What’s New is Old: An Answer to Peppers and Rogers

In their rebuttal to the CRM Cynic (The CRM Loop, Sept. 22), Peppers + Rodgers say:

“Even though some sophisticated companies (like Royal Bank of Canada) have begun modeling LTV changes to help evaluate their actions, the plain fact is that no one—not even the shrewdest direct marketer—has yet written anything about tracking LTV change as an aid to making decisions. We’ve been searching the academic and trade literature for two years and we haven’t found a single example. That’s why we maintain that Return on Customer is in fact that rarest of things in business—a truly new idea.”

A search on Google of the phrase, “tracking LTV change,” brings up in the No. 1 and No. 2 positions two articles from my Web site (http://www.jimnovo.com/Behavioral-Marketing.htm). I have been writing about this concept since 2000 as the most powerful metric one can use to maximize the value of customers. The LTV of a current customer is constantly in flux and “change in predicted LTV” is the most powerful idea a marketer can use to drive profits. Static LTV numbers are yesterday’s news. There is always the potential for change in customer value, and if you can measure this potential value, you can manage it.

The basic approach is to use metrics as old as the direct marketing hills in new and more relevant ways. For example, instead of using RFM as a “static” measure at any point in time, you can track RFM scores over time and predict whether a customer’s value is likely rise or fall in the future. These changes in RFM score over time paint a picture of the customer Life cycle.

See from 2001:

“It’s not nearly as important to know the absolute value of a customer as it is to know whether this value is rising or falling – called the customer LifeCycle. Knowing and understanding the customer LifeCycle is the most powerful marketing tool you can have.”

A simplified series of articles on this whole idea has even been published on a high traffic site – webpronews.com. The basic model of measuring and mangaging vistor/customer retention is outlined here:
http://www.webpronews.com/ebusiness/ebusinesstactics/wpn-8-20041001MeasuringManagingVisitorCustomerRetention.html.

I haven’t read the Peppers & Rodgers book, but it sure sounds like a similar idea to me.

The fault I have always had with a lot of “consultant books” is they do a good job of telling you what you should be doing and why, but they never tell you how—for obvious reasons. My book was written expressly to break this barrier and teach the reader exactly how to track and predict LTV change in a way that is reliable and actionable, then use this information to increase customer retention marketing/CRM profitability.

And to be clear, I didn’t invent this idea myself. A team of research and marketing people developed, tested, and proved out this idea in the mid-90’s at Home Shopping Network. I was the marketing lead on that team.

The more interactive and customer-focused the business, the better this methodology works. What I did do myself was attempt to translate this complex idea into relatively simple English on my Web site and in my book so that everybody could access it.

Peppers and Rogers are great marketers. They have done a lot for CRM by finding interesting and unique ways to explain complex concepts. They should be applauded for that. If they want to reposition these ideas as ROC and people end up with a deeper understanding of the ideas because of their talents presenting difficult marketing ideas, maybe that’s OK too.

And I believe them when they say “We’ve been searching the academic and trade literature for two years and we haven’t found a single example.”

That’s because the concept is too new.

They should have searched Google as well.

Or maybe they did search Google. That would explain the qualification: “Searching the academic and trade literature.”

ROC may very well be a new concept, but the idea of “modeling LTV changes” certainly is not.

Jim Novo is a specialist in interactive customer retention and loyalty. He is the author of Drilling Down: Turning Customer Data into Profits With a Spreadsheet.