If the past, by bringing surprises, did not resemble the past previous to it (what I call the past's past), then why should our future resemble our current past?
--Nassim Taleb, Philosopher and Essayist
Edge.org asked a couple hundred of the brightest scientists alive the question: “What scientific idea is ready for retirement?” I am no scientist, but rather a marketer, so I modified the topic slightly to match my particular métier.
My first nomination is the sacred cow, Lifetime Value (or LTV for short). Our e-commerce division PulseTV scrapped this marketing idea long ago for many reasons. The future is increasingly volatile and unpredictable with change happening at an ever quickening rate. You do not have to look very far to see huge disruptions all around. Think newspaper, publishing, catalog, music and home video industries to name just a few.
The more volatile and unstable the road ahead is, the less one can run one’s car by only looking in the rear view mirror. All LTV calculations involve a heavy dose of looking back at historical performance to project forward, and the LTV metric is increasingly used as a guide to determine what marketers can spend to acquire a customer.
The risk of course is that LTV is INHERENTLY built on shaky predictions of future performance. In a sense, when one uses the LTV metric, one puts a mortgage on acquiring that customer – this is a mortgage based upon assumptions that the future will resemble the past. AIG went bankrupt using that logic… credit card companies accumulated 30 percent in toxic debt using LTV. Columbia House wrote off $300 million when their LTV models did not pan out. Nobel Prize winner Myron Sholes went belly up using his algorithmic prediction of value.
The graveyard is filled with companies who went bankrupt believing the future would resemble the past. Instead of paying close attention to the present road conditions, LTV acolytes rely on the landscape in the rearview mirror.
LTV (as a marketing metric) holds on tight as a stream of charlatan service providers continue to present it as the most desirable of metrics to run marketing campaigns. And, of course, media owners from cable networks to Google press for LTV as much as possible. Google co-founder Avinash Kaushik is on record saying, “I reserve the best hugs, kisses, smiles, love, respect and my deepest admiration for Marketers and Analysts who use Lifetime Value computations!”
Those hugs, kisses and love precede Google putting on a condom to complete the act.
Simply put: the more of a mortgage marketers are willing to place on acquiring a customer, the more money goes into media coffers. Of course agencies snap to LTV as well, because they do not have to work as hard. The more money one is willing to lose in a customer acquisition strategy, the easier the agency’s job is. Money to acquire customers continues to lower the performance bar for agencies. The more marketers are willing to lose, the lower the bar to jump over.
We have media entities benefitting from ever-increasing customer mortgages. It is madness when you understand that we have an OVERWHELMING SUPPLY of media available to marketers. Media supply is escalating twice as fast as media demand. Customer acquisition costs SHOULD be declining faster than Gov. Chris Christie’s poll numbers. They can only be propped up thru a mass delusion and a situation where marketers have no skin in the game. Entrepreneurs with their own skin-in-the-game and put their own money at risk “get it.”
A far more useful – and dare I say profitable – metric to use in customer acquisition is a break-even analysis. But this involves understanding that growth should be secondary to profits – a novel idea in our 21st century economy.