April 21, 2014

The Lifetime Value Of Stupidity

One of my all-time favorite dumb-guy marketing ideas is "lifetime value."

It is the fantasy that if you get a customer at a young age she'll stick with you for life. This nonsense is particularly popular in the automotive industry, where I misspent a lot of my agency career.

My conversations about lifetime value usually went something like this:
BOB: Why are we spending so much of our advertising budget against 18-34 year-olds when they have no money and no interest in buying cars?

STUPID-ASS MARKETING GUY: Because we have to think about the future. We need young people in our brand. If we get them now, we'll have them for a long time.
BOB: But doesn't it make more sense to try to sell our car to people who are actually interested in buying a car now than to people who might buy a car in fifteen years?

Old people are dying out, and we need to get youth into our brand or we'll die, too.
BOB: (Foolishly trying to insert logic into the conversation) First of all, old people aren't dying out. Adults over fifty are growing at almost three times the rate of adults under 50. It's young people who are evaporating, not old ones. But more important, 88% of cars are sold to people over 35. The math just doesn't work.

STUPID-ASS MARKETING GUY: (Snickering on the inside) Why don't you just stick to writing the ads and leave the math to me?

BOB: Because you're a fucking moron (no, I didn't really say that...I'd say something like)... "let me show you the numbers..."

Only 12% of cars are sold to people between the ages of 18 and 34.  Let's say we are the most brilliant marketers in history and we can get a 50 share among these people. And then let's say that we make the most irresistible car in history and fifteen years from now 50% of these people will still buy our brand. And let's say that these people miraculously become the most eager new car buyers in history and they buy a new car every 2 years. That means fifteen years from now we will have 1.5% share of market from them.

In the meantime, we will have ignored 88% of the fucking people who actually bought a fucking car every fucking year for fifteen fucking years. Does this sound like good fucking business strategy to you, you fucking moron...(once again, the "fucking" part was often more a thought than an actual verbalization. Often, but not always.)

STUPID-ASS MARKETING GUY: (Snickering on the inside, the outside, the right side, and the left side) Why don't you just stick to writing the ads and leave the marketing decisions to me?
That, my friends, is the value of stupidity. And it lasts a lifetime.


Richard Morris said...

Great stuff Bob. This reminds me of the time I was invited to view a pitch rehearsal (funnily enough, for a car); chart 2 (after 'Welcome') stated we were targeting men as they made up 60% of the buyers in the market. After the presentation I asked how many other brands in that sector targeted men; pretty much all of them was the answer. So I asked wouldn't it be better to target the 40% of the market no one is talking to but are buying cars in the sector? Cue stony silence and daggers looks.

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Neil Charles said...

Lifetime value only started to literally mean the entire lifetime a potential customer when (to borrow a phrase) stupid-ass marketers got hold of it.

If you're a bank and you persuade somebody to open a new account with you, then you need to know how much that customer is likely to be worth to your business. If, on average, that type of customer stays with your bank for ten years once they've joined, then that's the lifetime value of a new customer - ten years' worth of banking.

Lifetime value is another example in a long line of terminology 'borrowed' by marketing from other fields and abused to the point of becoming meaningless.

Anders Bisgaard Madsen said...

I was tought this at University: "You will loose out in the long run if you don't target the youth. " The example given was Colgate vs some died out brand I can't remember. I learned a lot of weird stuff in university.

Jim said...

You can't say you didn't try.

FantasticPhil said...

I feel like most too many stupid-ass marketing guys fall prey to group think. Once some marketing "genius" finds a box, everyone else tries to jump inside without even knowing the contents (social media marketing as one example).

Bob has been a great eye opener for me in the marketing world; to think I used to believe the "get them while they're young spiel."

Doug Garnett said...

I thoroughly agree about the stupidity in this example. Sadly, it happens too often.

That said, Lifetime Value is extraordinarily important when used wisely. Direct marketers use it to try to establish accurate predictions for the total value a customer will bring (on average). And it's important in any business where repeat business is part of their business fundamentals (e.g. Netflix, cell phones, cable subscriptions,...).

But...yes... Like all good things it has been picked up by agencies trying to avoid responsibility for their work or looking for a good way to build an excuse just to make ads for the young. More evidence of the shallowness of thinking in most agencies.

simpleERB said...

Point taken , but IMHO an odd view of "lifetime value".

When I was a restaurateur one of my biggest problems was to get staff looking at a customer not as someone who is spending $20 and tipping $2 but as a customer who might spend $500 in the next two years and tip $50.

timorr said...

This is long, but I think you'll like it:

Youth Obsession by Admen Ignores Real Market, Adams Says

Dallas, Feb. 11 – Charles F. Adams, president of MacManus,
John & Adams, Bloomfield Hills, Mich., questioned here today if U.S.
marketers have gone overboard in their courtship of the youth market.

“Or, rephrasing it, have we ignored and possibly offended
mature America in our obsession with young America?” Mr. Adams said in a talk to the Dallas Advertising League. He advised marketing men to pay more attention to the “generation at the top” – the over-45 years old market.

Mr. Adams said he felt that “the current obsession with the
younger side of the American market is working a disservice on many products and services, and on many of the companies that promote them.” He charged that some admen “believe middle age is obscene.”

He went on to say that although the youth market represents
11,000,000 families and $25 billion in purchasing power, the older generations have far more power, money and the overwhelming majority of America’s purchasing power. He presented the following statistics to support his case:

The “under-30” segment accounts for only 25% of all spending
in the U.S.; the “30 to go” group spend some 50%.

Only 11% of all U.S. households are headed by a member of
the “under-30” market; 37% by the “30 to go” market.

Incomes of $10,000 are relatively rare under 30; nearly one
in three in the over 45 group earns more than $10,000.

The over-45 market enjoys greater discretionary spending
power – when the children are no longer at home, mortgages either eliminated or reduced. They travel more, live better and buy higher quality products.

Medical science is lengthening the lifespan constantly. Even
at 65, the average American has a life expectancy of 15 years.

“Give it some thought the next time you’re signing up a
hard-rock band to do your commercial – or the next time you’re about to cast the usual teeny-bopper for your next ad. You might well be on target. But perhaps there is also another audience out there that you should be thinking about.

“Sure the ’30 to go’ want to think and act and buy young, but they also
don’t want to be forgotten. They are a force to reckon with – and I believe that they need more recognition and attention from all of us,” Mr. Adams said.

[Published in AD AGE, February 11, 1969 (!)]

bob hoffman said...

Plus ca change...