#5 Behavioral Economics, Customer Lifetime Value
Welcome to my fifth newsletter covering customer experience and customer-centric business strategy. The four topics this week are:
Why behavioral economics matters
Over my career I have sometimes been told that I am annoyingly logical. My evidence-based approach to strategy and customer experience work has sometimes crossed the fine line between being persistent and being irritating. Of course, I used to dismiss the irritated people as simply being wrong. That was before I started to read behavioral economics books, notably those by Daniel Kahneman and Dan Ariely. I learned that intelligence is of far less practical use than I once thought. People, including customers, behave far less rationally than we like to think. Emotion rules. Rational thought comes a distant second. I wish I had learned how to ‘lead with emotion’ much earlier in my career. That is why I have started a new series of blog posts that share some of what I have now learned.
Notable customer experience items from other sites
Harvard Business Review: Customer Loyalty is Overrated
Provocative article by A.G. Lafley and Roger L. Martin. The essential point they make is that customers are people of habit, and will keep on doing what they have been doing unless there is a really good reason to change. They say that customers are not rational, and use arguments from behavioral psychology to support their views. The web page includes articles that disagree with what they say. Well worth reading for anyone interested in business strategy. You can find the article here. Note that you get free access to 8 articles a year just by registering.
Customer Lifetime Value: Net Promoter System podcast
How much is one of your customers worth to you over the entire time they have done and will do business with you? This should be one of the most important standards of financial reporting, in my opinion, and it is not. There are standards for banks to report on the value of loans, which is quite similar, but nothing for customers. Some outsourcing and consulting companies have their own methods and provide internal-only financial reporting that way. Rob Markey invited Peter Fader of Wharton school of the University of Pennsylvania to join him on the Net Promoter System podcast last week to discuss how to do it. I learned a lot, and have to re-write a chapter of my NPS implementation book after listening to it.
How to complain effectively in three easy steps
A short and entertaining read by the mysteriously anonymous ‘Matthew’. He tells the story of how he helped his friend ‘John’ to complain to United after a missed connection at Newark airport. John tried hard, but did not get what he wanted. Matthew shows us how to do it correctly here.
It will be Valentine’s Day next Tuesday, and you can look forward to a post on how to stay married… to your customers of course. Apologies in advance to readers in Australia and New Zealand, who may only be able to see the post when the day itself is over. I will do my best to post early.
Thank you for the many kind words received about Peter’s drawings. Peter’s profile is here. In addition to being an artist, he creates beautiful websites for artists, galleries, lawyers / solicitors and other businesses. His website is here.
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You can also email me, Maurice FitzGerald, at firstname.lastname@example.org.