Michael Schrage tells us that customer lifetime value is a problematic measure but to me his criticisms seemed to be unreasonable. I have one message for him: Don’t Expect Marketing Metrics to be Magical.
Overegging His Critique
Firstly, I think he may be overegging his critique for effect. We might all have sympathy with that. You need to say something controversial to get attention. An editor might encourage you to go a bit far, or perhaps the headline writer gets a bit overexcited. There seems likely to be a bit of that in his critique of CLV. “What most companies miss about Customer Lifetime Value” (Schrage, 2017) is a good title but he really isn’t clear enough on what companies are missing to use that title for my liking. Nor does he make a meaningful attempt to document that any companies are missing anything really.
Metrics Require Clear Logic, Shouting Loudly Doesn’t
Secondly, part of the problem with a short piece is that you end up missing keys parts of an argument. He notes that: “Innovation must be seen as an investment in the human capital and capabilities of customers” (Schrage, 2017). This statement isn’t properly supported but seems something I could nod along to. That said he follows it with:
“Consequently, serious customer lifetime value metrics should measure how effectively innovation investment increases customer health and wealth”
Schrage, 2017.
Beyond wanting to thank the author for giving me the image of non-serious, party-all-the-time CLV measures, this is not a cogent argument. The use of ‘consequently’ implies a logical link. Sadly nothing like a logical link is shown by the author. I agree innovation is (often) important. I also agree that CLV is associated with customers. Still there is no logical requirement for CLV to measure how effectively innovation investment increases customer health or wealth. (Again the terminology is a bit odd. You might have a CLV for many firms that don’t add to customer health at all. I have a vision of the author shouting at a cable company for not being more innovative in promoting their customers’ health. Maybe they should add random loud blasts to sports programs to encourage their customers to jump up off the couch). Basically Schrage waves his hands about, shouts a few apple pie comments and say consequentially. He forget to detail his logic.
You Should Calculate CLV Using Numbers, Not Good Intentions
There isn’t any discussion of numbers in his piece. How you would make the changes he suggests is unclear. I don’t see how you could without ending up with a giant mess of a metric. I have no idea how to do what he wants us to after reading Schrage’s piece.
Don’t Expect Marketing Metrics To Be Magical
The core problem I see is that Schrage wants CLV to do more than any metric could. Yes CLV doesn’t measure everything but why would you expect CLV to? Marketing metrics aren’t magical and you shouldn’t be too disappointed when you find that out.
For more on CLV see here.
Read: Michael Schrage (2017) What Most Companies Miss About Customer Lifetime Value, Harvard Business Review, April 18, 2017