Data? Metrics? A waste of time without this:
Hey there,
My head-scratcher this week is about…
The corporate obsession with metrics... that are set in stone.
There’s an endless conversation about
- how important data is AND
- how impactful and bright the future looks if you leverage the data.
Fine.
Agree.
Is just that…
It’s kind of misleading.
Here’s why:
Prepare for an A-ha moment.
Blended with some jaw-dropping insights.
This A-ha moment helped me turn from CRO to CVO.
So, we had this client that was optimizing the conversion rate. More than 100 AB testing experiments, solid team, great hypothesis, but… limited research.
And, by limited, I mean narrow research.
Limited to the website experience.
Limited at the transaction time frame.
Picture this:
The conversion rate went up, but…
The CLV got down.
It all started with a question.
What happens with the customers after their first conversion?
With the control version against the variation.
That made us realize that we optimize for a low-level metric.
It’s just an assumption!
Yep.
Thinking that if you increase the conversion rate,
You will also…
- increase the revenue (sometimes you acquire more bargain hunters at a lower AOV)
- Increase the profit (sometimes, lower AOV means also lower margin)
- Increase the long-term profit and CLV (many times, bargain hunters are just… insensitive to your brand loyalty methods)
Is just an assumption.
So, if you rely too heavily on improving the conversion rate, you can actually harm the business.
Not funny, right?
If you rely on old data models, you can improve the conversion rate and decrease the customer lifetime value. Therefore decrease the profitability of your business.
Moreover, if you rely too much on optimizing the conversion rate, you will focus only on a part of the customer journey, the website.
But there are other channels and other touchpoints:
- The email
- The ad campaigns
- The package
What does it mean?
It means we have to look beyond that.
To evolve.
To prioritize what matters most for a company.
To make sure that we act in the best interest of that company, by optimizing the north star metric:
Customer Lifetime Value.
However, to do this, you need 3 main things:
- To measure it - you can’t improve what you don’t measure
- To align around it - is way more than just marketing, so the management must adopt it
- To act on it - it’s an optimization process that needs proper measuring, ideation, prioritization, and experimentation
The downside?
Unfortunately, this means that our optimization efforts will be seen further into the future, it’s not a quick win.
CRO has been seen as the magic bullet that will fix any business.
But there’s a difference between a data-driven approach to improving a business and a cure-all solution.
Companies are moving towards the optimization methodology.
From clicks to relationships.
From quick wins to long-lasting customer relationships.
From CRO to CVO.
Which is great.
But the data sources are incomplete.
Which is a pity.
In the old days, you, I, and the marketing team would get together in a room and brainstorm to define our buyer persona. Then base the customer journey, marketing assets, and retention campaigns on that original, fictional character.
Those days are long gone.
We were relying on data sets from waves of research studies. Coming in every six months or every three months. But they were analyzing small data sets, so the research wasn’t relevant.
Nowadays, we have our actual customers to rely on. We have their names, we have their purchase history.
We can look at who they are, what they buy, and how often they buy.
We can look at the data, sketch their behavior and add the qualitative layer to the research.
Be careful here and mind the qualitative part of it all.
You can make the mistake of only looking at the numbers.
However, if all you are doing is looking into the quantitative data, you will be shooting in the dark with all sorts of creatives, messages, and email campaigns. Or whatever else you are doing now.
Qualitative data is the non-numeric part of your research.
It’s that conceptual information & feedback you can only get when you get out of the building and talk to your customers.
Repetition is the mother of learning:
I am a big fan of the Jobs to Be Done methodology pioneered by Bob Moesta - there’s a whole course on it inside the CVO Academy.
For instance, when you do the Jobs to Be Done interviews, you go to the soulmates. They are your best customers; they bought the most recently and frequently and have the highest order value.
That’s the best behavior you can hope for, and you want to get in the minds of these customers.
I keep saying it, and I’ll repeat it; the market is shifting, and acquisition is more expensive than ever before.
It’s not about the initial transaction anymore, getting that buyer persona, then another 500 like them.
Because now, it’s about the ratio between CLV and acquisition costs, so you need to know how much you’re spending vs. how much value a customer will bring.
Even with RFM, you look at the Customer Lifetime Value for each customer segment and the customer acquisition cost for each type of customer.
Tl;dr: is acquiring this type of customer worth it, or will it cost me too much time and money?
With RFM, you find the power customers, who are the spark of your optimization strategy. You dive into the data to see what products bring you the best customers, the most loyal ones, and the ones with the highest CLV.
And you interview them.
What kind of drivers do they have?
What kind of progress are they trying to make in their lives by buying your products?
Then you optimize the customer journey for them, that’s the pushpin from the beginning of this conversation.
What follows next?
Our customers actually love it: