From our lobby windows, I can see the ongoing construction of the much-hyped Trump International Hotel & Tower. It is slated to be 96 floors tall upon completion, and with its sleek, stainless steel facade and glassy, closed curves — reminiscent of Philip Johnson’s postmodern Lipstick Building in Manhattan — it will be the perfect complement to the city’s ubiquitous skyline.
I first heard about this building during the first season of the then-popular reality television series “The Apprentice.” The oversight of its construction was a prize offered to the winner, who, coincidentally, happened to be a Chicago native.
Targeting Higher-Value Groups
During the first season of “The Apprentice,” there was an episode that involved two teams that headed to Atlantic City, where they were responsible for registering gamblers at the Trump Taj Mahal. The task was to lure gamblers to the casino by creating a new and unique game of chance for customers to play, and the team that brought in the most money won.
The team that won registered 776 players, while the losing team curiously registered 1,337! The successful formula of the winning team included an excellent decision to target the casino VIP line (those looking to play baccarat and the like), which brought them US$17,807 more than the opposing team.
This is a classic case of quality over quantity (ergo the less-is-more approach). By targeting a higher-value group, the winning team was able to secure larger order sizes (gambling transactions), and if this task continued beyond the boundary of the contest, they might have been able to further justify the future value of each customer. It was an excellent decision and intuitive assessment of customer value marketing and management in practice.
Customer Lifetime Value
In marketing, customer lifetime value (CLV) is the present value of the future cash flows attributed to the customer relationship. Use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales.
CLV can be calculated by evaluating items such as the churn rate, the cost of retaining and servicing the customer and the revenue generated by the customer. Assigning a potential total monetary figure to a customer is a useful metric for marketers when evaluating the cost of customer acquisition. The complexity and uncertainty surrounding customer relationships obviously makes it impossible to make an entirely accurate estimate, but CLV is a good starting point when aligning strategy and resources to identified customer segments.
Where there are a small number of people that drive most of the business, as in travel and leisure (or gaming, in the referenced case), customer lifetime value is particularly useful — i.e., where there is a disproportionate distribution of transactions compared with the rest of the customer universe.
The less-is-more approach is the preferred way to operate a service-oriented business, but this also has to take into consideration the buying cycle of the customer being courted and the payback period for that interaction. Firms with cash flow problems or a small war chest tend to rely on whatever comes in the door to accommodate making payroll, which can lead to dire consequences down the road.
Perhaps more often than marketers would like to admit — under pressure to acquire more customers, or create revenue for the next quarter — they execute campaigns based on company fiscal requirements, to the detriment of the real needs of the customer.
E-mails, for example, are sent to all customers upon the release of a product in the hopes that “casting a wide net” will catch more leads simply through sheer volume of communications sent. The growth of e-mail marketing has led to an increase in the number of communications sent to customers, due to ease of execution and low-cost of implementation. Ironically, omitting to apply the rigor of established direct marketing principles to online marketing, such as testing, measurement and relevancy of content, results in less leads as customers increasingly unsubscribe, report e-mails as spam or implement their own spam filters, and use multiple e-mail addresses to guard their privacy.
While a company has to make money to be viable, if it elicits one-time order customers, it is not going to be viable for very long. That is why it’s important to gain a better understanding of the customer through periodically planned analysis that identifies patterns that trigger dynamic content — i.e., relevant and personalized communication. The “spray-and-pray” (or “batch and blast”) approach is typically a desperate attempt to acquire customers in a short period of time in the absence of focus and a well-thought-out customer plan, which actually results in the long-term alienation of a significant majority of customers.
An example from a 2007 Aberdeen Group study cites that the top strategic action taken by sales managers in Best-in-Class sales organizations is to focus on lead quality, not solely the quantity of leads coming down the pipeline. It was further cited that increasing the quantity of leads was rated among the lowest strategic priorities.
Strategic targeting and better accuracy through customer value segmentation and measurement assists in identifying the right types of potential and current customers to work with — and waiting for the feedback can even capture the same drama of a reality television show in the process.
Steven Permuy is the partner development manager for Alterian, an enterprise marketing platform provider.