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Terminus Blog

May 26, 2020

The Customer Abundance Formula: Customer Retention Done Right

Category: FlipMyFunnel Post, Other

Wharton School of Business Professor Peter Fader, Professor of Marketing, the Wharton School of the University of Pennsylvania, schools us on the idea of customer centricity, and the idea of getting to know them in order to predict their behaviors. 

We also take a look back to the birth of direct marketing and bring some of those founding principles into modern day methods.

This post is based on a takeover episode of the #Flip My Funnel podcast! Guest Host, Casey Cheshire of The Hard Corps Marketing Show talks shop with Peter Fader, Professor of Marketing, the Wharton School of the University of Pennsylvania 

Have you learned your $10 word for the day? 

Fear not, I’ve got you covered: heterogeneity.

I couldn’t pronounce it on the first try either.

But after sitting down with Professor Peter Fader, Professor of Marketing, the Wharton School of the University of Pennsylvania for a bit though, I not only managed to pronounce it, but I ingested the idea of it, and I promise you, you will not want to miss this episode.

According to Professor Fader’s theory of embracing heterogeneity, there is this vast array of customers who are not only different from each other, but are wildly different from each other. 

So, when you do your predictive analytics and you see just how incredibly varied they are, ask yourself: How do I best take advantage of that?

While Professor Fader acknowledges his $10 word might sound kind of fancy and academic, he freely waves his customer heterogeneity flag.

Changing mindset and culture to include the idea that you cannot simply create one end-all-be-all customer to sell to might be kind of a nuisance to some traditional marketers, but it’s also a tremendous opportunity to make more money.

Customer Retention: Focus on Projected Profitability

How do you prioritize your marketing efforts when it comes to customer retention? 

It’s more than just a profile, and it’s also more than the cost of customer retention vs. acquisition. 

While it’s easy to place cost at the top of the list when it comes to decision making, if you shift your thinking a bit, it may seem less important than it traditionally  has been.

Let me explain.

No one is suggesting you just throw money at something and the customers will flow. 

But what Professor Fader is suggesting is that if you pivot your thinking to focus on customer centricity, your mindset takes on a new state, evaluating customers based on value, not cost.

As a marketer, to assess the CLV you need to think about:

  • How long the overall relationship with the customer will last
  • How many orders they will buy
  • What will the size of those orders be
  • What is the profitability margin of each one?

Who the Heck is Lester Wunderman? 

It all goes back to an industry that none of us aspire to be associated with. 

Like it or not, everything that we’re doing today in digital marketing can be traced back to Ginsu Knives. 

“In 1967, in an address at MIT, Mr. Wunderman identified, named and defined Direct Marketing, and for more than four decades he led the theoretical and practical growth of the industry”- 

That’s right. The late night tv guys hawking stuff, sometimes with VERY LOUD VOICES are the godfathers of direct marketing. 

Our marketing forefathers were selling products directed at the viewer on late night tv.

They approached marketing with a subtle, yet enormous twist:

“Who are these people and what will they buy?”

While we may not choose to be associated with the products they were selling, we should aspire to follow the practices that they were espousing, which is that each individual customer is the unit of analysis, not the product

If we can figure out the value of each of those customers and figure out which ones are more responsive to our messages, our outreach and our products, we can find ways to further deepen those relationships.

Our Marketing Forefathers Were Laser Focused Before Lasers Existed

Lasering in on the needs of the customer  and establishing a methodology around historical data will shift your approach from what you want to sell them to what do they need. 

Coming up with some easily observable metrics that will be correlated with, and therefore presumably predictive of what these customers will be worth in the future will help you in understanding the monetary value of each customer. The formula is:

RFM: Recency Frequency, Monetary value.

All of these acronyms boil down to the same thing. Shifting away from current thinking and implementing strategies and models to invest in cultivating each customer based on their needs, and focusing on their long term value to you.

Every quarter, Jeff Bezos goes to his investors and sometimes he announces huge losses in his eCommerce business. But look at all of the customer asset value that he’s bringing to the table. 

Maybe it’s not showing up on the balance sheet or the income statement or the cash flow statement, but it’s real.

You can measure it and you can invest against it. 

You can borrow against it. 

Professor Fader thinks if we can just get people to see customer lifetime value, long term investments in the right kinds of marketing will prevail. 

And as the behavioral data shows, in the end, businesses will win. 

So, back to Lester Wunderman and his old school, direct marketing approach from the 70”s and 80’s. The concept may have had humble beginnings, but once Madison Avenue got wind of it, they turned it into the Customer Rewards Program at American Express. 

Citibank, Ford, Lufthansa, Pfizer and Burger King all became clients of Lester’s. 

Many of your modern thinking comes from the birth of that iconic concept. 

Look back to launch forward! 

In the words of Lester himself: “Relentlessly pursue tomorrow.”


This post is based on a takeover episode of the #Flip My Funnel podcast! Guest Host, Casey Cheshire of The Hard Corps Marketing Show talks shop with Peter Fader, Professor of Marketing, the Wharton School of the University of Pennsylvania 

Written by Sangram Vajre

Sangram Vajre is the co-founder and chief evangelist of Terminus, the leader of the account-based marketing (ABM) movement transforming B2B marketing. Before co-founding Terminus, Sangram led the marketing team at Pardot through its acquisition by ExactTarget and then to Salesforce. Sangram is the author of Account-Based Marketing for Dummies and is the mastermind behind #FlipMyFunnel. Follow Sangram on Twitter at @sangramvajre.

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