Why you can’t afford to ignore this customer value rule

3 minute read, posted on 10/30/2018, by Peter Mullen

customer value

Sales leaders are well versed in how to calculate the lifetime customer value and how enormous this number can be. 

A notable example is the Ritz-Carlton Hotel Company, which calculated that the lifetime value of a customer was so high that they should be doing everything in their power to please each one of their customers. To the point of empowering every single full-time employee to spend up to $2,000 to solve, on the spot, any customer complaint, challenge, or problem. 

But here’s the challenge today: In a world of ubiquitous connectivity, where everyone has a voice that can reverberate as far as their community and their social network will carry it, you can’t simply focus on customer lifetime value. We need to be focusing on lifetime network value. 

Never before have customers enjoyed such powerful platforms to share and broadcast their opinions. 

If you make customers unhappy in the physical world, they might each tell six friends. If you make customers unhappy on the Internet, they can each tell 6,000.” – Jeff Bezos.

This is true today for every generation. Gen Xers, Boomers, and even some Silent Generation customers share on Facebook and post reviews on TripAdvisor and Amazon. And of course, there are the Millennials who, thanks to their lifetime of technology use and their growing buying power, are particularly active – socially sharing and promoting their brand preferences. 

A good (or bad) experience transcends the customer and even their immediate circle of friends or family. The ability for them to influence the buying decisions of your future customers has increased 100-fold. In truth, most of those who read a tweet or post on a good or bad experience may not even know the person posting it!! 

Given this, there is an understandable concern in the hospitality industry about brand fickleness. 

The ability of customers to switch providers with a couple of thumb movements has created a highly competitive landscape. 

But it’s not all unwelcome news. Network effect cuts both ways – a great experience has just as much ability to be magnified as a poor one.  Those that get and understand what is required to win the acquisition and retention battle will be able to drive long-term value and profit. 

So, the next time you’re thinking about what a 1% increase in sales would mean, take your current lifetime customer value calculation and multiply it by a factor of 100. This more accurately represents the value to your organization of not only satisfying but delighting your customer. 

This perspective is key. After all, we have yet to meet a sales leader who has been rewarded for a lower cost of sale – but we have seen plenty come under the spotlight for not delivering a higher customer value conversion rate. 

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