox every Thursday, or just head to your favorite podcast platform. Find let’s talk loyalty and subscribe. Of course I’d love your feedback and reviews. And thanks again for supporting the show.