#338 : Covid’s Aftermath, Customer Health and Customer-Based Forecasting with Daniel McCarthy of Emory University

Paula: Welcome to Let’s Talk Loyalty, an Industry podcast for loyalty marketing professionals. I’m Paula Thomas, the Founder and CEO of Let’s Talk Loyalty. Today’s episode is hosted by Phil Rubin. The Founder of Grey Space Matters, an innovation and growth advisory firm in the US focused on driving profitable growth.

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Phil: Hi everybody and welcome to Let’s Talk Loyalty. I’m Phil Rubin, Principal of Grey Space Matters, and your host for today’s episode. I am very excited to host my first podcast for Paula, and we’ll kick things off with Professor Daniel McCarthy from Emory University’s Goizueta Business School. Dan’s academic work focuses on applying leading edge statistical methodology to contemporary empirical marketing problems.

Key examples relevant to those of us passionate about loyalty include the causal effect of actions and events on customer purchase behavior, CLV Customer Lifetime Value, and CBCV, Customer Based Corporate Valuation, which is also reflected in his work with Professor Peter Fader from Wharton and their firm, Theta Equity Partners.

Dan and Peter’s first company focused on CLV, Zodiac was acquired by Nike in 2018. Dan studied at the University of Pennsylvania, earning degrees in both system, science, engineering and economics, followed by a PhD in statistics. For loyalty marketers, Dan epitomizes the idea not just of data-driven marketing and decision making, but more importantly in applying data at the intersection of finance, marketing, and customers.

With that introduction, let’s get to talking with Dan and learning from his incredible wisdom.

Professor Dan McCarthy, my friend. It is great to see you. How are you?

Daniel: Yeah, it’s great to be back, I feel like now, uh, the last time I’d seen you, you were guest speaking to my class and now the tables have turned.

Phil: Exactly. Exactly. Well, it’s a, it’s a great story that I, I mean, I think, and, and thanks again for having me in there and, and, and letting me share some, some thinking with, with your students.

Um, you know, I think we first met when I hired some, at least one, or one or two of your students who then, who then introduced us mm-hmm. and, uh, you know, as somebody who studi. Finance undergrad and ended up in customer marketing. I really, really appreciate you joining me here, especially on this first, uh, this first native, uh, podcast that I’m getting to guest host for Paula.

So in, in that vein, uh, let me say welcome and. Offer up the first question, which is the standard. Let’s talk loyalty. First question, and that is Dan McCarthy, what is your favorite loyalty program? And, and I’ll give you the option of your favorite loyalty strategy if you don’t have a favorite loyalty program, but I’m sure you do.

Daniel: Yeah. Now this is an example of me not eating my own cooking, but, uh, if I had to say there was one, I’d probably say, um, dash pass, at least the one that’s most interesting to me right now. Um, so yeah. Ha, happy to kind of dive into why, but, uh, yeah, they’re, they’re kind of an interesting one.

Phil: Well tell yeah, please.

Daniel: Yes, I’m starting to do this, uh, research on the impact of subscriptions on consumer purchase behavior. And, uh, one thing that we’re finding through this work is that, um, you know, these, uh, these subscription programs from the restaurant delivery companies, that they really have an effect on people’s spending, uh, in, in restaurant delivery.

You know, not only for the focal firm, but also for the category as a whole. What we’re finding obviously is as you’d expect, you know, now people are basically prepaying for their delivery. Um, you know, you, you could think of it as getting the delivery for free for a subscription fee, but, you know, those are kind of just, they’re effectively the same from an economic standpoint.

And so if you’re going to prepay for your deliver, you know you’re gonna place more deliveries. Um, but the other thing you’re gonna do is obviously, um, start to become more monogamous with the. The delivery firm that you have the subscription for. So if you sign up for Dash Pass, you’re gonna be doing some more DoorDash than than Uber Eats.

Um, so yeah, so certainly there is, you know, kind of share of wallet shifts that it does, but what we’re finding too is it just gets people to spend more in the whole category, which in theory can be good for everybody in the category. And that’s kind of a cool, a cool finding. Um, and I’d say that that is really kind of the litmus test when you think.

You know, what is a good subscription or a good loyalty program, it’s one that actually causes people’s behavior to change. You know, that they wouldn’t have just done what they otherwise would’ve done. You’re not giving away goodies to people who would’ve bought for you anyways. And uh, and we really do find that to be the case here.

Phil: Yes, changing behavior translates into incrementality, right? From a cl v standpoint and and beyond. And it is interesting. Because other, I also think about it from the standpoint of habit formation, right? And how do you not only create these new habits, but especially with the subscription model, those habits become more sustainable.

Daniel: Mm-hmm. . Yep, that’s right. Yeah. Subscription creates regularity. You know, that you kind of form you, you habituate around that activity more than you would if every time you wanted to do it, you kind of had to actually think about it. You know, that now it’s this kind of, you’re being forced to do it on a periodic basis, which, um, you know, just kind of leads to more enduring.

Phil: The unconscious behavior of not having to make choices, which has a lot of relation to behavioral economics. Mm-hmm. .

Daniel: Yeah, I know this is something we may talk about a little bit later, but, uh, dovetails perfectly with the covid, this covid impact research I’ve been doing. So yeah, if you wanna talk about that later, we can save it for then, but certainly, uh, yeah, that’s right up, right up the alley of, of some of the main results from that, that, that piece of research.

Phil: Well, let’s, let’s, let’s call the audible in audio form and say, yeah, let’s, let’s just shift to that because. You know, in my mind, especially thinking about it from a habit standpoint or you know, inertia, right. Which in my mind has always been the best loyalty strategy for certain customers. Certain, especially certain high value customers, right.

Don’t, don’t screw that up. Mm-hmm. if, if, if you’re sort of in charge of managing those customers. But obviously it’s more, it, it’s more than cliche to say that Covid disrupted all kinds of behaviors. Uh, so tell me, tell me, you know, give every, give us an overview of, of especially the thesis that you had going into it.

Or was it just purely, this is a wildly uncertain situation and outcome. Where is it gonna lead to and for who? Mm-hmm. for which companies, which brands?

Daniel: Yeah, it really was the latter. You know, when we were coming into the work and by we, it was, uh, myself and this PhD student from Columbia, uh, shin Olander.

So again, he, he gets the credit for doing all the, the super heavy lifting on the work. Um, But, you know, we, we didn’t come into it with kind of a, um, with a die being cast, you know, we didn’t have, uh, a view that, you know, we, we wanted to confirm that it was true. Um, it really was more, you know, we’ve had this highly disruptive event and what we wanna know is, you know, how has the effect of this event.

Changed these categories over time and um, and so that was really kind of the main thrust of the work. Um, and so yeah, we didn’t have any strong prior, you know, coming into it. And I think we had some ideas as to what the results might look like. But, um, you know, I think, you know, we’re pretty big on just letting the data speak for itself and, um, Yeah.

And, and what it basically showed was that in most, uh, in most non-subscription categories, you know, so that would be kind of the bulk of restaurant delivery, um, you know, in-store apparel, in-store, restaurant, you know, that, that sort of thing. Uh, online, grocery, air, travel, uh, the effects basically. Went away, you know, so obviously the effects were very large, uh, up and down initially, you know, so within the first few months, uh, sales in categories like restaurant delivery were up like a hundred, 120%, you know, over what they would’ve otherwise been.

But by June of 2022, In most of those categories, the effects went is zero, I mean, or they were not statistically significant from zero. So, so it’s kind of a big nothing burger. And again, this is June, 2022. It’s kind of before all of the economic uncertainty that we now have. And you know, one can say like, maybe we’re following below baseline now, but it’s not because of Covid, it’s because you know of economic uncertainty.

Um, yeah. At that point, um, , you know, we were still okay. . So, yeah, so it’s kind of, uh, pretty striking that it had so little effect, you know, uh, over the longer term, both positive or negative. And again, we had many categories that were fla and others that were tremendously boosted. Uh, but where we saw big effects that were reasonably big effects that intended to endure more was in subscription.

And so meal kits, that whole category was. You know, a relatively small amount at the onset of Covid and then the gains just continued to to grow as we move forward in time. So by June of 2022, I forget what the exact number was, but I think it was something like a 45% lift. You know, that people were spending 45% more in that category.

And in gyms. In store gyms. Obviously the category was totally hosed right after Covid started, cuz no one was going to the gym, but, Kind of quickly pick back up again, but then kind of settled at like negative 30% that there’s just 30% less spending in the gym category, even as of June of 2022. So, um, yeah, so I think both on the positive side and the negative side, it seems like there’s just something different about subscriptions that, um, leads those behaviors to be more persistent than, um, you know, than, than non-subscription, transactional type, uh, behavior.

Phil: What I’ve seen a lot from companies who are, where you have, you have companies that are in transactional businesses that wanna figure out how to create that persistence of recurring revenue with a subscription. And then of course you also have the same. Sort of quest for incrementality from subs, for subscription models where you either have to enhance the subscription value proposition, raise fees, or create tiers, or add some transactional layer on top of the subscription.

Is your work delving into to those two pieces or you isolating those like pure subscription from from pure transactional business?

Daniel: Yeah, we don’t really disambiguate except to the extent that, um, you know, it’s kind of fair to say hopefully that, uh, the gym category that we study, that it, that is kind of pure play, mostly pure play subscription.

Um, and that, you know, the, the non-subscription categories are mostly non-subscription. Um, yeah, I think meal kits would be another example. I’m sure that they have some transactional type sales to them, but uh, the bulk of the revenue is gonna be coming from the recurring payments that they get. Um, and I think one interesting example to your point that is kind of in the middle is at home fitness.

And so we studied that category as well, and that’s gonna be your Peloton, you know, um, and. They’re kind of funny because before the pandemic, they were doing about 75% of the revenue through the hardware, you know, just through the, the bikes that they sell. And, and then, you know, the rest came from the, the subscription payments, but again, the subscription payments like 44 bucks a month, whereas the bike is like, you know, $2,000

And so you need a lot of subscriptions to kind of, you know, equi, you know, to be the equivalent of a bike. And so you, you kind of think of them as being a, a non-subscription business that requires a subscription. And so in some sense we found that they were, I won’t say like the worst of both worlds, but in all the subscriptions we saw this relatively more muted, like shock upwards at the e onset, you know, cuz people don’t panic into a subscription typically.

Um, and we saw that here as well. Um, but they also didn’t. A whole lot of longer term lift like you would expect from the subscription. Cause there were a whole bunch of people who. Pre-bought their bike. They, they pulled forward hardware purchases that they would’ve made later on, but because they made ’em earlier on, then they hit this wind pocket, you know, as we kind of moved to, you know, to to June, 2022.

Um, and so we actually inferred kind of no significant lift, uh, at that point, even though you kind of would’ve expected it just from the subscription, uh, stream itself.

Phil: It is interesting. Uh, I, at the, during covid, I was, I was a bond. Working on the loyalty report, which of course one of the measures and, and this me, this measure has always struck me.

It, it’s always been stuck. The measure of top box satisfaction with loyalty programs consistently in the mid forties. You know, plus or minus a percentage point or two dropped precipitously with covid. And the question was, is this finally the catalyst for. You know, detaching themselves from loyalty programs mm-hmm.

especially because of their homogeneity and, and, and, and, and the cost and improper measures, which, which we’ll talk a little bit about in, in a, in a few minutes. Um, but it, same thing, it kind of reverted and became the same sort of nothing burger that you, that you characterize. The general business level, it reverted right back to the mid forties, uh, for 2022.

Daniel: Yeah, I think it, uh, it’s consistent with a lot of the literature and habit formation that, you know, people can form habits, but you know, nothing is forever and uh, yeah, you try, you try, but uh, you know, habits can kind of be on the order of months, but it’s only kind of a rare few where. , they really endure for very, very long periods of time.

Phil: Yeah. Kind of back to that inertia as a great loyalty strategy. Mm-hmm. for, for a lot of brands in a lot of categories.

Daniel: Well, that’s the other thing that we don’t in disambiguate, is we can’t really say why, why that that lift is there. We could just say, Spending is higher, you know, but we can’t really point to exactly what brought it about, you know, we can decompose the spending into order frequency and, you know, basket size and things like that.

Like, oh, you know, people tend to spend more when they bought it, you know, but we can’t really look to the underlying mechanisms, you know, these underlying behaviors that we’re really driving those changes. And so I think that there is a natural tendency to wanna ask, like, what is it that was causing those changes to occur?

And, and we can’t really say, Inertia, you know, was it people putting this part of their life, you know, uh, on autopilot now they’re just mu much more habituated. I think with good survey questions, potentially you could have done that, but, you know, survey data, you know, your mileage may vary and so.

Phil: Well, and, and literally and figuratively. You can’t have a lights out control group, uh, to, to study the, the impact of something, the magnitude. Of, of some something of universal effect that that Covid had on on customer purchase behavior.

Daniel: Yeah, that’s the whole, uh, that, that’s also why I, I love this paper. It’s just such a good paper. Um, but part of what motivated is the fact that there is no control group with Covid.

You know, there’s just some things in life where everyone is treated, quote unquote. And so, so what do you do then? You know, if, if you really wanna know the causal effect of something. And so we have this cool method that, uh, under some conditions, which we can spell out and validate, you know, to make sure that those conditions are met.

But under those condit, We can be able to give you an estimate of the causal effect, even when everyone is part of the treatment group. So, um, yeah, so we’re, you know, I think that it’s a, a useful methodology in other settings as well, but clearly, you know, applies to spades with Covid.

Phil: Well, and the other thing, and I’m sure you’ve, you’ve, you’ve seen some of this, I probably hesitate to call it forecasting, but there are certain people. I mean, there’s a little bit like another commonality that we talked about a few minutes ago in terms of people believing, you know, things have changed. They’re never gonna be the same. Right? It’s, it’s either Mark, you know, you either paraphrase, mark Twain, uh, you know, the, the, the, my death has been greatly exaggerated or public enemy don’t believe the hype.

Um, but there’s a lot of people believing that the kind of seism. Events like covid are gonna happen with more frequency. And so that I think is a really inter, I mean, not that we want those kinds of things to happen, but that’s where your work is gonna be also incredibly valuable as people need to sort of insulate themselves from some of the, you know, separate the frequency for, from the noise, so to speak, in terms of dealing with uncharted situations like that.

Daniel: Yeah. And certainly all of those would be, you know, if there was some other event that kind of hit everything all at once, like the global financial crisis, um, you know, that that could happen more frequently. But I think what also can happen is you think about Twitter and they just kind of roll out a subscription for everybody.

And so, , even though it’s not a global pandemic, it is something that kind of leaves no control group for Twitter. You know, we can’t compare those people to other people. You know, there’s some other set of Twitter users for which there’s no subscription. Um, this is a lot of settings like that, you know, if you do a blanket price increase and anytime that that sort of thing happens, then you know, again, it’s gonna be, it’s gonna be global for your firm,

And so yeah, you kind of end up in a similar, you know, a similar conundrum.

Phil: My initial, I have two initial reactions to that. One is I don’t know that there’s this cogent strategy at Twitter in terms of the move towards subscriptions and how they’re managing blue check boxes ver or you know, blue check marks versus ver versus others.

Um, but the other thing relative to price increases that I think ties into some of your work is I. Extending the Twitter idea to Tesla and what they did in terms of taking these, these, I think the median price, de price cut that they took across their product line was $10,000. And so then you, you start to get into, and I know, you know, I did go back and listen to your first podcast with Paula and the notion of contribution margin and the and you know, this was not from some customers. This is gonna be for every customer going forward. Mm-hmm. and, um, you know, that’ll be interesting to look at. Certainly longitudinally.

Daniel: Yeah. Yeah. Contribution margin is a crucial part of the equation and, um, people love to focus on revenue, but, you know, I always say, you know, revenue doesn’t put food on the table. it’s profit that puts food on the table. So, um, yeah, can’t, can’t ignore those cause.

Phil: I had this, this, this quote from a client years ago that has stuck with me, and I’d probably say it all too often. It was from Henry Silverman and he, you know, who was like both a, you know, pretty interesting financier, CEO did a lot of acquisitions, built some big businesses, had some challenges, but he, he said to me once in a meeting, if the answer is not money, rephrase the question. Um, which, which gets back to the intersection of finance and marketing and customers and the idea of using customers as the denominator to look at financial performance as, as you’re evolving your.

Beyond customer lifetime value and customer based company valuation into using that, not just on an ex-post basis, but looking on an, an ex anti basis for forecasting. Talk a little a a bit about, about sort of the genesis for that work and where that’s going. It seemed, I mean, perfectly obvious and certainly something that we in the loyalty marketing business do in terms of building business cases, we’re.

At least the work that I used to do, we would build bottom up cust, you know, we’d look at customer data, customer cohorts and use that to build a baseline to forecast from. But you’re obviously doing some things with, with a bit more sophistication, right?

Daniel: Yeah. Yeah. It’s, it’s been a really fun area. Um, but yeah, I think.

The basic idea is that, you know, revenue has to come from customers placing purchases. So, you know, here we are in marketing, spending all this time, uh, building these models to predict future repeat purchase incidents and future, you know, new product adoption, and then just kind of leaving it at that. And uh, and it’s not to say that those are unimportant, but you know, on their own, um, they can.

Uh, not quite as useful for being able to generate these, you know, whole company insights. And so I think the idea you is to, to kind of have one plus one equals three, that by bringing these models together, you know, acquisition, retention, ordering spend and contribution margin, um, that it can allow us to actually get to, you know, Quantities that are gonna be super important and relevant for companies as a whole and can actually, you know, mo move their stock prices.

And so, you know, it’s just kind of powerful in a way that each of those individual elements, uh, couldn’t be. But the fact that we had so much work being done in the area, it gave us the, the raw material, you know, the models to be able to, to do that exercise. Um, so yeah. So yeah, it, it’s an area there’s.

Some work within the academic marketing science literature before ours. Uh, that was kind of proof of concept, you know, to kind of show, you know, we can think about the world this way. Um, but I think, you know, the work that I’ve been doing, uh, that kind of two papers with, um, Wharton professor, Peter Fader, just kinda laying out the framework and then, um, showing how we can specify relatively simple models that validate very well.

Um, you know, that this can actually move markets. You know, we’ve had a number of examples of work that we’ve done where, you know, we kind of put out the numbers and, uh, either the stock moved right away, or, you know, uh, with the benefit of hindsight, we were able to see, you know, we, we ended up kind of being right more than we were wrong.

So, yeah. So it’s been. It’s kind of a right at the intersection of marketing, finance, and statistics. Uh, all three areas are areas that I love and, uh, and so yeah, to be able to kind of just pursue all of them at once in the same topic has just been great.

Phil: When the implications for that work is so, it, they’re so profound and but, and also so intuitive. If you think about, you know, Where does revenue come from? It comes from customers. So you have these discreet units that can be aggregated or, or disaggregated and useful tools, not just for measuring what’s happened, but, but obviously now like forecasting what’s gonna happen. Mm-hmm. there, there seems like there’s more adoption from the investment sector. Then from the companies themselves. Yeah. You think like for the companies, there’s so much opportunity in terms of forecasting, like supply chain management and how, you know, ev we, you know, retailers either have a great quarter, they have a terrible quarter, and they have bloated in, you know, you, you, you, there are all these an things that are sort of quote unquote explained away in earnings calls.

Mm-hmm. , where are you seeing the most interest in, in this work? Outside, you know, out outside the academic?

Daniel: Uh, both I’d say hearteningly, both the investors and the companies have been, uh, stepping up to the plate in a pretty, um, pretty encouraging way. So, uh, the use cases do tend to be different. Uh, Um, with the investors so far, it’s primarily revolved around diligence.

Uh, it’s primarily been private equity firms, so again, we think that these, ironically a lot of the work has been for public companies, you know, we’ll kind of take this public company, they put out these. Disclosures and their investor reports and Ks and Qs, and we kind of take all that data and then, you know, say the fair values X, you know, but you can kind of see the price moving every single day.

Um, and those examples are a lot of fun, but what we found is that hedge funds, because they can trade in and out of positions, um, they’re not quite as, at least they’re not as interested in having a vendor, um, you know, do four weeks or three weeks of intensive work for a very high price. You know, I’d say that the fact that they can date and not marry, um, just makes them a little less inclined towards that sort of a model.

Whereas a PE firm, they know they’re gonna write, you know, a 50 million, a hundred million check, you know, something very, very big. They’re gonna take a control position in this company and they won’t be able to sell it. In theory, they may not sell it for you. 3, 5, 7 years. Sure. And so, so they’re kind of forced into a marriage.

And so our sort of work can really help them get comfortable with an investment upfront, uh, in a relatively short amount of time in a competitive bidding situation. So the PE firms, you know, think that they’re. Yeah, they’ve been, uh, they’ve been quite interested in a way that, uh, the, the hedge funds are catching up to, uh, venture capital.

Um, similar story. Um, I think because they’re earlier, uh, obviously seed stage, they may not have a whole lot of revenue yet, and so they wouldn’t be the greatest fit. But certainly as you move, uh, later stage, you’ve got the cohorts. So, yeah, again, I think this work can be really relevant, uh, in that setting.

When you move to corporate. The, the use cases become, um, either more around the m and a that they’re considering, like maybe someone’s looking at them, uh, or they just wanna know how healthy are we, you know, so I, I’ll often talk about how, um, companies in the same way that we should get annual checkups to know what’s my cholesterol level, what’s my vitamin D, you know, um, yeah, how, how, how’s my red blood cell count?

You know, w whatever , uh, we wanna know those figures because, you know, that could mean the difference between life and death potentially. Um, but these companies, it’s as if they know that, but they don’t know where they stand, you know? And so, do I have a clean bill of health or. I don’t know. And so, you know, to be able to offer them that, it’s just something they need to know.

Um, so I, I’ve, I’ve started getting, you know, more like inbound interest for, for, from people who are saying things like, I’m coming into a company my first a hundred days and I wanna know the lay of the land. You know, tell me the state of my business. Um, that I think makes a ton of. Um, so we’re seeing, you know, more businesses that are kind of interested in just getting that health checkup for their business from a customer perspective.

Um, Inevitably you get a lot more questions, uh, that revolve around Zodiac type use cases. So again, Zodiac was my previous company that we sold to Nike and um, and there it was much more give me the cvs of every single one of my customers and then tell me other things about them. And then we can do value segmentation.

We can look at the cus the, the customer acquisition channel that they were acquired through. You know, we can find where I’m getting the most bang for my buck for my. For my budget, you know, whether that’s acquisition budget or, or what have you. And um, and that’s something that obviously they get a lot more value out of.

Um, they, they kind of hone in on a lot more than the PE firms do. Um, the other thing that has come up a few times has been, uh, financial planning and analysis. And so this is a little similar to your inventory example. Um, they want to know, Where, where revenue’s gonna be next year, you know, and how are we gonna get there from a customer perspective?

And you know, oftentimes, you know, this kind of put the finger in the air, oh, it seems like our category’s growing by 5%, blah, blah, blah. Uh, and we would say, well, how are you gonna get there from a customer perspective, , you know, what does that imply for like customer acquisition growth and how are you gonna hold on to your customers?

And, uh, I think it could be, at the very least, a very nice complimentary, you know, sanity. And so, yeah, so that, that’s just kind of, and I’m going on long, but hopefully that gives kind of a sample of, you know, kind of where we’re seeing interest in from for what use cases.

Phil: Yeah. No, I’m sitting here smile with a big smile on my face because that’s exactly what happens.

And, um, well, what, uh, what practically speaking, unless you have this, you know, the new c e o coming in and saying, okay, a hundred first, a hundred days, I gotta figure out what’s going on here so I can manage it. Mm-hmm. fp and. Might do that, but then they go to marketing and say, okay, marketing, you need to drive this amount of growth next year.

So, which, which gets into a whole other topic, um, that I want to get to in a minute. But outside of those use case, I mean, I think there’s definitely a move for the, we’re where more companies are being customer-centric than perhaps they have been in the past. But they, but they’re definitely lagging and it seems, from everything I’ve studied and I I I, I imagine you pretty violently agree the job of management.

I mean things like C L V and, and then by extension, using customers to, to derive enterprise value is the ultimate scorecard of that management team’s ability. on their, their, their overall ability to manage the business because they have to manage the business ultimately in terms of customers. Mm-hmm.

So I’ve always sort of thought about that and I tell, I imagine you, you, that’s, you fiercely agree. And if you, if you don’t tell me, cuz I think it’d be interesting to understand. Yeah. I think there are some, some leaders out there, quote unquote leaders. Cuz I think the real leaders want to know. That they actually don’t wanna know the answer to that because they’re either not organizationally equipped to do that.

They have to acknowledge that there’s this big gap in terms of work to do to get to that point where they can manage the business through, you know, through customer management and customer measurement versus, you know, classic as like when I was in loyalty consulting. Well, we can create or redo. Our customer marketing and loyalty program, or we can add two stores and what are we gonna do?

And it’s an easier leap in they think, in short term to just add two stores. So are you seeing more of that, that change to, we’ve gotta really think about the business with, with sort of the customer as the denominator like.

Daniel: Yeah, we are. Now, obviously we’ve got kind of a biased view cuz the people that I’m speaking with are probably, you know, different from your typical executive

But, uh, but certainly of the people that we’re speaking with, You know, they’re kind of, they’re getting religion, so, yeah. So that has been very heartening to see. But certainly, I, I can totally identify with that example that inevitably you can end up in these trade off situations where either I’m gonna put my money towards investing for the future.

You know, by building up capabilities and experimentation platforms and things like that, that allow me to kind of do more over time or yeah, I can do things that help bring in revenue tomorrow and, um, and inevitably, yeah, I think that that’s always gonna be attention, you know, that, um, I’ve got my revenue, you know, consensus revenue from my firm is x, I’m a little bit below it.

I know I shouldn’t be acquiring these customers cuz they suck. But gotta hit the revenue target, so you know, I’m gonna bring ’em in. Um, my hope is that as, as people kind of wake up to the importance of this, it’s not like all that’s gonna go away. Yeah, I think those are all, you know, being able to kind of manage both the short term and the long term is important, but to be able to continue to compound growth over the long term, you know, I think, you know, people are understanding that there’s just a lot of opportunities that can, can come up in the future if you were to make these investments now.

So, you know, don’t put all of the investment. and today, you know, could be staged over time and we can find ways to, um, do it incrementally. But, you know, I think ultimately, you know, people understand that there’s just a whole different set of tools that they can be able to reach into when, uh, they make some of these investments.

Phil: So you get, you get calls from private equity companies. We’ll, we’ll broadly categorize it. You get calls from investors and then on, on kind of the client side, the, in the, you get calls from new CEOs, you get calls from fp and a. Mm-hmm. , do you get calls from CMOs?

Daniel: Oh, we do? Yeah. Okay. Good. Kinda runs the, runs the whole gamut.

that’s, uh, again, that, that’s the nice thing about CLV is, you know, traditionally CLV was the C m O thing, or, or really maybe the VP of marketing Analytics, you know, but someone in that area, you know, that they, they tended to be the ones who were using those words first. Um, so yeah, I think hopefully this is kind of democratizing.

What they’ve been talking about for a while. Um, but certainly the fact that, you know, they were kind of the original owner. If there was an owner, it was kind of, kind of them that, uh, yeah. They still, you know, kind of are, are interested in this and. We’ll often say that this is a great way for them to get buy-in for these concepts that they’ve been talking about for quite a while now.

Um, but maybe it hasn’t been getting the attention it deserves. You know, the Rodney Dangerfield of uh, absolutely things. Yeah, so, so now, hey, we’ve got a way of kind of legitimizing it in a way that hadn’t been before. And so, yeah, so they’re very incentivized to kind of, uh, learn the lingo, you know, be able to kind of speak that language and, uh, and then, you know, present it to the executive leadership team.

Phil: Well, you said the key word when you were talking about measuring CLV, and that was if they were measuring c. because that, that, that I think is, is the bigger challenge. And, and, and it seems like there’s such a bifurcation and it, it does well, it kind of blows a big hole in the efficient market hypothesis, , because so much of this information is not known, including in, in, you know, Primary, secondary, public, private equity markets.

Uh, but that’s the job you guys are doing is, is making the market more efficient by, by bringing out these, these metrics and these insights.

Daniel: Yeah. Certainly If the transaction logs have not been available, then as long as. One can kind of buy into the notion that there is some information value to understanding unit economics, which hopefully, you know, people would agree, um, hadn’t been available before. Now that’s increasingly being available. Um, you know, I think that is in an argument for this, just making capital markets more efficient.

Phil: It puts a, a new opportunity. I think you, you referenced this if you a, a, a a minute or two ago. It creates a real opportunity for marketing to, to, to address that Rodney Dangerfield reality in so many organizations. I mean, I just, I just heard about somebody who took a job with a big box retailer and he was heading up, he was heading up customer loyalty, and the c e o basically said, , you’re just an expense . I won’t mention the person or the, or the retailer. That’s a big, that that’s not gonna end well for probably both of them.

And you have this interesting perspec unique perspective because you’re seeing it on the, in the private sector, but you’re al you’re also working at Emory with student. at, you know, undergrad, graduate, postgraduate, you know, talk a little bit about what you’re seeing kind of in the classroom and on campus, and both the interest in marketing versus, you know, everybody who used to just want to go into consulting or go, go into investment banking or now private equity.

Mm-hmm. . Um, and also, well, let me, I’ll stop there and then I’ll ask you another question.

Daniel: Yeah, it’s been, uh, it’s been great and I’d say that I had started this course uh, just a few years ago and, uh, you know, whenever you start a new course, there’s this uncertainty about the course. There’s uncertainty about the teacher cuz I was this new teacher, um, you know, and so you don’t wanna put your toe in the water.

You don’t wanna be the first person to put your toe in the water, you know, so a customer adoption issue, you know, I just do C B C V on my own c l B course. So we had good, uh, good enrollments, but you know, certainly, you know, the enrollments have gone up since just cuz now you’ve got the word of mouth going, you know, there’s been a few years of it and you get the, the, the previous year students, you know, saying things about it to the, the current students.

Um, And, uh, yeah, it’s just been a ton of fun to teach. Um, I’ll, I’ll typically spend like the first 15 minutes just talking about things that have been going on, um, recently, or just things that are more recent and h how we can kind of take some of the things that we’re talking about that could seem more theoretical and just say, yeah, yeah, let’s look at this.

Let’s look at Peloton. Let’s look at Casper. You know, let’s look at Blue Apron or Warby Parker, or there’s just tons of examples that we’ve brought up. Vri. and just think about them through this lens. And uh, and I think that that brings a, a new reality to it and also kind of really gets them engaged. And they can think about, you know, for the companies that they’ve been working for.

You know, sometimes people will be, have been talking about c v Oftentimes what I’ve found is that they’ll say, um, that the companies are intrigued, you know, like they’ve, they’ve danced with the idea, they haven’t really done it yet, but they’ve heard some things and so, And so when the students bring it up in these interview, you know, in these interviews, it’s great material.

You know, cuz they have something that they can kind of bring to the interview that the company hasn’t really done yet oftentimes. Um, but it’s kind of interested in, you know, so yeah. So it’s, it’s been good. And hopefully for them too, you know, that it’s been helping them kind of get, uh, get their next job.

Um, but yeah, in interesting to hear their stories and how they. Kind of grapple with how it can apply to, you know, the company that they’ve been working, they’ve been working for or, or contemplating working for.

Phil: Yeah, no, that’s really interesting. I mean, I think about it just from your students that I hired in the past, but also, I mean, you’re, the more you do this, the more you’re gonna build a powerful alumni network out there that’s gonna be out in the marketplace advocating for this approach to, you know, strategic planning, execution, measurement, and all those things.

Daniel: Mm-hmm. Yeah. Yeah. Hopefully it’s, uh, the gift that keeps on giving .

Phil: Well, it’s interest. I, a friend of mine posted on LinkedIn the other day was lamenting the fact that people come outta school. He’s obviously not hiring enough Emory students, but people come outta school. And, and he, and he, he, he was, he was, he was lamenting that they can’t write and, uh, I added or do math, um, which got a few, got a few likes on LinkedIn.

It’s, it’s such a critical skill not just to be, to apply and understand those concepts, but also for logic. So are, are you seeing that? Are you, you know, you, you’re probably a little bit insulated in a top school like Emory.

Daniel: Oh no, we see it here. . It’s not, yeah. Part of it’s, it’s not the student’s fault.

Yeah. I think that oftentimes, you know, you got the poets and the quants and so they come in with, you know, they just come in with different levels of background. Yeah. Um, but yeah, certainly there will be some students where I’ll start talking about mixing distributions and beta distributions, and they said, beta, what?

You know, . So, um, yeah, so then the onus is on me to kind of make it all relatable even to people who don’t have quite as much background in this stuff. But, uh, yeah, certainly I try to make it such that people with kind of introductory statistics, whatever that class is at the university that you’re at, that with, that they’d be able to kind of get it done.

Um, but uh, yeah, certainly in terms of where they’re coming from, even with. You know, this class having been a selected set, it’s an elective course. They don’t have to take this course, so naturally the quants are gonna wanna take it more than the, the poets do that. Uh, there’s still a surprising amount of poets that end up, uh, end up in it, and I’m grateful to have ’em , but, uh, yeah, it’s, uh, for sure.

Yep.

Phil: That’s good. It, it gives you reasons for optimism both on the future and, and marketing’s.

Daniel: Yeah, I mean I think, yeah, I’m always want to say, you know, the goal is not to to be perfect, but you know, just to, to get better. And if you’re getting better, you do that for a while and you can be great. You know? So yeah, I take a look at these poets and. They’re getting a lot better. So the fact that they’re receptive to it, you know, I think to me it speaks volumes that, uh, you know, they’re kind of willing to go outside their comfort zone to, to beef up in an area that they haven’t historically been strong in. Um, I think, you know, that’s just super encouraging to me.

So yeah, we need, we need more like them .

Phil: For sure. For sure. Well, Dan, uh, unless you have anything to add, and I think that was pretty darn good. Great, great sense of optimism. Uh, I really appreciate you joining me today and, uh, I could ask you questions for the next few hours, but I don’t know that you have that time or, or, uh, but, but we’ll do it again, hopefully.

Yeah, I would love to, but we’ll, we’ll save that for episode number three, .

All right, deal. But, uh, Dan McCarthy, Professor Dan McCarthy. Uh, thank you so much for being here today.

Daniel: Yeah, thanks so much. And yeah, if it’s helpful, if you’re interested in this stuff, uh, LinkedIn, Twitter, uh, you tend to, to gab about this a lot as you do.

Yeah. So I think, um, if, if you’re kind of interested in these topics, you know, please, uh, please don’t be a stranger.

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