Neil Hoyne is the Chief Measurement Strategist at Google, and has been working at the company for more than a decade. There, he has led more than 2,500 engagements with the world’s biggest advertisers. He is also a senior fellow at The Wharton School.
Below, Neil shares 5 key insights from his new book, Converted: The Data-Driven Way to Win Customers’ Hearts. Listen to the audio version—read by Neil himself—in the Next Big Idea App.
1. Companies need to recognize the struggle of their marketing activities.
Whether it’s trying to prove that their marketing investments are paying off, or simply chasing short-term sales metrics, companies are limiting the potential of their business by treating their customers as short-term transactions rather than as people. They’re showing interest in them only when those customers are ready to buy, with money in hand.
It’s almost as if a digital marketer walks into a bar and asks the first person they see to marry them. It’s crazy, but that’s what companies do—that’s digital marketing. If the marketing team asks enough strangers a question (maybe it’s a hundred, maybe a thousand) eventually someone will say yes. If marketers give themselves one moment to drive a result, and they treat every interaction the same, then they can only change so much: what they wear, which bar they walk into, maybe a word or two of what they say. Afterwards, the CEO asks why more people aren’t saying yes, and it’s because others are playing a different game.
The other kind of marketer says hello, starts a conversation, asks questions, listens to the answers, and lets things develop. They build relationships, one step at a time, and then ask themselves, “Is this going anywhere?” Their data tells them the answer, and they act on it.
2. Know where things stand.
In life you’ll have close friends, family, maybe even coworkers—people who can contribute so much to your sense of being that you couldn’t imagine the world without them. But, you’ll also have a number of casual acquaintances and interactions, people who may offer small things, but then disappear from your life quickly. The same dynamic is true with your business and its customers.
“80 percent of the value of your business may come from just 20 percent of your customer base.”
Consider that 80 percent of the value of your business may come from just 20 percent of your customer base. In some industries, like mobile gaming, it’s even more severe, with 98 percent of the value coming from just 0.2 percent of customers, on average. You need to know who is who, and this is why the metric of Customer Lifetime Value is so important.
If you’re new to Customer Lifetime Value, or CLV, it’s a forward-looking projection at the individual customer level that allows you to understand how valuable that relationship will be. It can tell you how each customer fits into your business, therefore allowing you to spend your time on those who matter the most. The metric can be calculated using a few simple pieces of data. 24 months of data includes: a transaction date, a transaction amount (ideally profit, but revenue is acceptable), and the customer’s name (whether it’s their actual name, a CRM, or loyalty program ID, an email address, or phone number, something that ties these transactions to the same person). This is all you need for a forward-looking projection of your customers’ behavior.
3. Meet the right people.
Once you understand who your best customers are, the door is wide open for you to understand why. When you calculate Customer Lifetime Value, the output is a spreadsheet: one column of names, and a second column with important lifetime value metrics. Now, what if you add a third column with your understanding of the products they purchased? Or a fourth column indicating if they used a coupon? A fifth column for when they were acquired, or maybe a sixth column marking if they talked to a particular salesperson? This information helps develop behavioral profiles which show who your best customers are and what they do. Knowing these things allows you to find more people like them, and 99 percent of your effort should be spent on acquiring more great customers.
“There’s no quicker path to heartbreak than pouring time and money into customers who won’t be worth it in the end.”
Many companies mistakenly focus on changing or developing their customers. The goal of these companies is to acquire as many relationships as possible, because they assume that once someone sees how great their business is, then they’ll be hooked—and can’t help but spend money. This couldn’t be further from the truth.
Consider your friend who comes over one night to tell you that they met a terrible person, but there could be so much potential if and when they change them. This mentality sends up red flags in personal relationships, and it should in your marketing campaigns as well. There’s no quicker path to heartbreak than pouring time and money into customers who won’t be worth it in the end. Instead, start by finding the better ones at the very beginning—who are they, what are they doing, and where can you find more?
4. Listen to the customers that matter.
Now that you know who your high lifetime value customers are, how they behave, and where to find more of them, you also have to pay attention to what they’re saying.
If you had an important personal decision to make, you’d probably pay more attention to those close to you and less to everyone else. I know that I’d be in trouble if in making an important life decision I asked my wife for her input, but then averaged it with the thoughts of my Uber driver. Yet businesses do this all the time. Whether they’re testing a new website design, marketing campaign, or product feature, they weigh everyone’s opinion equally. A customer is a customer—a transaction, a signup, or a download are all equal. But knowing lifetime value, we should pay a little more attention to those customers that are more meaningful to our business. So, when running these tests, we need to consider not what the average customer wants, but rather what is resonating most with our high-value customers.
“I’d be in trouble if in making an important life decision I asked my wife for her input, but then averaged it with the thoughts of my Uber driver.”
Travel is a fantastic example. If you asked all customers on an airplane what they value, then you’re likely to hear about low fares and vacation packages. But for the 10 percent of people on the flight who will drive nearly 70 percent of the revenue, they’re interested in customer service and on-time rates. The latter is an entirely different message, especially when you’re chasing growth. Ask yourself not only “what does everybody want?” but also, “how can we grow the customers that give the most back to our business?” You may need to rewrite your playbook or reconsider past decisions, but it’s worth it to ensure that you’re the dream partner of the customers you seek. Through your brand, website, and customer service, provide the value and the messages that are important to those that are going to spend.
5. Strive to be better, but not perfect.
There’s an undeniable attraction to getting everything right, to knowing exactly the rules of the game so you can sweep customers off their feet and avoid any pain of rejection.
Companies want perfect data, perfect models, and a perfect understanding of the customer journey so that they can get everything right at every moment. A lot of companies do this, endlessly planning how things will go without ever taking the plunge of testing it in action. Avoid that temptation. Don’t spend your entire time sitting on the couch thinking about how great things will be when you run that campaign—go out and do it.
Explore the dimensions of customer lifetime value. Test and learn from them. And remember that digital marketing is not meant to be perfect. In most cases, it’s an auction where the goal is simply to be better than the people you’re competing with. If everyone else is still proposing on that first date, then you’re better off being the one who walks up for a conversation that recognizes the value of what that relationship could be, listening to what they have to say, and then being open to discussing the longer term. That’s the roadmap for success in marketing.
To listen to the audio version read by author Neil Hoyne, download the Next Big Idea App today:
