All Customers Are Polygamists and How Direct Marketers Can Understand Them
TM: Is this true, even though some marketers have been saying that actually, right now, acquisition is not the route to go?
PF: And I disagree with that. In other words, you're reading me exactly right. And, again, I just want to be clear. I'm saying things strongly to make a point. I'm not suggesting that retention marketing and customer development efforts shouldn't happen. It definitely should. You've got to be asking people, 'Do you want fries with that?' You've got to be recommending other products and services for them to try, in addition to the ones that they have. You've got to be doing all of those kinds of things. But the incremental impact that they're going to have is smaller than what a lot of companies think. And a lot of companies have been very disappointed by their cross-selling efforts. 'It's not working for me like it's supposed to.'
I believe that companies aren't spending enough on acquisition. I think that when they come up with their metrics of 'How much should we spend to acquire new customers?' CPA metrics, cost per acquisition, they're underspending. They're leaving money on the table.
TM: In "Customer-Base Valuation in a Contractual Setting: The Perils of Ignoring Heterogeneity," it sounds like you're warning marketers that they need to think of their customers as individuals instead of as an aggregated whole. What's the main change direct marketers need to make in order to implement this advice?
PF: The whole point of that paper is that if we don't do our customer lifetime value calculations the right way; in other words, we do them the naive way that too many firms and academics do them, our CLV estimates are going to be systematically too low; which means that we're going to be willing to spend too little money on new customer acquisition; which means, by definition, we're not going to focus on acquisition as much as we should. And so, again, I'm not saying that companies should be spending 10 times as much; it's not really that dramatic. But at the margin, when you have this incremental dollar or, let's say, $1 million to spend on top of our current resource allocation strategy, 'Where should we be spending most of it?' I would say acquisition. That there's a lot of low-hanging fruit that companies are unaware of and a lot of fine-tuning that can be done to make sure that we throw the nets in the more, let's call them, inertial directions. And, again, that runs quite contrary. But I believe that I have the statistical evidence on my side as opposed to the anecdotal wisdom.