Peter S. Fader - The Customer Centricity Playbook: Implement a Winning Strategy Driven by Customer Lifetime Value

PETERADER ANDARAH

USTOMERENTRICITYLAYBOOK

IMPLEMENT A WINNING STRATEGY DRIVEN BY CUSTOMER LIFETIME VALUE

2018 by Peter S. Fader and Sarah E. Toms

Published by Wharton Digital Press

The Wharton School

University of Pennsylvania

3620 Locust Walk

2000 Steinberg Hall-Dietrich Hall

Philadelphia, PA 19104

Email:

Website: http://wdp.wharton.upenn.edu/

All rights reserved. No part of this book may be reproduced, in any form or by any means, without written permission of the publisher. Company and product names mentioned herein are the trademarks or registered trademarks of their respective owners.

Ebook ISBN: 978-1-61363-091-4

Paperback ISBN: 978-1-61363-090-7

Contents

Preface

With 18 Olympic gold medals, Michael Phelps is the most decorated athlete of all time. It isnt surprising to learn that his training regimen would challenge demigods. At peak season, he clocks 50 miles per week in the pool and yet more hours in the gym. For other athletes wishing to join Phelpss ranks, this all sounds like a simple enough formula to replicate: train hard, eat smart, get stronger, perform better, win Olympic gold. The problem is that training and nutrition alone cant guarantee Phelpss impressive collection of Olympic bling.

Why not? If you train hard enough, you can achieve anything, right? In short, no. As a physical specimen, Michael Phelps was born to swim. His double-jointed ankles and size 14 feet work in conjunction with a double-jointed rib cage, meaning that his kick starts in his chest, generating a tremendous dolphin-like thrust. And even though Phelps is 6' 4", his arms measure 6' 7" from fingertip to fingertip, extending from a large and powerful torso that would be proportional for a man several inches taller than he stands. To add insult to injury for the mortals in the adjacent lanes wishing to challenge Phelps to a race, he produces less than half the lactic acid of other athletes, meaning he can quickly recover from physical exertion. Biomechanically and metabolically, Phelps was born with a substantial and natural advantage in the pool.

So what does Michael Phelps have to do with customer centricity? Well, his inherent goodness as a swimmer is an analog for one of the pillars of a customer-centric marketing strategy: Even before a customer makes their first purchase with you, much of their potential value is already there, just as Phelpss natural physical advantages were there when he was born. Sure, you can drag customers into the marketing and sales gym to develop their value a bit further, but by how much really depends on a number of predetermined factors that you dont have much, if any, control over. You certainly wont be able to transform the vast majority of your base into your best, most Phelps-like class of customer. On the other hand, knowing who your best customers are is not as clear as separating the winners from the losers in a quick swimming race. To get the clearest picture of a customers value means harnessing the insights that come from playing a long gameone that projects their entire lifetime with you. Thats what this book is about.

Introduction

We begin with a company that has been around for about 36 years, predating any modern notion of customer data analytics.

Sparking EAs miraculous turnaround was the companys realization that even if customers look the same on the surface, not all customers are the samea principle that is fundamental to customer centricity. Today, we count EA in an elite class of companies that turned themselves around thanks to their steadfast commitment to their customer-centric strategy. We say steadfast because the turnaround has taken more than a decade to gain outward visible momentum, as reflected on Wall Street.

EAs turnaround actually began five long years before its stock price started to climb again, when a few data nerds working on the sales planning team decided to follow a hunch. They believed that the company was wasting vast resources in the way it invested its marketing budget22% of revenue was spent on marketing at the time. Following this thread, the analysts wanted to see if they could use data to find a better way to advertise EAs games. Back then, much of the budget was spent right before a game launch and went to TV ads and other broadcast spray-and-pray approaches, but no one at EA had any clear goals in mind for how to measure the returns on this spending.

By optimizing a marketing mix algorithm, the data team was able to provide indisputable evidence to the decision makers at EA that the company was, indeed, spending its marketing dollars inefficiently. And thankfully for EA, the decision makers paid close attention when presented with alternatives. The result was a universal decrease in marketing dollars spent, with no negative impact to efficacy. This provided the first proof to EA that by leveraging data insights, it could forge a path to more successful decision making.

When EA purchased Playfish, a digital-first gaming company, in 2009, one of those data nerds from the sales planning teamZachery Andersonwas appointed to lead the analytics and insights arm of EA Digital. This team made it their mission to mine whatever data they could find. By standardizing metrics, they created a unified, reliable way for the company to analyze hundreds of data points. The company was abuzz with the possibilities that these newfound insights heralded, but many EA employees also worried about the companys identity in light of this new flood of information. As Benjamin Tisdale, senior director of business analytics, reflected, many employees were asking, Is data going to decide everything for us now? Were a creative company, and we didnt want to lose sight of who we are.

Then, in 2013, Andrew Wilson was named EAs new CEO. Wilson decided to address head-on the tension between data-driven decision making and the need to protect the creativity of the game studios. By leveraging some key correlations that the Digital teams analysis revealed around engagement and customer value, Wilson championed a Player First mantra that translated into marching orders for the entire company to understand what exactly leads to higher player engagement.

As part of Wilsons Player First initiative, Anderson was asked to head up a new group called Global Analytics & Insights, which started to consolidate the companys understanding about players, showing that in-game engagement was a good proxy for the future value of individual players. In fact, engagement was the single best predictor for whether a customer would purchase other games in the future. This finding may seem obvious now, but for a company that was not digitally native and had spent most of its history thinking about its customers monolithically, this pivotal insight ignited a transformation that has touched every aspect of how the company thinks about its customers and how it designs games tailored to attract and retain its best customers.

EAs culture has since matured to a point where it values data and creativity equally, recognizing that these two approaches are symbiotic. The game designers embrace the insights data provide about player engagement, which helps inform what specifically is working and what needs to improve in the games theyre producing. The studios arent necessarily living and breathing in data in the same way the data teams are, but they are using these insights as guideposts to help scaffold ideas as they brainstorm new game ideas.