Austin Brawner: What's up, everybody. Welcome back to another episode of the eCommerce influence podcast. My name is Austin Brawner.
Andrew Foxwell: And I'm Andrew Foxwell. And I tell you, man, I'm really loving the feedback that we've had from the Profit Series thus far. Really, really fun to hear from people and how it's impacting how they're thinking about things already.
Austin Brawner: Yeah, man. So am I. I'm excited. This is one of the things I'm most excited talking about. I love getting into kind of the nitty-gritty details of how to think about business from a strategy perspective. In episode one and episode two of the Profit Series, if you guys haven't listened to those, we were kind of talking about a roadmap for a more profitable business and a more fulfilling business. And then we talked about increasing average order value and what that can do for your business with a bunch of different tactics. And I'm fired up today because we're going into customer lifetime value and increasing frequency of purchases, which is something that I think is probably the most challenging and confusing part of this spectrum of what you can do to grow, improve your business, and become more profitable.
Oh, absolutely. I mean, I think from a tactical standpoint, it's one of those things that I... We have Facebook and Instagram ideas that we'll talk about today, but I think really you have a good understanding of fundamentally how you look at a business holistically, and it hearkens back to the podcasts that we did with Peter Fader. Give us an overview, or give me an overview too, of like what, how do you start thinking about how to increase lifetime value? How do you go about this in the right way?
Austin Brawner: Sure. Yeah. And this is where I think this is the most challenging thing to work on in your business because it starts with kind of a bigger strategy picture. And that is trying to figure out and decide if you're going to run a customer-centric or a product-centric business. And if this is all new to you, right, I would recommend going back and listening to the episode, we've done two episodes with Dr. Peter Fader, who's a professor of marketing at Wharton. And he's written a couple of books about this, customer-centricity. And basically the decision is, are you going to... I'm going to read the definition here because it's quite interesting. So a customer-centricity is a strategy that aligns the development and delivery of a company's products and services with the current and future needs of its highest-valued customers in order to maximize these customers' long-term financial value to the firm, or in other, if you simplify that down, it's you're building a business around your best customers and you're fulfilling their needs.
That's a customer-centric business. And you can think about Amazon is famously known as the world's most customer-centric business. That's what they want to be. Casinos are famously customer-centric. They're building a lot of their stuff around their whales, their best customers. On the flip side of that, we have the idea of product-centric, right? And a product-centric business is a business that organizes itself around one proposition, which is how can we sell as many products and services to as many faceless and nameless customers as possible. And you see this a lot in our industry. You see, especially when momentum kicks up and people... We've talked in other episodes about like once conversion spend hits and people are starting to really drive sales, often it can be in a way... You kind of forget about the other side of the transaction and the fact that every single person is different, that you're selling your product to.
And if you only have one product, it can be very easy to be product-centric because you don't have the different levels of products or services or offerings to give people to derive more value from your highest value customers. So that is kind of in a nutshell, the first strategic decision, which is customer-centric or product-centric. And I highly recommend being customer-centric.
Andrew Foxwell: Yeah, right. I think that that's an important delineation to make, customer-centric is clearly going to be a better longterm strategy. And it's going to be something that's going to allow your business to grow. Yeah, just more sustainably in the long term. So if we think about customer-centricity and think about that kind of mindset, what are some tactics to increase lifetime value thinking in the customer-centric playbook kind of?
Austin Brawner: Sure. So I think one of the reasons why this is the most challenging is because it all starts with customer acquisition and acquiring better customers. Like that's where you've got the best lever, right? The best lever is actually going upstream and figuring out where your best customers are coming from and acquiring more of those best customers. Because once they become customers, you can't really, it's very hard to turn a bad customer or a low-value customer into a good customer. It just doesn't work that way.
Andrew Foxwell: Right. Right.
Austin Brawner: So really, and this is why it becomes very challenging and why something like Facebook lookalike audiences, like value-based lookalike audiences, was so revolutionary and is so valuable. It's because they're helping you think about acquiring customers not based on demographics or personas, which are very, very limited, but based on value, and going and finding out where more of those are. So this is something that's actually relatively new, right? It was very challenging to do this type of stuff in social media marketing and until lookalike audiences and value-based lookalike audiences came about.
Andrew Foxwell: Yeah. Tactically I think there are two things there. One is that there's a value-based lookalike, which is off of your pixel data. So if you have a Facebook pixel, it looks at who's your most valuable customers. The other one is value-based lookalikes off of just sorting by those that have had more than three orders and have ordered a certain amount of dollar of product over a certain time period. And you take those and create a lookalike from them from Shopify. And it's just a static lookalike. So there are two versions of value-based lookalikes that are really valuable, or that work well, frankly. And it's something that if you start to actually tactically, get into that a little bit more looking at something like at this point, kind of like a three percent lookalike of those, or a seven percent lookalike of those.
That means it's three percent of the population of the country you're targeting, or seven percent of the population of the country you're targeting, seven percent of the whole population that looks most like those people and those are things that are sustainably... If you look across high growth campaigns, they're in there. They're integrated and they work. So that's one tactically that I think makes a lot of sense. I think the thing that I always have a challenge with on this Austin, that I think you're really good at explaining is, okay, so I want to find these high-value customers. I can use lookalike audiences to do that. Once they become a high-value customer, once they become really a high-value customer, how do you take that high-value customer and show them more advertisements that are going to... How do you get them to be even better? Like, what do you do from there? I guess is what I'm trying to ask.
Like, you bring them in, but then what do you do from there? Like how do you... One idea I know people talk about and that you and I have talked about is thank you notes. What are other things that really you can do to bring that forward?
Austin Brawner: Well, I think from more of a like stepping back and more of a strategic point of view, when you think about making the decision to focus on acquiring like high-value customers and running your business around as customer-centric, then you have to start thinking about more than just marketing tactics. And you have to start thinking about rolling out product offerings that support and are tailored towards your highest value customers. Now, the example of that is like so premium offerings or going upmarket. Like if you look at what your best customers are purchasing and you then create other products related to those, related to what they want and offer premium offerings, that's a way to be able to move up the value chain and provide them with things that they might want to purchase. I think merchandising is incredibly important at this point.
Like I look at this with all my clients. Often when I see a high growth story coming in, they have a flashy product that's working and they're selling and they're able to like convert really quickly. And the difference is if they're able to then roll out other products that support that and are of interest and value to the high-value customers they've acquired, right. That 20 percent of their customers are going to be more likely to spend more and be more profitable to the firm going forward.
Andrew Foxwell: Yeah, I think product offering that's true and the complementary product offering. And then I think other people go in the direction of loyalty programs or something like that. What's your feeling about loyalty programs personally? I mean, in looking at businesses, do you feel like that's a good way to increase customer lifetime value as well?
Austin Brawner: So I think loyalty programs get like a really bad reputation.
Andrew Foxwell: That's why I asked, right.
Austin Brawner: Yeah, not being that valuable, right? They're definitely something that can work in certain scenarios, but they're definitely not like huge drivers. Like if you're looking at the difference between a loyalty program, at boosting lifetime value, or focusing your customer acquisition efforts on better acquisition, right? Like you look at... So there's a famous story about Jeff Bezos, right? Jeff Bezos was interviewed about why Amazon started selling books initially. And he was interviewed and said, "Well, books are a really good proxy for affluent people."
Andrew Foxwell: Right. Right. Right.
Austin Brawner: "And we can sell these books. And all I'm trying to do is get into the hands of the affluent person. And then from there, we'll sell everything else." So, basically when you look at a loyalty program, if you don't have high-value customers in the loyalty program, it's not going to make much of a change to your business. That's why I think it gets a little bit of a worse reputation or something as kind of not being that valuable. It's not something that's not going to move the needle at all. But I would say where there's more value is in introducing some sort of a like subscription element to your business. Or it's also in Dr. Fader's book, but Best Buy is a really good example of a company. All their competitors basically went out of business, Circuit City, like bankrupt. They're wiped out.
But Best Buy has consistently performed and actually from like 2012 to 2017 was like, boom, during this time, while at the same time fighting against Amazon in a very commoditized space. And one of the main reasons was that they identified within their audience they had, I think it was like 55 percent of their customers were primarily women who were looking for more than just the lowest price technology option. And so what they did is instead of focusing on just purely like selling more stuff to people, they focused on let's look at that audience and let's develop services that will assist those people in setting up the product, in identifying the right way for themselves, and-
Andrew Foxwell: Right. And that's why they got Geek Squad.
Austin Brawner: That type of rollout is something that works really well to be able to support a product that you have.
Andrew Foxwell: Yeah. The interesting thing about that to me, it makes sense. And I think that the core of it, which is clear, and I think a lot of us... Well, let me back up. I think a lot of businesses that I work with, one of the challenges they have around lifetime values, what you said, is they get in this flywheel, they're selling products and they're just continuing that road, and they're just getting it out the door. Where you'd see people truly being more strategic is when they're looking at the data and they're saying, "Here's what the top customers are doing, and here's their behavior. And now we're going to model it off of that," which is what we're talking about, being more customer-centric. Product offering, a subscription model is another way to do that, which I think we should get into a little bit more, complimentary products and telling that story about the top customers because that's going to have trailing effects through other people mostly as well.
I had heard that there's a jewelry company that I had worked with and they rolled out a subscription part of their business. And I had heard that of their customers, 30 percent of the customers took the subscription model. And probably those are some of the most valuable people obviously, right? Because there are already in the subscription model. So I think it's an understanding of looking at not just getting it out the door, but looking at data to tell you the story and trying to understand that narrative. And I think some of that comes with research too. I think one thing I've heard people do and we've helped customers. I'm sure you have too, which is reach out to their best customers and say, "Let's talk. What motivates you? What do you like about this? What do you not like about this?"
Blenders famously did this when they released snow goggles. They surveyed their top customers. This is back when we were working with them and it was amazing. "Here are some styles," and really the style people were looking for in snow goggles was much edgier than I think we thought at that time. So stuff like that is always good. And data really is what tells the story there.
Austin Brawner: You look at some of the businesses that are going to be successful, like from a... We're here in 2020. And we're in a time when a lot of things are consolidating off, out of brick and mortar into the online space. Amazon is an absolute juggernaut. And when you're building your business and you're thinking about ways that you're going to compete in the future, and ways you're going to be successful as you move forward. It's really, really, really hard to compete unless you decide to be customer-centric. Right. And you decide to start rolling out-
Andrew Foxwell: Totally.
Austin Brawner: ...some of these things.
Andrew Foxwell: Absolutely. Right.
Austin Brawner: Because if you're competing with the commodity, right, everybody can go and search for the cheapest price and purchase it. And that's really where I think for this sort of thing, besides like some basic tactics, it's all about customer acquisition. It's all about finding... There's a couple of things that you can think about too within your own business, often referrals are going to be your highest value customers. Because why does that happen? Well, the people that are going to be referring are the ones that are typically your best customers. They're the ones that are happiest and they're going to refer other people that are like them, who know, like, and trust them. So that's just a strategy to acquire more of your best customers. That's kind of how I like to tell it.
Andrew Foxwell: How do you go about a true referral strategy? I mean, the way that we've done it before with ads is we'll say to our... We'll launch an ad to the best customers with some sort of referral landing page that these people say, "Hey, share this code with your friends." Right. And it's like a family 20 or something like that. That's one simple strategy we've done. I know that there are others that are much more complex in terms of referral. Like each person that's a really big VIP customer, they get their own codes and stuff like that, campus ambassador programs, things like that. Like how do you build this properly to increase referrals to then increase lifetime value?
Austin Brawner: Sure. I mean, I think first comes down to, is your company and your product a referable product? Asking that question, right? And this is where I get very frustrated around tactics because tactics are only as good as the fit that they have with your business. Right? If you run a spy equipment company, a referral program is not going to be successful.
Andrew Foxwell: No, it's not.
Austin Brawner: Tell you that right now.
Andrew Foxwell: It's going to be a little awkward, frankly.
Austin Brawner: It's going to be very awkward. But if you have identified that you have a company that could be potentially viral from referrals or the best way to figure that out is if you're running something like an inquire post-purchase survey or a post-purchase survey, and you find that a lot of your customers are finding you through word of mouth, I would say, then you've decided, "Okay, this is already happening. Let's grease the wheels to make this a little bit easier." At that point, you can put together some sort of a two-sided referral program as you talked about that is providing the person who shares it with something as an incentive and the person who is the new customer as an incentive as well. And you can use something like Talkable is a great tool to do that.
Andrew Foxwell: Oh yeah, Talkable. We've had people work with that tool before. Sure. Cool.
Austin Brawner: Yeah. That would be first and foremost. Like, does your product work for that?
Andrew Foxwell: I think it's getting into a little bit more of like some Facebook tactics too. Thinking of, one thing we've done is looking at increasing lifetime value, looking at people that have ordered in quick succession and then advertising to them a stronger deal. So, going in and saying, all right, like these people ordered X, and then when did they order and trying to look at the correlation between that and if they ordered quickly as they got it, they liked it. They wanted more. And then going back to them with a Facebook ad or an Instagram ad and something really strong. We've also done a lot of founder videos, particularly on Instagram stories, and Instagram feed, saying thank you to those high dollar customers and saying, "Reach out to me, here's my private handle. Let me know what you think." That kind of personal touch we've done as well in terms of increasing lifetime value.
Austin Brawner: Thinking in terms of like access is a great way to-
Andrew Foxwell: Access, like absolutely.
Austin Brawner: How do you-
Andrew Foxwell: Making them feel VIP.
Austin Brawner: Yeah. Really a great model is just to take a look at what the casino, what the most customer-centric businesses are doing, and think about how does that match up with what you guys are doing?
Andrew Foxwell: Totally. Totally.
Austin Brawner: A lot of times you can have, you could put together some really incredible event for your top customers and just invite them out.
Andrew Foxwell: Right. Another good one.
Austin Brawner: And maybe you don't necessarily make a bunch of money on that event, but you're able to connect with them and they can then go back and become ambassadors for what you're doing. Those are all just different things. There are also like other ways to model this a little bit that can be a little bit challenging where it's not, it's almost all about customer lifetime value, but sometimes there are other things that are a little bit harder to model.
Like if somebody is really crazy referring you and they're not spending that much, but they're referring a lot of people, that's actually another high-value person as well. But again, the last thing I'll say is that the only like the tried and true thing you can do is set up life cycle marketing through email, and now through SMS. We would recommend both those things. And look at sending the right message to the right person at the right time. And you can install something like a discount ladder, which as somebody makes their first purchase, then they go through a series of marketing messages that go from zero discounts, just following up about products and second purchases, to slowly increasing that over time, to try to figure out if you can hit the threshold of somebody making a second purchase without giving up a large margin. And that's something you can do kind of consistently.
Andrew Foxwell: Love it.
Austin Brawner: I think the first step is just really to get clear about what customer centricity if that's right for your business and think about what you can offer.
Andrew Foxwell: Well, Austin, I think this has been super helpful, man. I really appreciate it. And I look forward to hopefully having this help people out. And if you have questions or other things that you think are good in terms of increasing customer lifetime value, we'd love to hear it.
Austin Brawner: And if you are interested in the book, let me... The book is by Dr. Peter Fader. I think it's called The Customer Centricity Playbook. I'll put it in the show notes, at ecommerceinfluence.com. I'll talk to you guys later.