Paula: Welcome to Lets Talk Loyalty, an industry podcast for Loyalty Marketing Professionals.
Paula: I’m your host, Paula Thomas, and if you work in Loyalty Marketing, join me every week to learn the latest ideas from loyalty specialists around the world.
Paula: You So, welcome to episode 40 of Lets Talk Loyalty.
Paula: And today’s episode is actually with a guest from a very different perspective and a very different world that we normally have on the show.
Paula: And I am delighted actually to be inviting and discussing all about loyalty marketing with Professor Peter Fader, who’s actually the Professor of Marketing at the Wharton School at the University of Pennsylvania.
Paula: Now, many of you may know it by reputation.
Paula: And that business school was actually the world’s first collegiate business school established way back in 1881.
Paula: So, incredible credentials.
Paula: And Professor Fader has actually been their Professor of Marketing for 33 years.
Paula: So, without further ado, let me first of all welcome Professor Peter Fader to Lets Talk Loyalty.
Peter: Thanks, Paula.
Peter: It’s great to talk to you.
Paula: Great stuff.
Paula: I’m a huge fan of the whole world of academia.
Paula: I was a little late to my own academic career, I will confess.
Paula: But certainly Wharton has an extraordinary reputation.
Paula: So, super happy to be talking to you today.
Paula: You sure are.
Paula: You sure are.
Paula: Yeah.
Paula: Now, we’ll obviously talk about all of the various things that you’re working on.
Paula: But before we even get into the academic side of things, I also wanted to let listeners know that you have a very strong business background.
Paula: So, I know you are currently running your second company.
Paula: And we’ll be talking about your successes in business.
Paula: And you’re also a successful author.
Paula: So, some books about loyalty, and I know a new one coming up as well.
Paula: So, an incredibly busy man, so loads to talk about.
Paula: And as always, I will call you Pete, as we talked about.
Paula: So, delighted to ask you first and foremost, what is your favorite loyalty statistic?
Peter: Well, the numbers vary depending on which source you read.
Peter: But the astounding number of different loyalty programs that people belong to, and the statistic I recall seeing recently, again, not necessarily authoritatively, is that 60% of people belong to five or more loyalty programs.
Peter: And again, the numbers could be fuzzy.
Peter: But the fact that people, to the extent that loyalty programs reflect loyalty, kind of spread their loyalty out so broadly, and on the surface seem so committed to basically belong to something, on one hand is just really, really encouraging, on the other hand is kind of scary and misleading.
Peter: And I hope they’ll have a chance to unravel a lot of that.
Paula: Absolutely.
Paula: So there’s lots of different things I’d like to explore with you.
Paula: But the first one is actually just a very general question.
Paula: I see that you originally studied mathematics in MIT.
Paula: And I’m sure that that has led into a lot of the work that you did, for example, with your first company.
Paula: But why did you, first of all, find marketing so compelling?
Paula: And how have you ended up in loyalty marketing?
Peter: You know, I didn’t.
Peter: When I was a math major at MIT, I took this one course on marketing, a course on marketing models.
Peter: I was more interested in the models than the marketing.
Peter: And building models of, you know, customers doing this and that.
Peter: At the end of the semester, the professor came up to me and said, you must get a PhD in marketing.
Peter: And I said, you must get your head checked.
Peter: I’m not going into marketing.
Peter: I’m a math guy.
Peter: You know, it’s the total polar opposite.
Peter: And this professor, her name is Leigh McAlister.
Peter: She’s a professor at the University of Texas, Austin.
Peter: I consider her now to be my fairy godmother.
Peter: Because she painted a picture.
Peter: Keep in mind, this was 1983, which is about 500 years ago, effectively.
Peter: And she painted this picture of what the world of marketing would become with the ability to tag and track individuals and to predict who’s going to do what next and then to build decisions and tactics and strategies directly on that customer level data.
Peter: She painted this picture of what the world would become.
Peter: And she was 100% right about the kinds of capabilities that we have today.
Peter: I was intrigued.
Peter: I was persuaded.
Peter: But it really was not something I kind of woke up one morning and said, I want to do this.
Peter: And so I kind of thank a mentor like that who pushed me into it and continues to guide me along the way to make sure that my work is relevant and compelling.
Paula: Well, I mean, if there’s anything any of us could aspire to, it’s to be relevant and compelling Pete.
Paula: So really excited to hear all about that.
Paula: And obviously, because the audience listening to this show are predominantly loyalty directors, loyalty executives, we certainly don’t need to be convinced about the power of the right customers, which I know is a really core message to what you’re keen to communicate.
Paula: So I’d love to just explore that subject initially, but then get into the more recent work that you’ve done.
Paula: I know there’s a fabulous article in the Harvard Business Review.
Paula: So I really want to talk about that, but I’d love to just explore customer centricity and what was the problem that you were seeing that I suppose inspired you to develop all of the models and I suppose to go into business to prove those models.
Peter: That’s great.
Peter: Thank you.
Peter: So basically for my 33 years as a professor, as I said, I’ve just been predicting things.
Peter: So how many customers will this company acquire?
Paula: Yeah.
Peter: How long will they stay until they completely leave and go someplace else?
Peter: Over that horizon, how many purchases will they make?
Peter: And how much will they spend when they do?
Peter: Of course, what actions can we as a firm take to improve our performance along each of those and other dimensions?
Peter: So I’ve just been predicting things.
Peter: That’s what I like to do.
Peter: And our ability to do so is actually really strong.
Peter: A lot of companies don’t realize just how predictable customer behavior is and how regular a lot of these patterns appear to be across seemingly unrelated businesses.
Peter: So a lot of the distinctions that we focus on, B2B versus B2C or domestic versus international or big complex products and services versus simple, low involvement, mundane ones, a lot of those surface level characteristics do not matter.
Peter: Then when we just look at the data and say, what is the data, what are the models telling us about how long this or that, it’s amazing how all these models work.
Peter: And so for years, I’ve been going to companies and saying, listen, there’s a lot of really valuable insight here, stuff you want to know, stuff that’s going to both drive your decisions and help you evaluate them more effectively.
Peter: And for most of my career, companies have completely ignored me.
Peter: They’ve dismissed me as an academic.
Peter: They’ve said, oh, well, my business is different.
Peter: They would come up with a litany of reasons to basically shoot the messenger.
Peter: And so around 10 years ago, so frustrated by the inability to get these ideas across, maybe it’s a failing of myself, I don’t know, I went down two parallel paths.
Peter: And you referred to both of them.
Peter: One is I started writing these books to stop glorifying the models, per se, and more to focus on what it all means to focus on the managerial motivations to do this, the consequences of not doing so, the kinds of steps associated with it, and of course, lots of examples of companies that are doing this well, and some not so well.
Peter: So there’s the books to try to spread the gospel and motivate people and get them to say, huh, never thought about it that way.
Peter: And that’s great.
Peter: But a lot of companies would still, they’d be motivated, but still unable to move ahead.
Peter: I mean, there is some technical sophistication involved here.
Peter: And despite my efforts to make these models as accessible as possible, here are some spreadsheets and some videos and some R code and some technical notes.
Peter: At some point, I realized I had to kind of take matters into my own hands.
Peter: And that’s why I co-founded my first startup, Zodiac, that basically allowed companies to leverage all of these models at full commercial scale, in near real time, and to be able to do so in a way that would integrate with their transaction systems, as well as the email marketing and Facebook and so on, to be able to take data, run the models, and then take actions seamlessly and very quickly.
Paula: Phenomenal.
Paula: Wow.
Paula: And I know you had a very successful exit, and you mentioned that you sold the company in 2018, was it?
Peter: That is true.
Peter: Yeah, I had not only no intention to sell the company, but it was the furthest thing from my radar.
Peter: This was my podium.
Peter: This was my ability to spread the gospel, and I was working very, very well, working with lots of different companies, retailers and pharmaceuticals and travel and hospitality and telcos and gaming and lots of different companies, using these models to better understand their customers, take action on them.
Peter: I’m never going to let this go, but then one of our clients, a company called Nike that I’m sure of course you know about, they said we want it and we want it all.
Peter: So indeed, March of 2018, Nike bought the company to kind of take a lot of these insights and capabilities and bring them in-house.
Peter: They’re doing amazing things with it.
Peter: And so on one hand, I kind of had to let my baby go, but on the other hand, it was just an amazing validation when a company like Nike stepped up, a company that’s doing it in a position of power, not out of desperation.
Peter: And we’re doing well, we could be doing better.
Peter: A lot of other companies started to say, well, wait a minute, maybe we should be doing this stuff after all.
Peter: And so ironically, it was selling the company that was a great thing to put a lot of kind of wind behind the sails to get others on board.
Paula: Well, and it’s impressive to hear as well, I guess, Pete, that you didn’t create the company to sell because I saw another statistic actually in your LinkedIn profile, which was, I thought, phenomenal, in that in 2017, you were included by Advertising Age as one of their inaugural 25 marketing technology trailblazers.
Paula: So you’ve obviously got the mindset for technology, and I know you were the only academic on the list.
Paula: So I have a very great relationship with my own MBA professor.
Paula: So I just think it’s phenomenal that you’ve managed to cross all of these worlds and to do it so successfully.
Peter: Thank you, Paul.
Peter: And actually, that acknowledgement from adage was very meaningful, not to get the recognition, but as you said, to be the only academic on the list.
Peter: Usually you don’t put academics on the list like that, let them crunch their numbers, come up with their theories, spin their ivory tower yarns.
Peter: And of course, I’m still doing a lot of that.
Peter: I’m still writing papers and teaching and doing all the academic stuff.
Peter: None of that changes.
Peter: But the idea that, let’s call it the real world, has basically found value in some of the academic work.
Peter: Very few professors have that luxury to find success in academia, but also attention among leading edge practitioners.
Peter: And again, a lot of it is just right place, right time, good luck.
Peter: But a lot of it, I think I will take credit for, is that companies are realizing that the way they used to do marketing, the way they used to look at their customers, the way that the marketing organization fit in with the rest of the enterprise just isn’t working well.
Peter: It was fine in the 1950s, but here we are 70 years later.
Peter: We should be doing things differently.
Peter: And I’m just pleased that a lot of them are looking to me and my work for some of those sources of techniques and inspiration.
Paula: Phenomenal.
Paula: And I guess one of the main reasons that I actually wanted to come on to the show, Peter, was really to talk about, you know, we’ve had, as you said, these models for many years.
Paula: We’ve had our Pareto principles.
Paula: We’ve had actually customer lifetime value.
Paula: And I think I said at the start that certainly loyalty executives don’t need to be convinced about focusing on the right customers.
Paula: But what I really liked, what I heard you talking about actually on them on another podcast, was really about how customers are becoming increasingly a strategic asset, that potential investors in a company are looking to understand the patterns of their behavior in terms of driving the customer, sorry, in terms of driving the company valuation.
Paula: So I’d love you to explain the latest ideas around customer based corporate valuation.
Peter: Thank you again, you couldn’t set it up anymore perfectly.
Peter: I come at it from two different ways.
Peter: One I’ve just mentioned, which is the idea that it’s just so frustrating that marketing is often in this isolated silo, very hard for them to get attention, traction, resources with other C-level executives, and all these stories about how CMOs have such short tenure.
Peter: Part of it is coming up from the marketing side, let’s find a way to really get the credibility, the visibility, the true partnerships that we all yearn for.
Peter: All marketers want to make that happen, but now coming at it from the other side, finance, it’s nice that we in marketing have something to offer them.
Peter: Very specifically, go back to the kinds of models that I mentioned.
Peter: We can predict how many customers are going to acquire, how long they’re going to stay, and what they’re going to do, and how much money we’re going to make off of them, and add all that up, well, that’s the revenue of the company.
Peter: By looking at revenue in this underlying way, decomposing it into these different pieces, and then building it up to not only project what the revenue will be, but to diagnose why it will be going up or why it will be leveling off.
Peter: Is it because we’re not acquiring enough customers or not staying long enough with us?
Peter: That marketers and marketing models have a lot to say to the CFO about cash flow.
Peter: Then it’s just a very short step from there to say, well, why stop with just the cash flow or revenue projections?
Peter: Lets go all the way to corporate valuation.
Peter: We’re really focusing these days on customer-based corporate valuation, CBCV, and doing it again to achieve both goals.
Peter: To make the marketer a true thought partner with the CFO, it helps the CFO and outside investors do their job more effectively by being cognizant of marketing.
Paula: Fantastic.
Paula: I will make sure, Pete, in the show notes that we link to the article that was published, I know, in the Harvard Business Review.
Paula: That you co-authored literally just the January, February edition.
Paula: But I’d love if you just talk to listeners about just the opening story, about Revolve as a good example of that particular model.
Paula: I suppose the company was undervalued particularly through not understanding the loyalty of their customers.
Paula: Maybe just explain that to listeners because I think that’s a really good example.
Peter: Sure thing.
Peter: After selling Zodiac, one of my Zodiac partners, actually my former PhD student, Dan McCarthy, he and I co-founded a new company, Theta Equity Partners.
Peter: That’s Theta like the Greek letter, not like my name.
Paula: Okay.
Peter: Theta Equity Partners.
Peter: The whole point is indeed to revolutionize finance through customer-based corporate valuation.
Paula: Okay.
Peter: Either work directly with a company.
Peter: There are a lot of companies out there that feel that they’re undervalued.
Peter: They feel that they have these customer assets and either their owners or their other stakeholders feel that aren’t putting enough attention on these valuable sticky loyal customers and they’ll come to us to say, show us that value.
Peter: Maybe we can’t quite put it on the balance sheet in some conventional accounting way, but we can at least demonstrate how much customer asset value there is and what impact it’s going to have on future cash flow.
Peter: Whether we’re working with a company to help them see and leverage all the customer value they have or we’re on the outside in.
Peter: Lets say an investor comes to us and says, listen, we can’t get you all that data, but from the limited amount of data that the company reveals in the public setting, can you help us understand?
Peter: Revolve Clothing out of Los Angeles is a really nice example, but by no means unique.
Peter: I want to correct one word that you said a minute ago, Paula, it’s not so much that Revolve itself didn’t recognize the value.
Peter: I think they’re actually very, very smart over there.
Peter: They understand all the stuff that I’m talking about and doing.
Peter: They’ve hired many of my students.
Peter: It’s the rest of the world.
Peter: They just look at some clothing companies, a lot of influencers running around and basically doesn’t give them credit for the, well, let’s say the loyalty, the stickiness of their customer base.
Peter: When Revolve went public, when they announced their IPO a couple of years ago in their S1 file, all companies have to put out there, they were very smart and they put some very rich data out there that basically was just enough information for Dan and myself and our team at Theta Equity to basically reverse engineer that limited but rich data in order to basically say, well, here’s what those lifetime values look like.
Peter: Here’s how it varies across the customers.
Peter: Here’s how we think it will play out over time.
Peter: Here’s how it goes all the way to an overall corporate valuation.
Peter: And sure enough, we found that the company was undervalued.
Peter: And to fast forward to today, when the whole COVID thing hit, so many companies took a big drop in their stock price.
Peter: Understandable reasons.
Peter: Ravod went way too far down.
Peter: It just made no sense how far their stock price went down in light of the stickiness of their customer base.
Peter: And so there we are, tweeting and posting again, saying, wait a minute, let’s not overreact here.
Peter: If a company has really loyal customers, sure, maybe revenues will fall for some period of time, but the long run continues to be bright.
Peter: So again, I don’t want to single them out, although they deserve it.
Peter: But it’s that kind of thinking that every company should be doing and every investor should be demanding, and that leads directly to that series of HBR articles, one by Dan McCarthy and myself, one by Rob Markey, a guy from Bain Consulting, the guy who set up their whole consumer practice.
Peter: And many of your listeners might not recognize his name, but they’ll certainly recognize one of his big contributions, Net Promoter Score.
Peter: He’s the MBS guy, for someone like him to be embracing and promoting a lot of these customer metrics that I tend to focus on, that means a lot and hopefully will have a lot of impact.
Paula: Absolutely.
Paula: And again, that’s exactly why I wanted you on the show, Pete, because for listeners, we’re all familiar with Net Promoter Score and we have those metrics, but we want to be updated with the latest thinking and you guys are the ones creating it.
Paula: And I particularly loved in that HBO article, actually, just a particular section which you entitled, Trending Towards Transparency, and not just in clothing retail as you identified there, but also it seems that even the tech companies are recognizing the importance or, I guess, the opportunity to voluntarily be more transparent.
Paula: So, is this something that you think companies are increasingly confident doing or I think there’s a lot of companies quite nervous about doing that?
Peter: Absolutely.
Peter: They’re quite nervous about it.
Peter: In fact, step one is just to get companies to recognize that these metrics are valuable for their own internal purposes, that if we can sort of part customer acquisition from retention from development and understand how we get the best customers and how to nurture them and find more like them, we can do better.
Peter: So job one is just to get companies to do it internally and to make it more than just a marketing thing and tie it in across the organization.
Peter: But getting them to go from an internal view to sharing some of these metrics, that’s a giant, giant step.
Peter: Most companies are nervous about it.
Peter: Why disclose information if it’s not required?
Peter: You know, there’s always the threat of shareholder lawsuits, there’s this question about which metrics would be disclosed, what we say about them.
Peter: So there’s actually, understandably, a tremendous amount of reluctance on the part of companies to do this.
Peter: So my job with Dan and with Rob Markey at Bain is to kind of get them to overcome that and do so in two ways.
Peter: Number one, if you’re really confident with what you’re doing, if you know that it’s working well and you’re proud of it, hey, you know, look at these metrics, it’s a way to overcome the issues that I mentioned before about investors, other stakeholders not fully understanding, you know, why are you starting up that CRM system or that loyalty program?
Peter: So number one, it’s a way to get just broader confidence in buy-in.
Peter: But the other branch is to say, you know what, let’s not count on the companies at all, because they will be reluctant for good reasons.
Peter: Lets try to get accounting standards boards and other either regulatory agencies or just investors themselves to pound on the door and say, listen, we know you’re reluctant about this, but you just have to, okay, if you want our money, if you want our approval, you must reveal these metrics.
Peter: So we’re trying to come at it with carrots and sticks, and I think you really do need both.
Peter: And I understand that it’s going to be a long time before these ideas and these practices become commonplace.
Peter: But I’m actually very confident.
Peter: Give me a generation.
Peter: When our kids are running the world, these kinds of disclosures will be commonplace.
Peter: And if companies don’t disclose them, there’ll be a lot of questions asked about what they’re hiding.
Paula: For sure.
Paula: And I really hope it doesn’t take a generation, Pete, because, you know, I did see in some of your work that you’ve taken it to the Financial Accounting Standards Board.
Paula: And to me, that’s exactly, you know, as somebody who has always been proud of what we’ve achieved and everything I’ve ever worked on, I’m certainly in the spirit of transparency.
Paula: And I think, you know, the more that companies do, you know, occasionally go the wrong direction in terms of their own ethics and accounting, the more it’s important for us to be proactive about these things.
Paula: So, I love that you’re pushing for that and I certainly hope it doesn’t take a generation.
Paula: Who knows?
Peter: I’m getting conservative in saying that every single day, we’re seeing more and more companies either asking the right questions, so which metrics should we look at and how should we look at them and what conclusions can we draw from them?
Peter: Again, that’s always going to be step one.
Peter: More and more companies are offering some of these kinds of disclosures on a more regular basis.
Peter: Again, they’re in the minority and there’s still questions about them and they’re still shareholder lawsuits.
Peter: But bit by bit, we’re moving in the right direction and I hope that it will be not limited to any one geography.
Peter: I hope they won’t be limited to any one sector.
Peter: Some sectors are a little bit more open than others and we’re working on it.
Peter: I’m hoping that even podcasts like this will help move the conversation ahead.
Paula: For sure.
Paula: For sure.
Paula: And I love the way you suggested it, Pete, in that, particularly again for us as marketing executives and for the CMOs of the world to take these ideas to the CFOs, what would you recommend we start with?
Paula: If you do have siloed organizations, as I know you’ve identified is often what happens with the best will in the world or very busy, but again, busy on our own department.
Paula: So what would you advise to senior marketeers to take to their finance colleagues to help them with these kind of languages and to prepare for those future expectations?
Peter: You know, I have found one of the biggest surprises that I’ve had just in these last couple of years has been how well this idea of CBCD, customer-based corporate valuation, how seriously finance people are willing to take it and think about it and talk about it.
Peter: Whether it’s the CFO, whether it’s the VP of Investor Relations, or even if it’s someone, let’s say a level or two down in the organization, someone who’s interacting with marketing, someone who might even understand that marketing brings something to the table, but looking for a tool that they can move up the ladder and say, hey, wait a minute, boss, you ought to pay attention to this.
Peter: So, CBCB by itself to say, hey, look, from a marketing perspective, a bottom up perspective, here’s what the overall organization is worth, or here’s what this business unit is worth, or this geography, or this segment of customers, so to start using it, not necessarily for the whole company, but for different well-defined parts of it, and then to look at it across those units, and over time, to say, where are we creating value, where are we losing it, why, and then work backwards, I don’t see backwards, but work in one direction to say, hey, marketers, you know, we allocate your resources, but work in the other direction to say, hey, external stakeholders and shareholders, look at all this value over here that you might never have appreciated before.
Peter: Sure, it achieves both of those goals using the very same metrics, models and data.
Peter: So it’s not you have to kind of change your tune for one or another.
Paula: Yeah.
Paula: And I know we won’t get into the full model or do justice to it here, Pete, but just give us a sense of the inputs that go into that customer based corporate valuation.
Peter: Again, one of the big surprises that we’ve had, I got to give my partner in crime, Dan McCarthy, a ton of the credit for this.
Peter: Because for most of my career, I had the luxury of getting data from companies, so I could see the full transaction logs.
Peter: And so it was, I don’t want to say easy, but immediately straightforward to come up with the kinds of projections that I’ve mentioned now numerous times and I’ll repeat them again.
Peter: And one of the things I always wondered about is how little data do we need?
Peter: And so I have lots and lots of academic papers where we talk about kind of reduced data sets, recognizing that you’re not going to put your transaction logs out there, recognizing the realities of things like GDPR to say that even if you want to do, it’s impossible.
Peter: So how little data do we need that would be privacy protected, but still very informative?
Peter: And so part of Dan McCarthy’s dissertation was focusing on exactly this piece.
Peter: On what set of metrics must we have in order to do the kind of reverse engineering in order to basically uncover what the transaction logs look like without ever having access to them?
Peter: And like I said, there were certain companies like Revolve Clothing and others, it just happened whether through smarts or luck to put the right metrics out there.
Peter: And so we found that a fairly small set of metrics that’s easy to understand, that’s fairly common and universal across all kinds of companies, and just lend themselves to do the mathy stuff in order to then get all kinds of insights that are not lurking in the metrics themselves.
Peter: To get really specific about it, again, in part of Dan’s dissertation work, he found that the two metrics, if you want to pin me down and say, which one do we have?
Peter: One of them would be the number of active users.
Peter: So how many people have done something with us, made a purchase, posted something, whatever the business model might be, in a given period of time, say a quarter.
Peter: And then the other would be just the total amount of usage or the average amount of usage.
Peter: So how many people have done it?
Peter: And among those who have, how many purchases have they made?
Peter: And if you give me those two metrics over a period of time, I can do an amazingly accurate job of uncovering basically the full set of lifetime values.
Peter: There’s other metrics we want as well, but those are at the heart of it.
Peter: And basically, that’s what I’m pushing is for companies to look at these things, companies to share these things, and for investors and others to demand them.
Paula: Fantastic.
Paula: And I know then you add in the customer acquisition as well to get the overall valuation, so to get beyond the lifetime value to the overall valuation.
Paula: So again, I’ll make sure we link through to where all of that is detailed, again, in the Harvard Business Review article.
Paula: And the other one I really liked as well, Pete, actually on your own website, the Theta Equity Partners website, you have a link over to the Bain model, which is an interactive look at how to calculate it using Lyft as a company as an example.
Paula: So as you said, Bain invented a lot of the KPIs that a lot of us are measuring.
Paula: So there’s plenty of models there that you’ve provided for people to get some experience with.
Peter: And then again, thanks for the shout out.
Peter: There’s actually a lot of really good content on the Theta website for folks who normally want to see examples of CBCV in action, but who want to think carefully about how it links back to marketing.
Peter: Because again, ultimately, I’m a marketing professor and always will be, and if we can use CBCV to get the attention of the finance folks and the external stakeholders, but then use that just to kind of get buy in and get some smarts about our own marketing initiatives, that’s nirvana.
Peter: That’s the holy grail.
Peter: A lot of the valuation stuff is a means towards an end for myself, although it’s an end unto itself for a lot of other people.
Paula: Fantastic.
Paula: Great.
Paula: And I’m coming to the end of it now, Pete, but I did want to reference, I thought there was a good story, which I think you mentioned that Dan had actually done a lot of research actually in terms of how Peloton had projected some future cash flows, but hadn’t quite done it with the same level of, let’s say, accuracy that might be expected for a publicly listed company.
Paula: So can you tell us that story just even in brief?
Peter: Yeah.
Peter: Well, let me first tell it to you in general, which is this idea of lifetime value.
Peter: All the cool kids are doing it now.
Peter: It’s become kind of trendy.
Peter: It’s become kind of faddish.
Peter: And so a lot of people are talking about it, but there’s not a lot of clarity on exactly what it is and how you define it and so on.
Peter: So there’s a bunch of companies out there.
Peter: And then you mentioned Peloton, but they are far from the only.
Peter: That will come up with some kind of profitability metric and then they’ll just slap the CLV or the LTV label on it.
Peter: In some cases, they’re either only looking at historical profitability, they’re just saying how much money have these customers paid in their lifetime to date, as opposed to projecting far out to say how much longer will they continue to purchase.
Peter: It’s important to make it a forward looking metric.
Peter: In other cases, folks will fail to take into account the time value of money.
Peter: They won’t use an appropriate discount rate to say that dollars that we get today are more valuable to us than dollars that we get tomorrow.
Peter: That’s part of the Peloton issue over there.
Peter: Then even if they are forward looking, and even if they are recognizing the time value of money, the specific way that they go about projecting, how long will you stay with us and what will you do over that horizon?
Peter: Sometimes they will use heroic or dare I say flawed, simple rules of thumb to do that rather than doing it in a rigorous way with a high degree of validity.
Peter: On one hand, I’m the world’s biggest cheerleader for some of these ideas of lifetime value, but on the other hand, I’m also a very strong critic.
Peter: When I see people using those words, but using them incorrectly, I got to come on in and slap their wrist and say, if you’re not going to do it right, then don’t talk about it at all.
Peter: It’s tough, but it’s important if we want to have credibility for a long time ahead.
Paula: You’re right.
Paula: Absolutely.
Paula: I clearly haven’t done nearly as much of analysis or study of the investment community and how they value companies as you have, but I can see the principles.
Paula: And again, we’re all marketeers and we all want to paint a very positive picture.
Paula: But you’re right.
Paula: There has to be consistency and credibility around the metrics.
Paula: And you used a particular term as well, actually, which I really liked, which was revenue durability.
Paula: And I think, again, as loyalty practitioners, we would always say that that’s exactly what we’re focused on.
Paula: You know, what are the profitable behaviors that we’re focused on and who are we focused on doing them with?
Paula: So definitely, I think we’re all in alignment with your thinking.
Peter: Yeah.
Peter: And that’s a great example, Paula, that we’re trying to find the language that’s less marketing-ish and more finance-ish.
Paula: Yeah.
Peter: I’m so glad you noticed that.
Peter: Words that kind of mean something to finance people.
Peter: But highlight what we as marketers do.
Peter: That’s the bridge building that we’re involved in.
Peter: And it really is, as much as I’m a math guy and love playing with the models, choosing the words is just as important as choosing the models in order to get people to buy it.
Paula: Wonderful.
Paula: Wonderful.
Paula: Well, as I said, it’s an extraordinary conversation.
Paula: And as far as I’m concerned, Pete, it’s one that is going to continue.
Paula: And I’m hoping we can stay in touch as your work progresses.
Paula: I’m going to wrap up from my side just by again, just quoting some of your words from from the HBR article where you talked about market participants demanding sunlight.
Paula: So I think that’s a really good insight for anyone listening that their work is going to be increasingly visible and increasingly important literally at the highest levels of their company.
Paula: So if anybody already isn’t creating those relationships within their own businesses, I think now it’s a perfect time to do it.
Peter: Paul, thank you so much for shining a lot of light on what we’ve been doing.
Peter: It’s a wonderful kind of vote of confidence.
Peter: And I hope that if any listeners want to pick up on it, we’ve already mentioned and you’ll share a bunch of resources.
Peter: And of course they should feel free to reach out to me directly as well.
Paula: Wonderful.
Paula: OK, well, of course, I’ll make sure I link to you to your own profile.
Paula: So, yes, I just want to say, you know, from my side, as I said, it’s been a phenomenal conversation and super exciting.
Paula: So, Professor Peter Fader, thank you so much from Lets Talk Loyalty.
Paula: This show is sponsored by The Wise Marketeer, the world’s most popular source of loyalty marketing news, insights and research.
Paula: The Wise Marketeer also offers loyalty marketing training both online and in workshops around the world through its Loyalty Academy, which has already certified over 150 executives in 18 countries as certified loyalty marketing professionals.
Paula: For more information, check out www.thewisemarketeer.com and www.loyaltyacademy.org.
Paula: Thanks so much for listening to this episode of Lets Talk Loyalty.
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