July 13, 2020

Parsing Long-Term Value

Anytime you work on a long-term value project, you come to an interesting realization. 
  1. Customers generate their own value, largely due to love of the merchandise you offer.
  2. Marketers are responsible for generating long-term value, largely due to how they manipulate customer value.
Say you split up long-term value over the first five years the customer is active following acquisition. You learn that the customer will spend $100 of future sales and with a 40% flow-through rate and $20 of ad cost over five years, the customer is worth 100*40 - 20 = $20.00 of future profit. 

Then you take the $100 of future sales and assign it to one of four buckets. 

The first bucket? The amount of future value that is organically generated and presumably happens because of brand loyalty and love of merchandise. You find that 35% of future value is in this category.
  • $100 * 0.35 * 0.40 - $0.00 = $14.00 profit.
  • Ohhhhhhhh .... that's a lot of profit.
  • 70% of future value has nothing to do with classic marketing tactics. Ponder that.
The second bucket? The amount of future value that is generated by unpaid social efforts and email marketing.  You measure this, right? Right???? It's darn important because it is practically free marketing, and therefore, is really, really important. You learn that 20% of future value is in this category.
  • $100 * 0.20 * 0.40 - $3.00 = $5.00 profit.
  • We're up to $19.00 of profit ... and there was only $20.00 of profit to begin with over five years, so that doesn't bode well for what comes next.
The third bucket? The amount of future value that is generated by digital marketing. You learn that 20% of future value is in this category, at a cost of $8.00.
  • $100 * 0.20 * 0.40 - $8.00 = $0.00 profit.
  • Wooooooo-boy.
  • Google + Facebook + Retargeters say "thank you".
The fourth bucket? The amount of future value that is generated by print marketing. You learn that 25% of future value is in this category, at a cost of $9.00.
  • $100 * 0.25 * 0.40 - $9.00 = $1.00 profit.
  • Wooooooo-boy again.
  • Your printers and paper reps say "thank you".
I should recap / summarize what we just learned, correct?
  • $14.00 of long-term value generated outside of marketing.
  •   $5.00 of long-term value generated by email and organic social activities.
  •   $1.00 of long-term value generated by print marketing activities.
  •   $0.00 of long-term value generated by digital marketing activities.
You analyze this stuff, right?

What would you do differently if you knew this was happening?? 
  • (hint - some version of this is absolutely happening ... and this shouldn't be taken a criticism of digital and/or print ... it's done to get you to think)

Discuss.

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