Arie Goldshlager’s posterous

1) In his note “Embracing lifetime value,” Seth Godin recommends: “Instead of comparing what you invest to the benefit you receive from the first bill, the first visit, the first transaction, it's important to not only recognize but embrace the true lifetime value of one more customer.”

http://sethgodin.typepad.com/seths_blog/2009/11/embracing-lifetime-value.html

2) Robert Blattberg has observed however that the customer lifetime value concept defies easy prediction.  His attempts to predict customer lifetime value consistently resulted in two types of errors:  “A false positive occurred when the model predicted that a customer would be a future best customer when in fact the customer was not. For example, a customer who used to conduct quite a bit of business with a company was predicted to continue to be a great customer in the future. However, if the customer lost her job, she might not have been able to spend as much, and thus did not actually continue to be among the best customers.

Similarly, false negatives occurred when customers were not predicted to be especially valuable, even though their future purchasing behavior proved to be extremely beneficial to the company. For example, a customer who did little or no business in the past due to lack of disposable income was predicted to be a poor customer in the future. But if the customer took a new, lucrative job, he could actually become a potential gold mine for the company.”

Blattberg therefore recommends: “… allocate rewards based on actual future behavior rather than predicted future behavior. The distinction was subtle but important. Rather than trying to guess which customers would be valuable, Malthouse and Blattberg encouraged companies to wave a carrot in front of all of their customers and reward those who behaved in the desired way. This is what airlines do with miles programs— any customer who flies a certain number of miles gets the reward. Credit cards and supermarkets that offer cash-back bonuses also follow this approach.”

http://insight.kellogg.northwestern.edu/index.php/Kellogg/article/predicting_customer_lifetimevalue

3) Kumar and his co-authors recommend extending the concept by calculating both Customer Lifetime Value and Referral Value and segmenting customers by both CLV and CRV:  “Knowing both enables you to segment your customers into four constituent parts: those that buy a lot but are poor marketers (which they term Affluents); those that don't buy much but are very strong salespeople for your firm (Advocates); those that do both well (Champions); and those that do neither well (Misers). In a series of one-year experiments, the authors demonstrated the effectiveness of this segmentation approach.”

http://harvardbusiness.org/products/R0710J/R0710Jp4.pdf

4) Finally, Oded Netzer and his co-authors recommend managing not only high-lifetime-value customers but also “dormant” and “occasional” customers.  Their research concludes that: “Marketers often lavish attention on their best customers, but … it may be more cost effective to increase their spending on clients who only occasionally use their products or services.”

http://www.gsb.stanford.edu/news/research/seenu_customers.html

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In this interview Yale’s Richard Thaler, the author of Nudge, describes how Nudges and Choice Architecture can influence customer behavior.  I found the 401(k) Savings Case Study particularly instructive:

401(k) Savings Case Study:

“A good example is in the area of pension policy. In many 401(k) plans, the default option is not to join. If you are going to join, you have to fill out some paperwork. Some companies have tried the opposite default, which is that you are enrolled unless you fill out some paperwork. We know that speeds enrollment greatly and doesn't really cost anything. Shlomo Benartzi and I have added to that a policy called Save More Tomorrow, where people are invited to join a plan in which they agree to increase their savings contribution every time they get a raise. That's another good example of libertarian paternalistic policy. No one is forced to join it. People sign up of their own free will, but in the first company where we did this we more than tripled savings rates.”

http://qn.som.yale.edu/article.php?issue_id=12&article_id=240

See also a similar case study:

Express Scripts Overcoming Enrollment Barriers Case Study:

“Pharmacy-benefits manager Express Scripts Inc. tried to overcome behavioral issues to boost enrollment in home-delivery services. Last November, Express Scripts contacted 63,000 Lowe's Cos. employees and dependents with continuing prescriptions, asking them to accept or decline home delivery and offering to complete required paperwork and contact physicians. Use of home delivery has since risen to almost 40% of eligible workers, up from about 14% last year.”

http://ariegoldshlager.posterous.com/behavioral-economics-applied-to-customer-mana

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In this MIT Sloan working paper, Eric von Hippel and Pedro Oliveira explore the histories of 47 functionally novel and important commercial and retail banking services. They found that, in 85% of these cases, users self-provided the service before any bank offered it:

“Many services can be self-provided. An individual user or a user firm can, for example, choose to do its own accounting – choose to self-provide that service - instead of hiring an accounting firm to provide it. Since users can ‘serve themselves’ in many cases, it is also possible for users to innovate with respect to the services they self-provide. In this paper, we explore the histories of 47 functionally novel and important commercial and retail banking services. We find that, in 85% of these cases, users self-provided the service before any bank offered it.

Our empirical findings differ significantly from prevalent producer-centered views of service development. We speculate that the patterns we have observed in the banking industry will be found to be quite general. If so, this will be an important matter: perhaps 75% of GDP in advanced economies today is derived from services. We discuss the implications of our findings for research and practice in service development.”

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1460751##

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The following two articles argue that “over-prescribing” goal setting can prove counter productive or result in many negative side effects:

In the first article, Stanford’s Harikesh Nair argues that eliminating sales quotas could stimulate profits by 9%:

“While commissions may spur effort in unequivocal ways, the quota carrot can sometimes result in agents gaming the system.  "Those who have already made the quota in a current compensation cycle may have an incentive to postpone additional sales," says Nair. "Alternatively, those who perceive they have no chance of making the quota in the current cycle have a perverse incentive to postpone their effort to the next cycle.”

Consistent with the Stanford article, the Harvard article outlines the many potential “Systematic Side Effects of Over-Prescribing Goal Setting”:

“In this article, we argue that the beneficial effects of goal setting have been overstated and that systematic harm caused by goal setting has been largely ignored." 

http://www.gsb.stanford.edu/news/research/Nair_sales.html

http://hbswk.hbs.edu/item/6114.html

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In this paper, the authors argue for including “Emergent Customers” in developing new concepts:

“Identifying the “right” consumer to engage in product concept development can be critical to marketplace success, especially for consumer goods. While much research has focused on new product development techniques, less research has focused on the traits and abilities of consumers who are best-suited to the process.

… some consumers are able to generate forward-focused ideas and to logically and analytically evaluate and refine concepts in a synergistic process. This unique capability, which they call “emergent nature,” allows consumers to envision how concepts might be developed for marketplace success.”

How should designers of Customer Communities, Employee Communities, Open Innovation, and Crowdsourcing initiatives identify and include emergent customers or employees?

http://www.msi.org/publications/publication.cfm?pub=1570

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In the attached research, Chip Heath, the co-author of "Made to Stick," and others found that “Seeking Common Ground in Conversations Can Stifle Innovation”:

"In our research, we found that people are most likely to talk about things they think they have in common with others, rather than topics or ideas that are more unusual or striking," said Nathanael J. Fast, a PhD student at the Stanford Graduate School of Business. Fast is one of three authors of the paper "Common Ground and Cultural Prominence: How Conversation Reinforces Culture," with Chip Heath of the Stanford Business School, and George Wu of the Booth School of Business at the University of Chicago. "This has the effect of reinforcing—or even institutionalizing—the prominence of familiar cultural elements over ones that are perhaps more deserving."

http://www.gsb.stanford.edu/news/research/fast_commongroup.html?cmpid=research

I am intrigued by the potential implications of this research to social networks, particularly customers and employee online communities designed to promote innovation.

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This article outlines how companies can use time to their competitive advantage:

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A recent Newsweek article found that: “Of all the depressing statistics about a lifetime of consumer existence, this may be the most distressing: each of us is destined to spend roughly 1.2 years on hold.”

Don Norman’s article on the “The Psychology of Waiting Lines,” outlines eight design principles for waiting lines that can help companies help customers make the most of these lost 1.2 years:

http://www.jnd.org/ms/Norman%20The%20Psychology%20of%20Waiting%20Lines.pdf

See also: On Hold And In Hell:

http://ariegoldshlager.posterous.com/customer-experience-management-on-hold-and-in

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