Podcasts about theta equity partners

A CMO Confidential Interview with Dr. Dan McCarthy, Professor of Marketing at Maryland. Dan returns for the third time to share research on the food delivery business and how marketers can "bend the growth curve" by implementing a subscription model. He discusses the engineering behind various subscription models and why most marketers should "at least" consider these programs. Key topics include: the difference between "promiscuous" and "heavy" buyers; balancing the "give versus the get," and how AI may drive the implementation of more models. Tune in to hear why charging for membership is a good idea.Are subscription models the future of business growth?

Today's episode looks at some of the recent work by Daniel McCarthy, Assistant Professor of Marketing at Emory University's Goizueta Business School. Interestingly, Daniel's work straddles the academic and private sectors. Daniel's work with Wharton Professor Peter Fader on CLV (Customer Lifetime Value) at Zodiac was so valuable that Nike bought the company, and together they have developed innovative concepts such as CBCV, Customer-Based Corporate Valuation, with their new company, Theta Equity Partners. In this discussion, Daniel shares insights from his research on the after-effects of COVID on consumers, the value of subscription strategies and programs, and of course the value of CLV and CBCV and its uptake by investors, companies and the students he teaches at Emory University. Hosted by Phil Rubin. Show Notes 1) Daniel McCarthy 2) Emory University 3) Daniel McCarthy - Website 4) Theta 5) Paper on COVID's impact 6) Phil Rubin 7) Grey Space Matters

I've always had a proclivity for marketing and curiosity for patterns. When I met marketing Professor Pete Fader, I didn't realize what a big impact he would have on my career. At 26, he was one of the youngest professors at the Wharton School, and 10 years later had become one of the school's favorites - teaching undergrad, MBA, and pHd students. His research first focused on consumer products, but then shifted into the music and entertainment industry where he served as an expert testifying on behalf of Napster in the late 90s. As a professor, he engages his students to really think about customers in a way that most people don't - NOT every customer is the same. Some are far more profitable than others. So how do you lead your organization to truly understand and focus on customer centricity? Pete collaborated with some of his pHd students to help companies do just that.With two successful data-driven businesses under his belt and 35 years at the finest business school in the world, we have much to learn from this humble leader who likely will never forget your phone number. coolnumbers.com

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Pete Fader is the Frances and Pei-Yuan Chia Professor of Marketing at The Wharton School of the University of Pennsylvania. His expertise centers around the analysis of behavioral data to understand and forecast customer shopping and purchasing activities. He works with firms from a wide range of industries, including telecom, financial services, gaming/entertainment, retailing, and pharmaceuticals. He's the author of Customer Centricity: Focus on the Right Customers for Strategic Advantage and co-authored The Customer Centricity Playbook with Sarah Toms.Pete co-founded a predictive analytics firm (Zodiac) in 2015, which was sold to Nike in 2018. He then co-founded and continues to run Theta Equity Partners to commercialize his more recent work on “customer-based corporate valuation," a simple but powerful idea, that you can value any company by adding up the value of its individual customers. He has won numerous awards for his research and teaching accomplishments. Among these achievements, he was named by Advertising Age as one of its inaugural “25 Marketing Technology Trailblazers” in 2017, and was the only academic on the list. In this podcast he shares: What customer lifetime value is, and why it should be the central driver of your strategy A challenge to the idea that you should treat all customers equally well The first set of steps you should take to begin becoming a truly customer-centric business __________________________________________________________________________________________"Of the portfolio things we sell, here's the next thing that you should buy. That's not customer centricity. I mean, it can be if they love us, and they really do want to buy all of our things in sequence, but in a lot of cases, that's not the way it works. So it really is figuring out who are those valuable customers? And what are their broader wants and needs beyond just the stuff that we sell to them?"-Pete Fader__________________________________________________________________________________________Episode Timeline:00:00—Introducing Pete Fader + The topic of today's episode2:05—If you really know me, you know that...2:38—What is your definition of strategy?3:21—What are you most known for?4:37—Could you define customer centricity?6:00—What's a company that models being customer-centric well?9:15—How do you identify who the most valuable customers are? 15:05—Can B2B companies apply these principles as well? 17:57—What's something that you've changed your mind about?19:05—What last thoughts do you want to leave us with?__________________________________________________________________________________________Additional Resources:Twitter: https://twitter.com/faderpLinkedIn: https://www.linkedin.com › peterfaderFaculty Page: https://executiveeducation.wharton.upenn.edu/faculty/peter-fader/

Pete Fader is the Frances and Pei-Yuan Chia Professor of Marketing at The Wharton School of the University of Pennsylvania. His expertise centers around the analysis of behavioral data to understand and forecast customer shopping and purchasing activities. He works with firms from a wide range of industries, including telecom, financial services, gaming/entertainment, retailing, and pharmaceuticals. He's the author of Customer Centricity: Focus on the Right Customers for Strategic Advantage and co-authored The Customer Centricity Playbook with Sarah Toms.Pete co-founded a predictive analytics firm (Zodiac) in 2015, which was sold to Nike in 2018. He then co-founded and continues to run Theta Equity Partners to commercialize his more recent work on “customer-based corporate valuation," a simple but powerful idea, that you can value any company by adding up the value of its individual customers. He has won numerous awards for his research and teaching accomplishments. Among these achievements, he was named by Advertising Age as one of its inaugural “25 Marketing Technology Trailblazers” in 2017, and was the only academic on the list. In this podcast he shares: What customer lifetime value is, and why it should be the central driver of your strategy A challenge to the idea that you should treat all customers equally well The first set of steps you should take to begin becoming a truly customer-centric business __________________________________________________________________________________________"Of the portfolio things we sell, here's the next thing that you should buy. That's not customer centricity. I mean, it can be if they love us, and they really do want to buy all of our things in sequence, but in a lot of cases, that's not the way it works. So it really is figuring out who are those valuable customers? And what are their broader wants and needs beyond just the stuff that we sell to them?"-Pete Fader__________________________________________________________________________________________Episode Timeline:00:00—Introducing Pete Fader + The topic of today's episode2:05—If you really know me, you know that...2:38—What is your definition of strategy?3:21—What are you most known for?4:37—Could you define customer centricity?6:00—What's a company that models being customer-centric well?9:15—How do you identify who the most valuable customers are? 15:05—Can B2B companies apply these principles as well? 17:57—What's something that you've changed your mind about?19:05—What last thoughts do you want to leave us with?__________________________________________________________________________________________Additional Resources:Twitter: https://twitter.com/faderpLinkedIn: https://www.linkedin.com › peterfaderFaculty Page: https://executiveeducation.wharton.upenn.edu/faculty/peter-fader/

Welcome to the The Voice of Retail , I'm your host Michael LeBlanc, and this podcast is brought to you in conjunction with Retail Council of Canada.On this special episode I am thrilled to be sharing an excerpt from the most popular Remarkable Retail podcast of our third season, where my podcast partner & best selling author Steve Denis and I interview Daniel McCarthy, professor of marketing at Emory's Goizueta Business School, co-founder of Theta Equity Partners and pioneering thought leader on customer-based corporate valuation. It's a fast-paced MasterClass on how the cost of acquisition, retention rates and other customer cohort data provide valuable insight on the long-term prospects of any retail brand. Thanks for tuning into today's episode of The Voice of Retail.  Be sure to subscribe to the podcast so you don't miss out on the latest episodes, industry news, and insights. If you enjoyed  this episode please consider leaving a rating and review, as it really helps us grow so that we can continue getting amazing guests on the show. I'm your host Michael LeBlanc, President of M.E. LeBlanc & Company, and if you're looking for more content, or want to chat  follow me on LinkedIn, or visit my website meleblanc.co! Until next time, stay safe and have a great week! Michael LeBlanc  is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice.   He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career.  Michael is the producer and host of a network of leading podcasts including Canada's top retail industry podcast,       The Voice of Retail, plus        Global E-Commerce Tech Talks  and       The Food Professor  with Dr. Sylvain Charlebois.  You can learn more about Michael       here  or on       LinkedIn. 

As pioneering digitally-native brands Warby Parker and Allbirds prepare to go public--and the fortunes of other highflying disruptor retailers like Peloton and Chewy ebb and flow--we get the chance to dissect how to make sense of key customer metrics with Daniel McCarthy, professor of marketing at Emory's Goizueta Business School, co-founder of Theta Equity Partners and pioneering thought leader on customer-based corporate valuation. It's a fast-paced MasterClass on how the cost of acquisition, retention rates and other customer cohort data provide valuable insight on the long-term prospects of any brand. We also learn whether Dan is bullish on Warby Parker, why we may not work so hard to chase "shifty" customers (or as Steve likes to call them "promiscuous" shoppers) and drop more than a few puns.But first we open up the episode with our quick takes on recent retail news that caught out attention, starting first with even more Amazon news than usual, including their new line of private brand televisions, plans to hire 125,000 distribution center staff, raise hourly wages and pay college tuition for their workers. We also dig into spending per trip information from NPD, monthly US Commerce data that shows consumers continue to shop like crazy, troubles at Casper, Walmart+ hitting 32 million members and the sad story of Sears closing its last Illinois store.NOTE: We're now back to regular weekly episodes.Also check out our newish   YouTube channel.Daniel McCarthy is an Assistant Professor of Marketing at Emory University's Goizueta School of Business. His research specialty is the application of leading-edge statistical methodology to contemporary empirical marketing problems. His research interests include customer lifetime value, limited data problems, and the marketing/finance interface.He popularized “customer-based corporate valuation” (CBCV), a methodology that drives any traditional valuation model off of the underlying behaviors of the target company's customers. His work has been featured in major media outlets such as the Harvard Business Review, Wall Street Journal, FT, Fortune, Barron's, Inc Magazine, the Economist, and CNBC. His research has been accepted and published in top-tier academic journals and has won numerous research awards.In addition to his roles and responsibilities at Emory, Dan co-founded and was Chief Statistician for Zodiac, a predictive customer analytics SaaS firm. Nike acquired Zodiac in March 2018. Dan has since co-founded Theta Equity Partners to revolutionize how firms (e.g., private equity, venture capital, and operating companies directly) value companies through CBCVSteve Dennis is an advisor, keynote speaker and author on strategic growth and business innovation. You can learn more about Steve on his       website.    The expanded and revised edition of his bestselling book  Remarkable Retail: How To Win & Keep Customers in the Age of Disruption is now available at  Amazon or just about anywhere else books are sold. Steve regularly shares his insights in his role as a      Forbes senior contributor and on       Twitter and       LinkedIn. You can also check out his speaker "sizzle" reel      here.Michael LeBlanc  is the Founder & President of M.E. LeBlanc & Company Inc and a Senior Advisor to Retail Council of Canada as part of his advisory and consulting practice.   He brings 25+ years of brand/retail/marketing & eCommerce leadership experience, and has been on the front lines of retail industry change for his entire career.  Michael is the producer and host of a network of leading podcasts including Canada's top retail industry podcast,       The Voice of Retail, plus        Global E-Commerce Tech Talks  and       The Food Professor  with Dr. Sylvain Charlebois.  You can learn more about Michael       here  or on       LinkedIn.  Please drop us a rating and review wherever you subscribe to your podcasts and be sure to check out our newish YouTube channel. 

As loyalty marketers, it's essential that we have access to both the financial models and the financial language we need to educate senior executives on the incredible value generated from our loyal customers, and ensure that our customers are valued as the "strategic asset" they are. Academic leaders such as Peter Fader, Professor of Marketing with the Wharton School at the University of Pennsylvania, are increasingly helping both companies and investors to understand the future lifetime value of customers (not just historic revenues) when valuing a firm. This work has led to innovative concepts such as "Customer Based Corporate Valuation" (CBCV), an industry-leading concept that will undoubtedly become an essential framework for future loyalty marketers. Listen to learn about Professor Fader's fascinating work across the loyalty industry with implications for both the academic and business sides of our industry. Show Notes: 1) Professor Peter Fader, Professor of Marketing, the Wharton School of the University of Pennsylvania 2) Harvard Business Review - Jan/Feb 2020 issue articles - "The Loyalty Economy." 3) Theta Equity Partners 4) Customer Centricity: Focus on the Right Customers for Strategic Advantage - 2012 Edition (New Edition Scheduled July 2020)

In this episode, Hall welcomes Daniel McCarthy, Co-Founder of Theta Equity Partners and Assistant Professor of Marketing at Emory University. Founded in 2018, Theta Equity Partners is a Seattle, Washington-based valuation services firm. The firm specializes in customer-based corporate valuation that prefers valuing firms by forecasting their current and future customer's behavior and predicting their future financials. Theta Equity Partners caters to private equity and venture capital firms, corporations, and public equities. Daniel is an Assistant Professor of Marketing at Emory University's Goizueta School of Business. His research specialty is the application of leading-edge statistical methodology to contemporary empirical marketing problems. He popularized “customer-based corporate valuation” (CBCV), a methodology that drives any traditional valuation model off of the underlying behaviors of the target company's customers. His work has been featured in major media outlets such as the Harvard Business Review, Wall Street Journal, FT, Fortune, Barron’s, Inc Magazine, the Economist, and CNBC. His research has been accepted and published in top-tier academic journals and has won numerous research awards.  In addition to his roles and responsibilities at Emory, Dan co-founded and was Chief Statistician for Zodiac, a predictive customer analytics SaaS firm. (Nike acquired Zodiac in March 2018).  Daniel advises investors and entrepreneurs, shares how he sees the industry evolving, and discusses some of the challenges startups face. You can visit Theta Equity Partners at , via LinkedIn at , and via Twitter at .  Daniel can be contacted via email at , via LinkedIn at , and via Twitter at .  Music courtesy of .

Today Let's Talk Loyalty looks at how loyalty as it's evolving academically as I interview Assistant Professor of Marketing at Emory University, Dan McCarthy, who researches key marketing topics that loyalty marketers love, such as customer lifetime value.  McCarthy now writes and lectures extensively on customer lifetime value as well as a new concept "customer based corporate valuation" and his work appears in major academic and business media outlets including the Harvard Business Review, Wall Street Journal, FT and CFO Magazine. In addition to his academic career, he has extensive commercial experience supporting companies like Nike with their customer insights and strategies. His latest company Theta Equity Partners is also successfully commercialising his knowledge of customer loyalty. In this interview, he also shares his latest insights on the Pareto Principle as well as the consumer behaviour changes he sees emerging in early statistical data as a result of Covid 19.  Listen to this latest episode of "Let's Talk Loyalty" to hear the latest insights from the academic world of loyalty marketing. Show Notes: 1) Daniel McCarthy of Emory University - Assistant Professor of Marketing at Emory University 2) Twitter: @d_mccar 3) Harvard Business Review January 2020 Report - The Loyalty Economy 4) Theta Equity Partners 5) Professor Byron Sharp 

This is a rare two-part set of free episodes of Marketing BS. My guest today is Peter Fader, professor of marketing at the Wharton School at University of Pennsylvania. Peter was one of my early marketing mentors and I loved this interview. In Part 1 we talk about Peter's career as a marketing academic and how he came to his signature theories around how one understands the value of a company's customer base. Tomorrow we will dive deeper into those theories.You can subscribe to the podcast in your player of choice here: Apple, Sticher, TuneIn, Overcast , Spotify. Private Feed (for premium episodes).TranscriptEdward: This is Marketing BS. My guest today is Wharton Professor, Peter Fader. I consider Peter one of my founding mentors for helping me understand how marketing really works. His most important contribution to marketing, in my opinion, is that you can model future customer purchases by assuming that your customer base is made up of a heterogeneous group of customers—each with their own intrinsic purchase rate and churn rate. And that those same models can be used in radically different businesses and industries to create extremely accurate predictions. Most importantly, because these predictions are accurate, it should influence what your actual actions are to grow your business sustainably.Today, we're going to talk about Peter's career and his intellectual path to this important idea. Tomorrow we'll dive into the idea itself and how it can be used for marketers in practice.Peter, can you start by talking a little bit about how you first started exploring the idea of Buy ‘Til You Die?Peter: Sure thing, my pleasure to do so. It's funny because that characterizes my career. That's what I'm most famous for. But (A) it's not my idea, and (B) it didn't even come to me until long after I was a full professor here at Wharton.I've been building all kinds of different models of customer behavior. How many customers will we acquire, how long will they stay, how many purchases will they make, and all that sort of thing. All the time looking at different data sets, thinking about different business settings, and saying, what would be a story? What would be a model that could capture and then project that kind of behavior?Back in 2001—again, I had been a professor here for 14 years already—I was building a model to capture a phenomenon that we see all the time. They did a customer-slow-down as they gained tenure with the company. It's pretty universal. I built a bespoke model to capture that and it was good, it was fine. I got the thing published. But along the way, one of their viewers was saying, you want to benchmark your model against this Buy ‘Til You Die model. Something that was invented back in 1987. But it was really technical, it was really obscured, so I thought it was an unfair request.I went to the editor of the journal and said, don't make me do that. Don't make me benchmarking that old obscure thing. And the editor agreed that I didn't have to. But I wasn't sure he would. I actually did benchmark the models that I was developing against these older ones and found that the old ones were much, much better.It doesn't show up in that paper. I then decided to devote the rest of my life, or at least the next 18 plus years, to exploring that other model—Buy 'Til You Die. Why it's so good, different variations of it, different applications for it, different motivations, and different managerial stories around it. That's basically all I've been doing since then. Taking someone else's model and running with it, calling attention to it, and finding some reasonable success with it.Edward: When did you realize that it was close to a fundamental law and not something that just might explain some of the data some of the time?Peter: Because I took it and started applying it to lots of other data sets. Again, this was more out of curiosity than necessity. That's just what we do as scholars which is just try things out. I wasn't only looking at the breadth of applications, I was looking at the robustness even for any one application. The idea that we don't have to have a long data set, and even if we have a shorter and shorter data set, if there is missing data, or if we don't have the same inputs that we get pretty much the same results.It started convincing me that this is more than just a cute model. It started convincing me that this is actually reality. I know that it's not—and I'm going to lose all credibility with you and your listeners here—but I'd like to make an analogy between this. Brace yourself—the theory of relativity. We all view that the theory of relativity, E=mc2, and all that stuff, we treat it as if it's true. It's not. It's just a theory. It's just a model. But the thing is it's so robust and explained so many different phenomena, even phenomena that weren't observable 100 years ago when Einstein was putting these ideas out there. But we just keep seeing it “proven” over and over and over again that we just treat it as truth.Now, I don't want to say that these BTYD models have anywhere near the implications, the importance, the cosmic explanations as relativity. But I think they're similarly robust and people would just be better off viewing them as if they were true instead of spending so much time pushing back and saying why their situation is different, why the implications don't apply, and why the world is changing. Let's just accept it as truth and our life as managers would be much easier and much more successful.Edward: But I want to go back a little bit to the path that got you here. I have a theory that things people do when they're 12-14 years old affect them for their entire lives. Where were you passionate about at that age? How did those things affect your later career?Peter: Oh my goodness. Wow, a bunch of different things, all really nerdy. The one that was most normal would have been baseball. At that time—I'm embarrassed to admit this, you're getting all this bad stuff out of me, Ed—I was a huge Yankee fan. I've repented since then. I've seen the folly of my ways. I was really, really, really into baseball statistics. Unfortunately, this was before anyone had heard of Bill James, sabermetrics, or Moneyball. All of that stuff was still years, years later. But I was almost—I don't want to say—inventing some of those kinds of things but I was thinking very much along those lines. How can we take the game of baseball and break it down into its underlying components, understand those things, and really focus on the underlying story rather than just the overall observable statistics? I was obsessed over that as I still am today. The other thing is kind of weird. I've always had an obsession with dollar bills with interesting serial numbers. Mom would come back from the grocery store and I would immediately go through her dollar bills. I would say, this one on a 0-100 scale, this one gets a 60. This one, maybe a 40. This one here, that's a 95. I'm going to keep that one. I was just always obsessed with interesting numbers, interesting serial numbers.Finally, when the whole internet thing started, I bought the domain name coolnumbers.com, and still own it today. That's all that site does is you put in any 8-digit number like a dollar bill serial number and it will tell you on a 0-100 scale how cool it is on my own quirky, arbitrary, don't even try to figure out universal coolness index. It's surprisingly popular. There's a lot of other nerdy people out there, or at least with too much time on their hands. That's the kind of stuff that I was doing. Just looking for patterns in data, but without any particular purpose or societal benefit. I'm really lucky that I finally found some meaningful purpose.Edward: I'm glad that you're working for good and not evil because I think on the website, you can enter your Social Security numbers. I'm sure people are doing that every day as well.Peter: Well, right now you can only put on 8-digit numbers. I'm waiting for some kind of undergrad or someone else. Maybe one of your listeners with too much time on their hands to help me flesh out cool numbers. You could deal with, let's say, a Social Security number, a 9-digit zip code, or whatever else. I got the algorithms all worked out. I just need someone to do all the coding.But thank goodness, I haven't wasted that much more time on it over the last 20 years. I had better things to do.Edward: You went to college for mathematics, but then you did a Ph.D. in marketing. Why did you switch?Peter: It wasn't my choice. There are very few people who say, Mommy, I want to be a marketing professor. It doesn't come up on career day when you're in middle school. It's an interesting story by itself because I indeed was just a solid math major. All I liked doing was crunching numbers, playing around with integrals, and all that sort of stuff. I didn't know what I would do for a living. I figured either end up as an actuary—calculating risks for insurance companies, I'd go to Wall Street, or maybe I'd go work for the NSA and break codes or whatever else.I was exploring all of these different options until this one professor, this marketing professor, her name is Leigh McAlister. She's still very active today at the University of Texas now, not MIT where I first met her. She came to me one day back in 1982 and said, you ought to be a marketing professor. You ought to get your Ph.D. in marketing. I looked at her and said, you ought to get your head checked because I'm a math guy, I'm not going into marketing. But she laid out this vision—again, keep in mind this was 1982, that's like 500 years ago.Edward: That's before finance was even getting into mathematics, let alone marketing.Peter: But she laid out this picture of what marketing would become. She was exactly right. That there will come a day when we'll be able to tag and track individual customers, know what they're doing, and then get some sense of which message we should send to which customer at which time. We're going to need rock-solid math underneath all that to figure it out, to make these decisions, and to evaluate those decisions. I didn't believe her, but she was very persuasive and she forced me to get a Ph.D. She literally—I'm not exaggerating—forced me to take this job offer at Wharton. I had offers from lots of other good schools, but she said, “Wharton is the place for you. It will have the people, the resources, the culture to let you pursue your quantitative passions in this domain.” And here I am. Now, this is year 34 on the faculty, calling her up every 6 months or so, saying thank you, thank you, thank you. She did change my life by pushing me in a direction that, again, I would have never imagined, and even actively resisted at that time. But boy was she right on every one of these dimensions. My whole life is just paying it forward to her in every way possible.Edward: If you hadn't met her, where do you think you would have ended up?Peter: Either a Wall Street firm or again maybe an actuarial firm. I took the first bunch of exams that actuaries take. I did an internship with an insurance company. I could see that there was some alignment there, but at the same time, it's not an industry that lends itself to creativity.I want to come up with new models, new explanations, new stories, just new methods. Whereas in insurance, even on Wall Street, and most of these other domains, it's once you have the way of doing things. It's just shut up and do it. I would have ended up doing one of those kinds of things. Maybe I would have been happy, who knows? I like to make myself happy no matter what's going on.But nothing could make me happier than the path that I followed. To have the colleagues, the resources, the incentives to come up with new stuff, and then brilliant students, including people like yourself who have taken some of those ideas and run with them, whether in academic directions or in commercial directions. I've just been super lucky to ride their coattails academically and commercially to find success both ways.Edward: Long before Buy ‘Til You Die, your first significant research was into strategies in a generalized prisoner's dilemma. What exactly did you find?Peter: Wow. That's a blast from the past. My dissertation at MIT—very few people know this because I tend to focus on all these predictive models of customer behavior and so on. But my dissertation couldn't have been more different.Indeed, I was looking at the prisoner's dilemma. I'm assuming that many of your listeners are familiar with it already. If not, they can search for it. There's so much out there on it. There's a lot of people who have been trying to “solve the prisoner's dilemma,” coming up with strategies that would be very effective in this very simple two by two game. Do I take the temptation to rat out that person, cut-price, or do the nasty action; or will I be good?The problem with the basic prisoner's dilemma, as they just implied, is that it has two players—me against you, and only have two alternatives because each of us does the aggressive tactic or the kind of nice tactic. Solving it, in that case, is fine but not very practical because in the real world, there's going to be lots of other complications, and let's just focus on two of them.Number one, there's going to be multiple players out there. There's going to be three or more firms. In fact, just moving from two to three is a giant leap forward because all of a sudden, if person number three does the nasty thing, what do I do? Do I wait for you—the nice guy, or do I respond to the nasty one? It's very, very complicated and we start getting all confused because if I react to him, then you react to me, and you get into this downward spiral.Number two, there can be multiple alternatives. Not just do you do the thing or not, but it can be shades of gray. You can be setting prices or discounts or even oil output levels if you think about OPEC. The generalized prisoner's dilemma that I put forth had a continuous range of alternatives. It was a price-setting and three players. It generalized, it built upon all the basic ideas of the textbook, two by two prisoner's dilemma. But it added all kinds of interesting complications, yet it still lent itself to some surprisingly robust strategies. Strategies that I explored in my dissertation. We've seen an interesting range of examples in business, in sports, and in life itself, where some of these strategies do tend to play out and lead to effective outcomes.Edward: In addition to your research, you've co-founded a few companies. Talk to me about Zodiac and how that happened.Peter: This goes right back to something I was saying a few minutes ago, which is riding the coattails of brilliant students both in the academic direction as well as the commercial. It's building out this Buy ‘Til You Die model, and they're really good. They worked really well. But most of the time, I was either just working on academic stuff to try to come up with new tweaks of them or just going to companies and trying to give them the academic version saying, here you ought to use this. Here, this model is good for you. Here's the code. Here's the spreadsheet. Here's the technical note. Here are some case studies. But the problem is, companies either found it a little bit too academic, or the kinds of data they were looking at was just so messy, so complex, or so large that the academic versions just weren't quite right for them. Back in late 2014, I had a conversation with one of my brilliant undergraduates. He basically had some ideas to make the models much more practical—to be able to run faster, to be able to run just much more efficiently. Brought in a couple of other folks, and we founded this company. First, we called it CLV Metrics—Customer Lifetime Value Metrics—kind of a lame name. And then we decided, you know what, we're getting such good traction on it. Let's make it real. We brought in some venture capital money. We started hiring a whole team. We changed the name to Zodiac, and it was a wonderful success.We work with a wide variety of firms. Whether it's retailers, travel and hospitality, telcos, gaming, pharmaceuticals, or lots of different B2B applications and different kinds of services. Just applying this Buy ‘Til You Die model in a wide range of scenarios and finding all kinds of success, all kinds of interesting tactical-use cases—it was really great. But of course, talking in the past tense, because in 2018 one of our clients came along and said, we want it all, and that client was Nike. We sold to Nike in March 2018, which again, was a wonderful outcome by itself, but also a tremendous validation for the usefulness, not just the academic interest in this, but the commercial usefulness of the models.Edward: We're going to go more into the usefulness of it tomorrow on our second podcast. You later, though, founded another company called Theta Equity Partners and this was different from Zodiac, correct?Peter: Yes and no. On one hand, there's the no part which is, at the very core, this very similar set of models, this Buy ‘Til You Die model. But the motivation and the main use case couldn't be more different. Back in the Zodiac days, besides working with lots of different companies that I described before, one of our clients was a private equity firm. They weren't that interested in figuring out which message to send to which customer. All they wanted to do was to say, listen, can you come up with the projected value of each and every customer, add all that stuff up, and tell us that number because we're thinking of buying that digitally native women's cosmetics company.We figured the best way to judge its valuation isn't through the usual top-down multiple approach, but it's from the bottom-up—how many customers will we acquire, how long will they stay, how much will they spend. That's what we did—the idea of customer-based corporate valuation. After we sold Zodiac to Nike along with one of my Zodiac co-founders, Dan McCarthy, we co-founded Theta Equity Partners. That's all we're doing is customer-based corporate valuation, working with private equity firms, family offices. I'm working with a lot of companies directly just to help them understand, unlock, and fully leverage all of that customer value. It's less about the marketer. It's just less about the tactics. It's more about finance, valuation, corporate governance, big strategic decisions, and again, it's been great. The models work well. It's probably an even more receptive audience—the finance people than the marketing people. Once you go over the finance people, then it becomes very easy to win over the marketing people as well.Edward: It's interesting, 38 years or so after you left finance to go into marketing, you're right back where you started with finance.Peter: I have to admit, I feel like a fish out of water because it's not really my home. It's not my core domain. I've been learning a lot over these last couple of years and I have tremendous respect for the people in finance and more and more every day. I can bring them a tool that they don't have through these models and through these perspectives. But the ways that they deploy it, some of these are very clever, smart, resourceful things they do, you could see why they are the big dog in most organizations and why people respect, maybe even fear finance much more than they do marketing. Because my objective is to bring them together and to get marketing and finance on the same level using the same models for strategic as well as tactical purposes, and we'll talk more about that.Edward: Peter,what was the biggest failure point in your career? What's the biggest mistake that you made?Peter: There's a difference between failure and mistakes. Let me talk about one of each. Maybe the saddest moment in my career—the one night I literally cried myself to sleep—was losing the Napster case. As I've said many times now, I'm interested in a broad variety of applications. I spent a lot of time in the ‘90s and early 2000s working with or maybe fighting with the music industry—there are amazingly good patterns there. It's very predictable. It's one of the better sectors if you want to apply the models, but it's a sector where they don't apply the models.Long story short, I got caught up in the Napster case, the original Napster, an original file sharing service that changed everything. I was with the good guys. Napster is trying to make the case why that file sharing service is the greatest possible thing for the music industry and making that case why it's good and why it will bring in lots of money. I wrote this whole long statement, did all this research about it back in the glorious summer of 2000, but Judge Marilyn Hall Patel, she pretty much rejected everything I said. She basically said, the idea that file-sharing could be good for the industry is preposterous and any research that would draw such a conclusion must be gravely flawed. I think those are her exact words.Edward: Your conclusion was wrong regardless of your methods.Peter: Exactly right. In the end, it didn't really matter. The reason why Napster was shut down, it had nothing to do with whether it hurt or helped the industry. But the fact is, it was against the law. The law might be stupid, that's a whole other question, so it was shut down. But I took it personally. I felt that this was a true failure on my part. I let down the revolution. It wasn't a mistake. It's just that I was betting on the wrong horse.Edward: How'd that changed things? Did you change your strategies going forward because of that event?Peter: Not really. It just made me want to fight harder. It's actually interesting. I said, look, this is just wrong. We need to show the industry that they are making a terrible mistake. In the early 2000s, I spent a lot of time banging on the door of the music industry, saying, listen, let's go after this together. Let's do the research to show the circumstances under which file-sharing helps, hurts, or is neutral. Let's really understand it. Let's understand the business implications. Let's not just stop at music. Let's talk about TV, movies, publishing, and basically all areas of media and entertainment.I set up a Research Center at Wharton for the Wharton Media & Entertainment Initiative. That went nowhere. Then we got a donation to set up the Wharton Interactive Media Initiative, and that was very successful. That then morphed into the Wharton Customer Analytics Initiative, which continues to flourish today. I spent a lot of time expanding on it. One might say pivoting from the work in the music industry to try to make a difference with models and understanding of customer data. It's just that the music industry and entertainment, in general, weren't all that receptive. It's just a matter of shopping these ideas and methods around to find a more receptive audience, which we did find a lot of success with.Edward: Tell me about the iPhone.Peter: Yeah, that was a mistake. A little bit of arrogance on my part. I was big into the BlackBerry. I mean that was a transformative device. Wow. When the iPhone came along, I staked out. I went way out on a limb staking out exactly the wrong turf saying, this device will just never catch on. Look at just how different it is. Look at all the features of a BlackBerry that it lacks. I'm never shy about my opinions. Usually, they're based more on data than just pure hunches. This case, pure hunch, wrong hunch, and I basically said that this is going to go down in history as a colossal failure. And again, I wasn't shy about it.When the iPhone celebrated its 10th anniversary of just a ginormous success a couple of years ago, people went out and found some of these—the incredibly dumb things that I said as it was being launched. I'll admit it. I'm big enough to acknowledge my mistakes. That's far from the only one. But probably the one that I got in—I don't want to say trouble, there's no trouble there—the most s**t for and entirely well-deserved. Even though I'm still not a big fan of Apple—I literally have never owned a single Apple device. Again, not that I'm against them but I just like buttons. I like to press things, whatever. I've learned better than to bet against them.Edward: This has been fantastic. We're going to come back again tomorrow to talk more about Buy ‘Til You Die. Thank you so much.Peter: Sure thing. It's always good talking to you. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit marketingbs.substack.com

Daniel McCarthy, Director and Co-Founder of Theta Equity Partners and Co-Founder and Chief Statistician of Zodiac acquired by Nike, talks about building and selling companies, how some funds invest based on stats only and how he personally approaches fundraising and investing. Daniel's LinkedIn: https://www.linkedin.com/in/danielmcc/ Pipe - get access to your annual cashflow today (funds based on stats only): https://www.pipe.com/ Wareclouds: https://www.wareclouds.com/

Dan McCarthy, Assistant Professor of Marketing at Emory University’s Goizueta School of Business, joins Robbie to share his expertise on the intersection of marketing and finance. They discuss why customer lifetime value is such an important and misunderstood metric, how to rethink the way companies are valued by the public markets, and what all of this means for subscription businesses. Highlights from this episode: 2:50 - Dan introduces Customer Based Corporate Valuation (CBCV) 4:08 - The importance of knowing your customer data 8:46 - Dan’s time working with CBCV at Blue Apron 12:17 - The importance of focusing on the right metrics 15:18 - The challenges of a physical subscription 17:28 - The cycle of Customer Acquisition Cost (CAC) 24:11 - How COVID-19 has impacted customer behavior 27:44 - Dan’s advice for entrepreneurs 28:36 - Dan’s Advice for academics at the intersection of research and commercial 30:00 - Robbie’s Speed Round Dan's Bio: DANIEL MCCARTHY is an Assistant Professor of Marketing at Emory University's Goizueta School of Business. Among other things, he’s an expert on valuing companies by focusing on the lifetime value of their customers—a novel approach at the intersection of marketing and finance. His approach, which has won him many accolades, is known as “customer-based corporate valuation” (CBCV). His research has been accepted and published in top-tier academic journals, as well as nearly every major financial publication, from HBR to the Financial Times to CFO Magazine. In 2015, he co-founded a predictive analytics company, Zodiac, which was acquired by Nike in March 2018. Dan subsequently co-founded Theta Equity Partners to commercialize his work on customer-based corporate valuation. He earned a BSc, a BS, and a PhD from the University of Pennsylvania. Links: Dan’s LinkedIn: https://www.linkedin.com/in/danielmcc/ Dan’s Website: http://danielminhmccarthy.com/ Dan at Emory University: https://goizueta.emory.edu/faculty/profiles/daniel-mccarthy Robbie’s Book THE FOREVER TRANSACTION: https://robbiekellmanbaxter.com/the-forever-transaction/ Robbie’s Website: https://robbiekellmanbaxter.com/

EP224 - Cohort Analysis and CLV with Daniel McCarthy  Daniel McCarthy (@d_mccar) is an Assistant Professor of Marketing at Emory University – Goizueta Business School, he’s one of the industries top thought leaders in the field of customer lifetime value (CLV). In this episode we discuss how CLV and customer cohort analysis can be be used operationally within e-commerce companies, as well as how customer data can be used to calculate a companies true enterprise value, customer-based corporate valuation (CBCV). Dan co-founded a predictive analytics company, Zodiac, which was later acquired by Nike. He’d made news several times by applying his CBCV to popular public companies using their public disclosures. Listen to this episode just to hear Scot say “Goizueta.” Dan’s personal website Theta Equity Partners – Dan’s current firm, focused on CBCV McCarthy, Daniel; Fader, Peter (2018). “Customer-Based Corporate Valuation for Publicly Traded Non-Contractual Firms”. Journal of Marketing Research, 55(5), 617-635. Link (download) McCarthy, Daniel; Fader, Peter; Hardie, Bruce (2017). “Valuing Subscription-Based Businesses Using Publicly Disclosed Customer Data”. Journal of Marketing, 81(1), 17-35. Link (download). McCarthy, Daniel; Fader, Peter (2020). “How to Value a Company by Analyzing Its Customers”. Harvard Business Review, 98 (1), 51-55. Link Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes. Episode 224 of the Jason & Scot show was recorded live on Thursday, June 25th, 2020. http://jasonandscot.com Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing. Transcript Jason: [0:24] Welcome to the Jason and Scott show this is episode 224 being recorded on Thursday June 25th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scott Wingo. Scot: [0:39] Hey Jason and welcome back Jason Scott show listeners well folks we have a really awesome treat for you today it’s so good that I want you go ahead and pause the show here and leave us a five star review and then come back. All right welcome back, today on the show Jason I have to admit we are kind of fanboying here so we’re going to try not to giggle too much during this interview we are excited to welcome one of the brightest Minds not only in e-commerce and Retail marketing but just marketing overall so please welcome Us in bringing Daniel McCarthy to the Jason Scott show Dan is the assistant professor of marketing at Emery’s Gazeta business school Dan welcome to the show. Dan: [1:24] Thank you for having me Jason and Scott. Scot: [1:26] Did I say that right. Dan: [1:29] Pretty much. Scot: [1:30] Glue is that a little bit more of a quiz that kind of thing in there. Dan: [1:34] It’s like sweater but boy sweater. Scot: [1:37] We sweater okay I got it all right thank you. Jason: [1:40] That that is actually part of the screening process to get into the school there’s you have to be. Scot: [1:45] Yes this is why I’m not a professor of marketing at that school whose name I’m not great at pronouncing. Dan: [1:51] Let’s check number one for us. Jason: [1:55] I think in Dan’s case there might also be a math requirement that you may not like. Scot: [1:59] Yeah I saw you had some stats at his background there. Jason: [2:02] Exactly so Dan before we jump into what we do like to give the listeners a little taste of how you came to your your current professorship in your your case can you tell us a little bit about your background. Dan: [2:17] Yes I’d spent about 60 years working at a value-based hedge fund before coming back actually for a PhD in statistics at the Wharton School, and in the middle of the Ph.D program I made a pivot into marketing and so I actually I finish the PHD in statistics but half my committee when marketing people and half works this six feet below, and I ended up becoming an assistant professor of marketing at Emory University along the way I also was bitten by the entrepreneurial bug so in the, leave us in a third year of the PHD myself and my adviser had co-founded a company called zodiac which was a predictive analytic software as a service firm you basically, predictable customers we do and use that to help marketers it can acquisitions. [3:08] We grew that and then sold that in March of 2018 to Nike and then the following month we had also, co-founded a company called Theta Equity Partners which pretty much does nothing but what was the topic of my dissertation which we now in the early call customer base corporate valuation or CP CV for short so yes I kind of. Straddle Both Worlds and say 100%, you’re kind of a Quant marketing academic but definitely we appreciate. You know things that work in practice and and even participating in that myself. Jason: [3:50] Very cool and I did want to touch on a couple of things in your bio super quick hey I love the fact that PhD in statistics wasn’t challenging enough so you you pivoted to the the super complicated world of marketing. Dan: [4:04] Yeah it was a it was a tricky transition I would say on the plus side, you basically is doing the same predictive modeling that I was as of you know I’m just going to get a stat PhD and become a stack Professor sort of thing but now it’s just predicting what customers will do instead of predicting you know. Anything pretty much in stock prices or. Various things about sports teams or whatever else it was that we were doing pre-marketing pivot. Jason: [4:38] And I for sure want to compliment you I feel like you’re in the small percentage of people that did a dissertation on something that you could totally commercialize so I think that’s super smart and savvy. Dan: [4:50] Yeah it was weird how it kind of ended up that way but I really think it was yeah I kind of view customer base corporate valuation is really being at the intersection of, marketing finance and statistics like you really can’t crack that topic without going pretty deep into all three I think, and I think one of the things that Drew me to it was the fact that it allowed me to kind of do everything that, I just find it be fun so you had the buy-side hedge fund experience I could bring that in the statistics I can bring that in and then, obviously pretty King with customers will do bring in the marketing to. Scot: [5:27] Oh dear so why did you make that marketing pivot to was there you were in stats and you kind of like started to do something connected to marketing or what what was the connective tissue there. Dan: [5:38] I blame Pete fader yeah he is that a name that comes up a lot with the sort of things that I do but someone who actually had worked out of the stats Department, he said you know I think that you really get along with this to be fair guy and he’s a marketer but let’s not hold it against me. So yeah I basically went up to the seventh floor which is where the marketing department is and Warden and yeah we really just kicked it off I just really enjoyed the problems that he was working on and yeah I like them enough that I just said I want to do this, you know I want to do this all the time. Scot: [6:16] Yeah, very cool well you kind of raised us let’s jump into this so I’ve enjoyed your your analysis your analyses that you do on Twitter and your papers but let’s talk about CBC TV, let’s talk about the origin of it and how you are applying it to think about valuations. Dan: [6:38] Yes really yeah a lot of the early work that I had done was to use these marketing models to predict what customers will do in the future and use that to compute customer lifetime value and other related measures. And, typically in marketing that’s where the exercise ends you say alright you know we predicted well they are completely I’m done and, basically because of my work in valuation I was like we could take this a step further and use this to actually inform view as to how companies doing his whole and obviously I won’t say that I’m the first one thing about this you Pete had done some work in this area and, yes even some work going back to 2004 but it was mostly kind of proof of concept not super well validated models. And it was really. Yes saying let’s kind of peel back the onion a bit further with this and I think that’s really kind of one thing led to another and you know I now have, three academic Publications and other two along the way on the topic and basically there’s just so many different facets of the problem that I designed to be completely fascinating. Scot: [7:50] Well in my world of startups we think about valuations at a pretty simple kind of you know kind of multiples right so you have a revenue kind of calculation you have an ibadah kind of a calculation then it’s I’ve gotten into Wall Street analyst you know they’ll do a variety of discounted cash flow projections and these kinds of things how is this different like what what do you what is this take into consideration that those those kind of mechanisms don’t. Dan: [8:16] Yeah that’s the beauty of it it can really be all of the above it can be used to do an enlightened version of to come up with an enlightened Revenue multiple ebitda multiple, you know kind of straight up discounted cash flow valuation because ultimately if I were to kind of just summarized with cdcd is is it’s a way to, make a more accurate Revenue projection by really exploiting the fact that all the revenue has to come from customers who have to be acquired, retained make purchases and have spend associated with those practices and so a typical Wall Street analyst will, look at historical revenues the bring in macro variables and use that to help inform of view as to what revenues will be in the future and ultimately that revenue forecast will drive the DCF model or the ebitda forecast. And over saying is. If the company has a lot or even even a little customer data that they’ve disclosed let’s bring that into and in marketing, we spent so much time and energy building these predictive models for customers will do and it’s just basically saying it’s use those predictive models that are super well validated from within marketing. You do that Revenue projection just a bit better and do it from the bottoms up instead of doing it purely from the top down. Scot: [9:40] So you’re essentially bringing customers into the valuation discussion crazy, it’s amazing sometimes don’t you wonder like why no one’s done this before no offense but like so he sings seems so obvious in hindsight but no one you know it just like not a common thing. Dan: [9:55] Yeah that and this is video clip that will sometimes show of Jim Cramer talking about this work yet, he brought up and spent a bunch of time on our way Fair analysis and he’s like what’s so special about this you know academic research where these academics doing well they they try to put a value on the customer, and they compare how much you spend to acquire the customer to how much he get after the customers require you like. Duh seems kind of sensible to me but but it hadn’t been done before and I think I think that was the real opportunity. Scot: [10:30] Yeah I think the first time it hit my radar is you wrote a really good article about Blue Apron so they were one of the you know they have this huge valuation they had filed their S1 and then you put out you know I’ll use the word scathing but I think it was like, that that may imply something that’s not there a surprising analysis around their unit economics is that kind of the first time that that that really hit the the radar. For you. Dan: [10:56] That’s the first time it really got mainstream attention. Scot: [11:00] Yeah so for listeners that didn’t see that maybe give a brief summary of what you discovered when you kind of peeled onion on the customer metrics that were in this one. Dan: [11:09] Yeah basically the company was growing really quickly and it’s something like a hundred percent Revenue growth you know year-on-year and, they didn’t disclose a whole lot about customer churn and I was like huh that’s interesting for a subscription business you think they would put something about that in the filing and so, the interesting what thing was that even though they didn’t put anything about customer churn they didn’t disclose a number of other scraps and so, basically what I did was use the methodology that I just published and use that to kind of triangulate my way back into what the company’s retention curve Wise from all those different scraps that they put into their, cipo prospectus and and you’re right near the conclusion was kind of damning that something like seventy percent of the customers churn after six months. And you know obviously the implication being that they were acquiring a lot of customers I think on promotion and. [12:08] And they just weren’t staying and and the other kind of, even more damaging data point was that even though they were growing really quickly their marketing spend was growing even more quickly. Then that and so essentially what I had inferred from the model was that their acquisition cost used to be something on the order of 60 dollars, and it’s something like doubled you know in the run-up to the IPO. So yeah they were buying Revenue growth so they showed strong top-line growth but the underlying fundamentals of the business that gotten significantly worse that they were actually, reasonably profitable at you call it a $60 CAC but if you double that you know it just makes things a lot worse on a per customer profitability basis. Scot: [12:58] Yep losing money to acquire the customer and then making it up and scale is never you know I think we always call that the pets.com business model but somehow chewy got out of that we’ll talk about that later so I think the finish the story I think I think everyone said that you were crazy your analysis was dumb this is again me as a third party watching this from afar you know they had a huge IPO and then suddenly I don’t know how many quarters it took but suddenly the Dynamics you had anticipated came true and that must have been kind of self must have been interesting to be proven right by that. Dan: [13:35] Yeah it was kind of a surreal experience the most surreal was we were going on a vacation and I just remember looking at my phone you know we just were having lunch outside of a grocery store. And that post had just gone viral it ended up getting like. I don’t know we broadcasted whatever the term is unlike a hundred different websites and and, of all of the bases all sorts of like LinkedIn comments and all sorts of other engagement measures they were all kind of hitting at the same time and I had never experienced anything like that before. [14:16] Yeah so. Scot: [14:18] You’re like maybe yeah awesome so so I’ll kick it over to Jason I’m sure you have some follow-ups on this. Jason: [14:29] Yeah I’m always saying this tongue-in-cheek but like it turns out that the one flaw in your whole model is you didn’t factor covid into the blue apron. Dan: [14:40] Yeah I know I always say if we were in January there’s nothing that we would have not predicted covid so it’s no Magic Bullet. Jason: [14:53] But I do feel like they are one of those companies that has at least had a tertiary benefit from from the current climate. Dan: [15:03] Yeah I think that one other fish related point is there’s a distinction between the predictions and the framework, and I think at the end of the day no one can argue the framework has to be true. And even the covid Boost that they’re getting I think the framework can be super helpful in thinking about that is it coming from repeaters who are just repeating more or is it coming from a whole bunch of new people that are going to stay. So so the framework always has to be true it just provides this additional Dimension but our predictions that’s a function of the model of the data that’s available and obviously of, things like covid happening. Scot: [15:45] The thing that must be surreal is I got the like you I have a weird Hobby and that I love to read us once so I think I think the three of us kind of are probably only, people that have that hobby but so I was reading to stitch fix that’s why I was like you know I wonder what kind of churn they’re going to give and then they had all this cohort analysis detailed turn now since I was like wow the Blue Apron dude like totally has changed the disclosures around this stuff you know I don’t know if you viewed it positively or negative but it was like really fascinating where you can tell that people are like all right people are going to look at these, there’s no way for us to hide what’s going on in here so we might as well reveal at least what we think are the good aspects of these underlying metrics I thought it was pretty interesting that it felt like you had some role in kind of making that happen so I was pretty cool. Dan: [16:33] Yeah they put a lot more in instead of definitely hats off to them I would have wished and so after they had filed their ass when I have acid was Point through that thing very carefully to I wish that they had something like cohorted revenues over time if they put something in like that then, for sure you would have seen an analysis from for me / just the reason we didn’t do one was because they there, they’re non-subscription enough that I wouldn’t feel comfortable modeling them as a subscription business and and it wasn’t quite enough data, to fully immuno account for all the facets of there being a non-subscription business. Scot: [17:15] It’s probably funny so on the other side that’s probably what they’re going for they’re like how do we how do we do this so that Dan doesn’t write a paper on, not not that would be negative or positive but you know there’s the the Blue Apron case study was not a on the other side of the table you probably wouldn’t want you know that happens. Dan: [17:33] I flip it around and paper number three so you know it is paper number one was all right let’s lay out the framework for subscription businesses so this nails down to telcos the Jim’s the blue aprons of the world the second one was all right let’s lay out the framework for non-subscription so these are all the e-commerce retailers, and then the third one was let’s lay out a model for. Businesses where we’re not only incorporating SEC disclosures like whatever we find in S1 but also, credit card panel data which the hedge funds are all buying consuming voraciously and now that that their credit card panel data is wonderful for Stitch fix in particular its. The panel seems to be quite representative of their customer base and in so, I think that that’s kind of one of the emerging Frontiers for this whole area is it can we be able to incorporate other data sources to, to be able to kind of do this exercise for more companies or you just have more confidence in the results because we have more data at our disposal. Scot: [18:36] Yet the thing I found so I did an IPO of Channel advisor in the thing I found really weird is you go public and you know you’re going to be doing all this transparency but all your advisers are telling you to be really careful with what you disclose because you know if you just there’s this feeling that all the stuff you disclosed and that’s one you’re going to have to disclose forever and there may be some reason where you want to wind down a business line or pandemic hits and some of these metrics kind of Swing different ways so so in the operation side everyone’s giving you this advice to minimize what you disclose which I found as a you know, as a private company it was oddly kind of the opposite of what I thought being public would be like so it’s interesting to be on the other side of the table from of that stuff. Dan: [19:26] Yeah we’re starting here bit more of that too and certainly we’ve heard the same thing like anything can and will be used against you and so so there’s kind of this risk-reward asymmetry that incentivizes companies to try and discuss as little as possible, so and certainly I think that there’s kind of a fine balance to be drawn where you know I’ll be the first to say this is a certain line past which it is competitively sensitive and you don’t want to necessarily open up the kimono so all your competitors know exactly what you’re doing but I think there is kind of a middle ground where there are measures that companies can put in that. They’re very not competitively sensitive but super informative they tell investors a whole heck of a lot of information about you know how the companies doing. And and there’s small in number so we’re not asking for you know a dozen different things you were just asking for like three things, I think that hopefully is how we can help kind of move the conversation forward that that. We put something out there but we make sure that it’s reasonable and it’s not overly costly to to the disclosure. Jason: [20:38] And I do want to double click on that just a little bit like it does seem like so there’s a, a fundamental part of your framework the customer cohort chart this III and it do I have this right like it does seem like some companies are starting to include C 3s in their disclosures. Dan: [20:56] It shows up a lot more than I thought that it either it’s that it shows up a lot more than I thought that it did or that, yeah maybe if you know we’ve had some small influence that more companies are disclosing because we’re yelling so loud maybe some combination of the two. Actually Scott I think it goes back to one of the other points you raised I would love to see more companies disclosing that data and non S1 filings I feel like, there is now at least a couple dozen companies that have put that in the S1, as soon as they go public and they start filing the case in the queues OR investor presentations I stop seeing it it’s like two companies I know of it still disclose it. Scot: [21:40] Yes so the advisors that give you all these case studies of where it has been companies in the but so classic ones Twitter right so so Facebook got out first and they started talking about it may use monthly active users so then Twitter launched and they just kind of went with that kpi and then that kpi slow down on them very quickly whereas Facebook’s accelerated and everyone always uses that as you know if they hadn’t disclosed that and then what happens is the other thing that I see that super surprise me first time going public was all the short hedge funds and some of the nasty tricks they do so they’ll take any of these metrics you put out there that could be cast in a bad light and they’ll use them against you to create a short trap kind of a thing so so there’s all these case studies of that and then you know we’ve fallen into, over the years you’re just shocked by the behavior that goes on with with some of these these crazy firms I guess I was super naive that I thought it was more like VCS but at this whole super high level where everyone’s going to be like you know I’m Fidelity and I’m really on board with your company for the next 10 years there is that but it you know right now it seems like it’s the minority versus the majority is a lot of these kind of long-short hedge funds that do all kinds of wacky stuff. Dan: [22:50] Yeah yeah it’s nice. Scot: [22:52] Yeah yeah. Jason: [22:54] But so Dan you know what would be helpful for some of our listeners that may not be as familiar with clv analysis and some of your work can you like, this is hard on a podcast can you paint us a word picture of what a cohort analysis is and what that C3 looks like. Dan: [23:13] Yes of course the first Steve this may be the easier one is the C3 that’s simply saying you know if you if you open up a 10K, it’s going to show annual sales year by year you know so 2015 16 17 18 19. [23:30] This would be the same except it’s in a chart format where the height of the bar is the amount of total revenue. But it’s tax that so you kind of brace it down by acquisition cohort so you know for a company that, imagine it company was the first went public in 2016 and now we’re here in 2020, they’re at here’s our sales in 2020, here’s how much came from customers that were acquired in 2016 here’s how much came from customers and required 2017 2018 2019 and so on. So it’s basically chopping up that Revenue bar into acquisition cohorts and showing that over time and what it allows investors to see is. When a company acquires a group of users. How much revenue is that company getting from those users in future years as it going up is it going down and if it’s a b2c business you kind of expect it to move move down. And hope that is that doesn’t move down very much in other sectors like software as a service businesses typically if you’re seeing a C3 chart, you probably seeing expansion over time they acquire a bunch of customers and then in future years to getting more revenue from those same customers than they did in the previous year. So yes it is a whole lot of information you can get from a C3 in conjunction with everything else that does companies tend to provide. [24:59] And it goes back to that I think to the first question of what is a proper cohort analysis and it really is just that it’s saying let’s look at let’s not just look at everything that happened in 2020. Let’s look at things by acquisition cohort you know let’s eundel together all the people who are first acquired in 2016 and say, how good were they and then let’s compare it to all the people that were required in 2017 you have good with a and if you repeat that exercise across all these years. This whole new level of understanding of how healthy a businesses. Scot: [25:37] So for like an e-commerce business where you’re not going to have a huge let’s take subscription e-commerce businesses out of it like let’s say a Macy’s or someone like that that has you know just kind of a more transactional model what are you expecting that for your to look like like what’s a really good looking at wind what’s a terrible one. Dan: [25:56] Yeah General generally in transactional business like Macy’s or any other you know B to C typically customers were melting Ice Cube and. And so you’d be pretty happy if you know four years out you’re still getting, twenty percent of the revenue that you had gotten when you first acquired those users. But they’ll drop off pretty quick so you know so certainly. My general Pryor is is that Revenue retention tends to be on the very low side unless you’re truly one of the exceptional retailers. Scot: [26:38] Have you ever done it for Amazon. Dan: [26:42] We have not because they have really Rain back there disclosures unfortunately. The other yeah the other issue with them yeah so they disclose like active users but they disclosed nothing about the number of customers they’ve acquired in different years. Obviously if we even if we did have the information probably right now it’s like zero because everyone’s been acquired but the other wrinkle with them is I think you many people would argue they’re making most of their cash flow from there, from the cloud computing business and so. Retail business is certainly it’s an important piece I think you know a lot of people short change it because they don’t take into account the you know- working Financial working capital position that they have. But still there’s so much else to their business that it is a little bit tricky. Jason: [27:39] And I like I do like obviously we’ve been focused on company valuations which is a super interesting use case and obviously quite important but. Company valuation is far from the only reason you’d want to be doing a cohort analysis if your acquisition cohort analysis if you’re a company right like isn’t it, even if you’re getting if you’re a private company and you’re not going to disclose anything it seems like there’s huge benefits to understanding the value you’re getting out of those Acquisitions and. Helps you plan future Investments no. Dan: [28:15] Oh tremendously so yeah and actually said for example the the marketing use cases I think are at least is compelling to marketers as yes it is from a valuation perspective to the CFO yes I kind of I think of this way of looking at the world is kind of like the the translator that allows marketers to speak with the finance people and have a common language between, and I think it can allow marketers to communicate the value that they’re creating, in a way that Finance people would would respect and understand. And in Reverse yes I think you finance people can then you communicate that on to their investors which increasingly they’re having to so so suddenly I think, as these ideas take hold a bit more it’s as if the CMO becomes a lot more powerful because they’re kind of the trusted advisor they can actually really explain. What the heck is going on with the customer base in a way that the CFO is just not going to be able to but at the same time they’re going to be a lot more accountable because suddenly, everyone is really obsessing over things like the retention curve which are probably a little high level for your typical CMO and they typically are thinking about. More tactical measures. Jason: [29:42] Yeah and I if you don’t mind I would like to double click on that a little bit just a side note for listeners it’s funny we often call those the visual cohort analysis we caught a wedding cake. Um which I think is like a good mental image right like because you you see all these new new colored layers of. Different acquisition cohort stacked on top of each other and if things are going well the layers get like thicker in the in the middle over time. Is that is that an industry term or did I make that up. Dan: [30:18] You know I had never heard of the term before. Jason: [30:21] All right well I we use it with multiple clients so I don’t know yeah so you. Dan: [30:26] I like it though. Jason: [30:27] Dan you can have it for free but in exchange you can settle an age-old question for me customer lifetime value clv lifetime value LTV, I hear people use those acronyms interchangeably like are they different and is there one that you officially prefer. Dan: [30:47] I yeah I think that there is a lot of questions about you know what should be defined as what I’ve traditionally defined those is being equivalent to each other. But distinction that I draw actually is one that I’ve I haven’t really heard other people draw which is COV or LTV versus the post acquisition value of a customer so. To me I think the to two key components of a customer’s value or how much you spent to bring them in the door and that’s the CAC. And then all the value that you get after the required and to me I call that the post acquisition value of the customer, and so if you take the P AV and you subtract off the CAC. That gets me the customer lifetime value but there’s just so many people who actually would say that clv is p AV and and they’ll have no definition for clv. So so I think you have one of the first things that I’m really hoping that we can do it’s almost the simplest thing it’s just, let’s agree on some common common definitions for these terms you know I think that everyone would benefit and to be a lot less confusion when we’re all talking about, these terms and and potentially having different ideas in our heads as to what they actually mean. Jason: [32:08] Yeah no I think that would be super helpful because that it is, I you know in the virtue of my job I go into a lot of different clients in the vernacular is totally different and this you met your eyes may roll in the back of your head but I would even say like a monk my client base. Dan: [32:29] Yeah one also clv I’ve so frequently see people Computing it just off of sales they’ll not even factor in causing. Jason: [32:37] Yeah it’s Revenue it’s like customer lifetime Revenue not customer lifetime value right there. Dan: [32:42] Yeah you know finite Horizon forecast and you know just the list goes on and still all the different ways you can kind of screw it up in my view. Jason: [32:52] So I have this kind of simple mental picture of how this whole discipline involved and I’d love for you to confirm that I have it right or correct me if I’m wrong, um but I sort of imagined that in the early days of thinking about COV that it was primarily a marketing kpi, and then it feels to me like it evolved into being in really good mature companies it evolved into being a corporate kpi, and then you know largely because of your your paper and and blue not Blue Apron going viral. Now it’s become a corporate valuation tool like is that is that the matriculation then it sort of food through our time I’m making that up. Dan: [33:34] I think it’s definitely the case that COV has been born and raised a marketing marketing kpi. Yeah and I think now we are seeing a gradual progression that it’s showing up more in investor decks which has been super heartening to see. [33:52] In terms of the link to cut the corporate valuation so our work will very frequently talk about customer lifetime value. But usually it’s kind of a summarization of like the unit economic health of the firm it’s obviously a really important one. But but actually we kind of focus on on this other thing that, I think some people will call it customer Equity you know I’ll call it customer base corporate valuation was really drawn this distinction between, you kind of a per customer measure of profitability and the overall value that’s being created and. In Canada the example that I often give is if you wanted to maximize the clv of your business. You should go after this super tiny Market where this is like a few super good customers in it and and they’ll all be great you know but there’s so few of them that you leaving money on the table you know so, it’s kind of what we want to maximize this kind of like P times Q you know like the quality times the quantity and. And so I’ll actually kind of have this notion of the five Horsemen of CBC TV. And that’s actually you know what would companies should be striving to optimize. Jason: [35:15] I love that and I I’m a big fan of those sort of false of using a metric as a kpi because per your point like you can just manipulate one of the variables and make it awesome. I frequently help clients in Pre increase their conversion by just dramatically reducing their traffic to their best customers for example. The so I and I do have a bone to pick with you and I’ve been really good about trying not to bring it up until now but I just can’t resist. I primarily work with marketers and in my world like even LTV is a metric is. A vastly superior metric to what a lot of my clients tend to live in like sadly like I have a lot of clients that. You have tpi’s around things like Awards and return on ad spend which. Find abhorrent right and so often we’re trying to move people towards more financial base, measure right rui measurable quantifiable metrics and you mentioned in the intro that you you started this previous company zodiac, which actually provided both tools and services that help companies, make that progression and you don’t know this but I actually prescribed zodiac to a bunch of clients and then you went ahead and sold the company to Nike and they promptly fired all of my clients. Dan: [36:39] Yeah that that was the most difficult part of the sale was honestly we. We’re academics you know so we we almost feel like this semi-religious you no desire to get people to use customer lifetime value to be using these models and benefiting from them, instead of kind of get these companies to buy in and then kind of you know have to we didn’t fire them we were forced to. Jason: [37:08] Sure sure no I’m mostly nobody blames you for doing, in your own best economic intro I’m teasing you but it was like it, useful tool and I am curious and it’s fine if you want to pass on the question but there are some other companies that have emerged. I wouldn’t say have the exact same offering that zodiac had but. Some sort of overlapping value prop and so I think if companies like ambition data or dynamic action and I’m just curious if you’ve ever looked at them or or even better review you’ve come across any other companies that you think are doing a good job and that’s. Dan: [37:45] Yeah thankfully a lot of them are friends of ours so so ambition data Allison heart cells the good friend they do some good work there certainly I think they’re more tactically oriented and zodiac was but I think their philosophies are you’re very consistent so both Peter fader and myself we’ve been on under podcast as well, retina that AI is another one that I like with the what they do they basically have a version of a probabilistic model for how customers behave and, and they’ll use that to help you know oftentimes marketing analytics departments you make acquisition retention decisions but I wouldn’t also leave out Theta so you clearly I’m not here to, that’s a pitch the company but I’d say about half of our revenue is actually coming from corporates directly and in while we’re not helping the marketing department make those tactical acquisition retention decisions, we do provide kind of the, a lot of the Machinery that we use to make the predictions is very similar or even better than Zodiacs we use it to obviously summarize how the business is doing in terms of. [39:02] Clv in CAC over time, but then also slice that by you know things like acquisition Channel and so to the extent that you want those very highly validated predictions to, to see where you’re getting the highest return on investment you say by acquisition Channel this would would give you that so. Jason: [39:23] Very cool okay, so and Scott’s chomping at the bit to get back into the conversation but I did want to I feel like I haven’t this limited window to learn some stuff. Eight sometimes a knock on the like so one of the things about the customer base valuation is it, it’s a very bottom of the funnel monetizing the customer and therefore this is how valuable that acquisition channel was or how they both companies or whatever else and, the old-school CMOS I work with like when we start talking about those kinds of processes, they quickly go to yeah Jason but that doesn’t really capture my long-term brand Equity like I’m building this value that doesn’t show up in that number, and I’m imagining you you have to heard that before and debunk. Dan: [40:15] Yeah I love that question because in general and this is where I will get a little bit controversial again all the revenue has to come from customers making purchases and so if you believe in that, accounting identity which hopefully that’s completely uncontroversial then, then you have to kind of buy into the notion that it all comes down to acquisition retention ordering and spend and then variable profits and so so sick to kind of flip it back on on the old-school CFO yeah I’d say. If they’re spending on things that aren’t generating any measurable effect on those five Horsemen if CV CV, then it’s worthless completely worthless but to then give you know a little hat tip to the old school or I think what what they may be trying to say is that. I can make an investment today and I may not necessarily see the long term effect of that until three four years from now and that you know. That the long-term retention of those customers will be better because of the investment that I’m making. I think that’s a very important distinction because it’s saying that you can look at and just focus a hundred percent of your attention on the CB CB framework. It’s just an empirical question of how we can be able to measure its effects rather than saying you know actually we need to focus on brand Equity to. Jason: [41:44] Yeah and ironically like that cohort analysis is, is validating like when you know when it’s done well it’s validating the Investments made in that long-term brand Equity right because they they show up in like subsequent years value for those cohorts. Dan: [42:02] Exactly yep. Jason: [42:03] The Indian one more totally wonky one so so again old school seeing those like me and where should we put our marketing dollars and in particularly like that we all have this debate. What’s what should we be putting above the line IE what should we be spending to build brand Equity versus what you know should we be spending to drive actual activation. Things got and I talked about all the time like e-commerce and those sort of things and like historically like I mean from the 1970s, marketers use this media mix modeling which is pretty archaic and lately like as I work with all these ad agencies, the the academics that come up constantly are these guys and I’ve never met them less Bennett and Peter feel they’ve are you even Vaguely Familiar with him. They ever. Dan: [42:56] No you’re not. Jason: [42:58] Well then we’ll skip it but suffice it to say they did a quantitative analysis of a bunch of companies in found that in general the best like, mix of investment was 60% brand 40% activation and therefore there are a ton of like quite large. Marketing Enterprises with very large budgets that Loosely follow that parameter and it just seems, too simple to be true to me so I was just curious but I’ll let you take a pass on that and I’ll let Scott jump back in. Scot: [43:35] Yeah this is so just kind of apply this to an interesting argument so two of my favorite followers on Twitter are web he’s been on the show and then this guy digitally native I forget his name he’s in Austin, they’re constantly going back and forth over well first of all they really focus on the realm of digitally native vertical Brands so I don’t know if you’ve dug into that there and fortunately haven’t been a lot of, IPOs in there so there may be a lack of data on it but the kind of go in the circular argument I’ll try to do my best of kind of figuring it out so digitally native dude will say the one metric you should focus on as a digitally native or co-brand is gross margin and then now then web comes in and says Nope it’s got to be so first of all he doesn’t like it when companies raise Capital so it’s like it’s got to be bootstrapped and the only way to bootstrap it is cackle TV and then they then the kind of wheel spins around and goes back and forth back and forth do you have a point of view on that. Dan: [44:39] Yeah I kind of go back to to me the ultimate goal is customer base corporate valuation now I would say that does kind of lean more towards cackle TV, but I’m not sure that the distinction needs to be that you know that big because ultimately you know a higher gross margin is going to drive. Higher lifetime value all else being equal so certainly. But even their gross margin is not the only, component of variable margin yeah I think that if you really binds the notion that lifetime value is important well the profit margin that you use in that calculation should be the effect of The fully-loaded effective variable, profit margin and so you should be factoring in, this is going to be probably very common knowledge to you both but you things like fulfillment expenses and merchant processing fees which often times they’re not included in cost of goods sold they’re included in. In an operating expenses, so we want to put those in as well but I’d also include effectively variable indirect expenses to so even things like. This is going to sound totally brutal and conservative but even things like accounting expense. [46:01] New companies as they grow they need to hire more accountants and even companies like Microsoft spend ten percent of their sales. On expenses like that and so so what I want is I want that lifetime value figure to represent. If it’s positive that means there’s a path to profitability and if it’s negative there is not a pilot at the profitability and you won’t get that if you’re using gross margin as your margin. So Scot: [46:29] So then so tactically how do I allocate that like I just divide by the number of customers acquired over that period and all my costs and that period. Dan: [46:38] Yeah there’s a few different ways you could do it yeah let’s say the kludgy is simplest way would be take all of the expenses that are not direct expenses. And in regress them against sales, and with that can help you get a sense for is the relationship between those expenses and how they grow as you Revenue grows obviously if you’re inside the company though oftentimes companies especially if they’re young, they’ll kind of pre build and so you may see operating expenses grow quickly then but it’s not because those expenses are variable they’re just kind of building for the future so that’s really where I think if, if you’re an inside operator you have a much better view of that, as an outsider I think conservatively most any company can simply at least at the very start just knock off five percent of sales and just say, you know probably at least that much is going to be effectively variable indirect expense and. And then just you know kind of continue to run the analysis is you may otherwise have done. Scot: [47:47] Got it so sokak is easy to get your head around and then LTV you’re essentially saying LTV should almost be like cash flow. Dan: [47:54] High LTV should be the net present value of all the future variable profits after a customer’s acquired yeah so yeah as having to kind of peel that one back but I know. Scot: [48:08] I don’t think anyone’s calculating it that way that’s why it’s funny. Jason: [48:11] This this is why I like Theta is b or zodiac is because they do it for you they provide the mathematical. Dan: [48:19] And will you know we’re totally an open book you know will show you the academic papers so hopefully I’ve been kind of by into exactly how we’re going about the you know the calculations that were going about but, yeah I mean at some point I think the math it’s a very hard prediction problem yes a to be able to have someone. We’ve now done probably 250 different you know paid engagements on behalf of 250 different firms. So you kind of develop that dirt under the fingernails that could be hard if you’re just a really smart operator who’s building a business and don’t don’t even have the budget necessarily for you know much or any data science team. Scot: [49:02] Yeah I’m a big study of Amazon if you haven’t figured that out yet and it’s always funny because, people always ask Jeff Bezos these things he always comes back to cash flow and I almost wonder if he kind of like intuitively got to a similar place where you have where you know one of his answers will be customers you know I can’t take a gross margin to the bank you know I can’t take fifty percent to the bank when in the early days when people accused him of being a super low margin business and or like with Amazon Prime they thought he was crazy and I think he was thinking I think he was way ahead of the thinking here, what do you think about do you agree with that. Dan: [49:46] Yeah I think a lot of people they’ll look at these highly free cash flow negative digital companies often times, and I’ll say well you know yeah but but Amazon and if you look back carefully at Amazon, typically those comparisons are very bad you know that I think it was in the Amazon second year you know maybe it’s there that it was operating cash flow positive and, it’s the even the even though it took them a while longer to become Gap profitable. Who cares about Gap if you’re bringing in the cash flow you know that that’s ultimately what what drives the value of the firm and keeps the lights on so, so I think they did a lot of things right that are still under appreciated and have still led to a lot of confusion with this emerging crop of, fast-growing money-losing companies. Scot: [50:42] That one random observation is you so I think you said in your bio you were at like a hedge fund doing analysis of things but Jeff Bezos was to write wasn’t that where you kind of started is there is there something that you think cut came out of that where you both kind of saw this this kind of light bulb moment that you know this is the ultimate metric for for these kind of businesses. Dan: [51:05] You know that I think it was a de Shaw and I forget what role he he was at the firm butt, I would say there is something that actually this goes back to zodiac Theta, Finance people we’ve often done in the questions that you find the comparison yet selling to a marketing person versus selling to a finance person and I’ll often say selling to the finance person is easier actually, even though you’re presenting them with this Mark ostensibly marketing way of looking at the world ultimately its Net Present Value, and they just live and breathe that you know they’ve been doing that for probably since they were an undergrad you know whereas marketing people sometimes have sometimes happen. And it’s to a finance person I think they will get a lot of this and they’ll immediately see the analogy to project finance that project financing the you spend money on a project you’ve got this, you know you think about payback periods you think about the net present value of the project you think about the internal rate of return, that’s just how they think about their project and so if you just replace project with customer Suddenly It’s like a light bulb goes off and they say oh you know that that totally makes sense the customer is my project. Yes I think that to them this is all quite natural, to marketing people there could be more of an education that that’s required to kind of get them where they need to be. Jason: [52:31] I will totally buy that I do have to point out early in the show I complimented you on monetizing your academic background but now that Scott’s comparing you to Jeff Bezos you probably have a little ground to make up. Dan: [52:43] Definitely a loser there to him. Scot: [52:47] Jason builds you up I tear you down it’s part of its are good cop bad company. Jason: [52:52] Pivoting a little bit I’m curious like if you so a bunch of the company is in our space we talk about all the time, and you know where there is some debate about how sound the unit economics are we talk a lot about companies like Shopify and, Peloton and chewy why do you like look any of those companies do any of them provide enough data that you kind of formed an opinion. Dan: [53:21] Yeah actually all three I haven’t done a formal customer base corporate valuation of Shopify but I’d love to and, and they’re actually one of the firm’s where I’ve seen a customer cohort chart outside of the s-1 filing and as you can imagine. As you were alluding to Scott when companies disclose these things it’s probably because it looks good and and I definitely was the case with Shopify that there there C3 looks amazing, and in there an interesting case because you know they’re kind of a business in a box whatever the, terminology is now they’ll have a lot of companies that, yeah they go kaput they go out of business but they get so much incremental business from those who survived that they see very strong Revenue retention over time. So you know I haven’t I’ll be the first to say I haven’t been out the math is to say what their marketing Roi is but but it must be quite good. Jason: [54:31] You know I don’t know how like how close you father but like their CAC is actually quite low so that helps too. Scot: [54:38] I don’t think they do any marketing that’s another thing that they’ve always said that they let the product do the marketing and yeah. Dan: [54:44] Yeah so even better you know it’s really it’s it so I think you then it does become a question of valuation but even the valuation question you become some really hard I was actually just tweeting about this a couple days ago that. If you have very strong Revenue retention presumably you’re earning a very high return on your marketing investment and, and is a very strong analogy between marketing Roi and the return on invest the marginal return on invested Capital to business. So for business like Shopify I be astounded if their marginal return on investment wasn’t, at least an order of magnitude higher than their weighted average cost of capital like the required rate of return that investors demand of them to supply them with the capital that they have. And in theory if you are if your return on invested capital, is permanently above your whack there’s no you would deserve an infinite valuation. Scot: [55:51] I think they’re getting there. Dan: [55:52] Yeah it’s so so I’ll be the first to say that but I would say for Shopify there is a valuation question that we all know mean reversion is is a reality and so when, you know when those economic start to kind of go back to levels that are more in line with competition. You know that is that on that out and so I think that’s kind of the open question there so yeah valuation it’s. It’s not purely a function of current period clv you know I wish it was that easy but but it’s not. Jason: [56:33] It was super easy everyone would be doing it so where would the fun in that be. Have you up to Peloton at all maybe free covid or assume post covid there now like the next trillion dollar. Dan: [56:47] Yes I again yeah I’m kind of an s-1 geek like you both so when they drop the S one I looked at that one really carefully and especially because there was a lot of controversy I know if you are following this the time, that that their churn rate was just about to spike and, and they were timing the IPO it just at the point where a whole bunch of these, prepaid you know customers are locked in for two three years boom you know now they IPL all those things are going to move to month-to-month contracts and a whole bunch of people are going to turn in there you know. Average turn rates going to quadruple or even more and. [57:32] Yes I felt obligated to kind of jump in to see what the heck was going on and it’s I posted this analysis on LinkedIn hints and fully transparent not even provided the spreadsheet showing all of the calculations just so that people could, see or point out if I’m wrong and, in the main conclusion that I came to was now you know they’re their turn seems pretty low and there’s no Smoking Gun it should probably stay low and. And I would say even pre covid thankfully that seem to Bear out as being true. So we didn’t go all the way to I didn’t go all the way to valuation but it certainly you have I’d run like hardcore statistical models on them. Jason: [58:18] Gotcha and then I’m assuming about 400 billion dollars in value transferred from Jim’s to them as a result of the shelter in place orders. Dan: [58:26] Yeah they definitely benefited so. Scot: [58:28] It’s just a bike with an iPad strapped to it who would have thought. Dan: [58:32] Yeah there’s still it’s amazing in this thing again it goes back to Blue Apron there they’re always the haters. And and for Peloton there was still a whole bunch of people who argued that you know because of the economic contraction unemployment 15%. Is this super expensive bike are people that are pay two thousand three hundred bucks for a bike you know. And in that has I was on the opposite side of that trade yeah I was openly in webinar saying. Don’t be surprised at how many how many wealthy people are retaining their jobs and buying peloton’s now and and yeah it seems like that that’s that’s played out as well. Jason: [59:18] Oh yeah and and now they all those wealthy people have the capex invested in that bike and they’re presumably less likely to renew their gym membership when they’re able. Dan: [59:29] Yeah yep and I think that’s one of the arguments for why why their turn should remain generally quite low you know is that people are paying $2,300 for a bike, you know are they willing to Pony up the 30 bucks or whatever it is a month for the you know for the subscription. Definitely you know they’ve huge sunk cost fallacy but you know still people fall for that that’s the oldest trick in the book. Jason: [59:58] Yeah yeah I think that’s going to be our next podcast is all about those cognitive biases so that’ll be a perfect transition there and then chewy have you acted chewy at all. Dan: [1:00:08] I have not looked at you we personally so I have it’s been nice to see they’re now more and more people are kind of doing their own cbcb analyses and so there was one super smart person who had. Done some interesting analysis on them it ended up his conclusion was bearish that. Things did not look good and I also I do agree that the way that they Define the proportion of people who are unlike auto-ship or whatever they call that program is is is very aggressive but. But I actually I haven’t done a CBC analysis. Jason: [1:00:48] Okay mildly interesting like they had their their first earnings call Post. Covid and you know of course reminder like, their revenue growth has been wildly awesome and they’re one of the few direct to Consumer companies that you know his vastly exceeded a billion dollars in sales they’re really struggling to be profitable, the covid quarter was their first quarter where they had a profitable ibadah but earnings was still negative but which is why I was curious if you see, like you know are they just on this Wayfarer style treadmill where they can never make money or or you know is there a model where they scale out of that but one of the things that was interesting they mentioned is, me and 1.6 million new pet owners adopted a pet in covid and we think the covid cohort for us is worth 90 million dollars this quarter like I just that was it like it wasn’t so much I mean it was, they were they didn’t provide data but they had a narrative around an acquisition based cohort in there there. Dan: [1:01:54] Wow yeah I was about to say that they’re going to argue with all the pets parts of the world shut down that all that business is now increasingly going to the chewy but. Jason: [1:02:05] Yeah well I think there’s some there is some data there right like pre covid 22% of, of pet spending was e-commerce and you know in covid it’s like 35% so like all those new pet owners who I clearly you know were born digital, you know suppliers for their pet food and all that stuff. Dan: [1:02:25] Yeah that’s like a free gift that covid has given to these companies. Jason: [1:02:28] Oh my gosh yeah there’s a lot of free gifts and a lot of free I don’t know what the right. Dan: [1:02:34] Fold in the air colder in the star. Jason: [1:02:36] Yeah exactly that have been like disproportionately handed out its kind of kind of brutal with the winners and losers. Dan: [1:02:44] Not just disproportionate but in some sense random, is that a lot of otherwise great companies and you know just so happens well you were a mobile gaming company so you will be a winner you were you were an underwear Stellar you will be a loser but you. Jason: [1:03:01] Except if your underwear seller that also sells lettuce in which case you’re you’re a winner. Like that those are the weird distinctions right like. Dan: [1:03:10] Yeah the milk is to go back to Blue Apron. Jason: [1:03:14] Yeah I feel like I saw you on one of the new shows talking about Wayfarer and covid did you like you want to recap your your thought process there. Dan: [1:03:25] Yeah yes it’s obviously I’ve been falling Wayfarer for a while now and, you know I’ve been probably as much press on them as with blue apron and. And they had first finally it was as if the writing was finally on the wall they said they. The CEO had even said we were growing too quickly and we’re going to now lay off a bunch of people and move to more you know sustainable growth. [1:03:54] And then covid and basically you know I was speaking with someone from CNBC it’s ended up being featured in her article but it’s something like 86 percent of all home good sales, had been brick and mortar and so suddenly covid you shut all that down and you know this little slice you know the other 14%. Sunny they’re the only game in town and not only that. Wayfarers biggest competitor with in HomeGoods had been Amazon and Amazon now is prioritizing essential Goods so there are not focusing a lot on HomeGoods. So they’re not only kind of the only game in town when you compare them to the brick-and-mortar players but they’re also one of the only games in town even on online so so they’ve seen their growth go from something like. 20% or 25% to 90% And presumably that’s all, I would imagine it’s quite profitable growth that there’s just a lot of people now who are organically coming to Wayfair and making the purchases are because they they want that new chair to put in their work from home office, so yes they really they benefited on all sides from from covid which you know hats off to them I’m happy that it’s been. It’s been good for them. Jason: [1:05:20] Yeah it’s going to be in a mean I obviously we all wish all these companies the best it’s going to be interesting like, hey they’ve got to be able to be get profitable on that on that revenue or like certainly it’s going to be scary and hopefully they can they can leverage all those new customers into a long-term viable. Dan: [1:05:38] I think the long game is the big question that I have and still to me now it’s just an open question I feel like you thankfully. Yeah I feel like our thesis was validated the stock actually fell to within our valuation range before you know things went crazy with covid so I feel like I don’t have a whole lot of skin in the game right now, but I do still wonder those stores will eventually come back online some of them are closed permanently like Pier One is not a company called Tuesday they are liquidating you know so so that Supply is not coming back on the market but, you know we will still see a lot of you know home goods stores reopening and then Amazon is going to reprioritize furniture and so, I think there is a question of how much of the growth that we’re seeing Wayfarer how much if it’s going to stick. And how much of it will go back to what we had seen before. Yeah I kind of think it’s a question of how severe covid it’s going to be yeah they did a certain variables that I just don’t have a good sense for right now but I think that that will be a big part of the valuation story. Jason: [1:06:46] No I think you’re right like I you know it’s going to be interesting because I feel like a lot more competition than we realize right now is going to go away like of the traditional competition because. There’s a bunch of Independence that you know have become insolvent and we just don’t hear about them but I mean aggregate their 25% of the furniture market there’s a lot of regional chains that. You know just haven’t bothered to file bankruptcy yet because they can’t run a liquidation sale right now it’s kind of hard to declare bankruptcy at the moment so that’s going to happen but then for your point, Amazon and you know the most healthy well resource of the surviving retailers as you know are all going to want to grab that share nobody’s going to want to just advocated. The Wayfarer so it’s going to be a, interesting battle to watch play out but Dan that’s going to have to be a good place to leave it because we have slightly exceeded our allotted time but we were enjoying our conversation so much that. You thought it was well worth it so we really appreciate you taking the time and really enjoy the. Dan: [1:07:47] Yeah thanks thanks again so much for thinking of me and having me on the show this is this is a stuff I stay up to talk about this to anyone who’ll listen so so so thank you it’s been a lot of fun for me too. Scot: [1:07:59] Thanks and we really appreciate it and I think you know my goal is to learn a couple things everyday I think I’ve filled up at least the rest of the month and maybe July so really appreciate it. Dan: [1:08:11] Being too kind but thank you. Jason: [1:08:12] And until next time happy commercing.

This episode of "Lets Talk Loyalty" was inspired by some exciting ideas emerging from academic leaders who are increasingly helping investors to consider the future lifetime value of customers (not just historic revenues) when valuing a firm. "Customer Based Corporate Valuation" (CBCV) is a concept developed and commercialised by Peter Fader, Professor of Marketing with the Wharton School at the University of Pennsylvania, together with Dan McCarthy to help investors and loyalty marketers apply ever more sophisticated financial models to our businesses to accurately understand the value of our customers as a strategic asset. These models are generating exciting insights for C-Suite Executives, and the episode discusses how we as loyalty marketers can ensure we educate our company leaders to appreciate and value the loyal customers and relationships we nourish. Show Notes: 1) Professor of Marketing, the Wharton School of the University of Pennsylvania 2) Dan McCarthy - Assistant Professor of Marketing at Emory University 3) Leigh McAlister - Professor of Marketing - University of Austin 4) Harvard Business Review - Jan/Feb 2020 issue articles - "The Loyalty Economy." 5) Theta Equity Partners 6) Customer Centricity: Focus on the Right Customers for Strategic Advantage - 2012 Edition (New Edition Scheduled July 2020) 7) Bain & Co - How to Calculate Customer Value

As a professor of marketing at Wharton, Peter Fader has focused most of his career on analyzing data to predict how customers will behave. He is also cofounder of Theta Equity Partners, which offers customer-based corporate valuation—a way of valuing firms based on the quality of their customer base. His most recent work, in the January/February 2020 issue of Harvard Business Review and cowritten with recent podcast guest Dan McCarthy, is called “How to Value a Company by Analyzing Its Customers.”

Peter Fader, is a professor of Marketing at The Wharton School of the University of Pennsylvania, and the co-founder of Theta Equity Partners. In this episode, Peter and I talk about how you can maximize a customer's long-term financial value to your company by aligning the development and delivery of your products and services with their current and future needs. We’ll also dig into how to develop a deeper understanding of the characteristics of your highest-valued customers and from that develop the strategies to find and acquire more customers with similar characteristics. 

In the second part of our conversation about customer-based corporate valuation, Dan McCarthy of Emory University's Goizueta Business School and cofounder of Theta Equity Partners explains how investor—and executive—behavior would change if companies had to disclose metrics that revealed the true strength of their customer base, rather than the many accounting disclosures today that actually can mask damage done to customers and customer relationships in pursuit of short-term profits.

Dan McCarthy spends his time figuring out what loyalty is worth to shareholders, and how to measure it. As cofounder of Theta Equity Partners and assistant professor of marketing at Emory University's Goizueta Business School, he and his colleague, Wharton professor Peter Fader, have developed a technique called customer-based corporate valuation that helps shareholders value a company by analyzing how its customers behave. Their approach signals a shift from a “growth at all costs” mindset toward sustainable growth based on the acquisition and retention of profitable customers.

How do you prioritize your marketing efforts for customer retention and then use that to find your ideal customer? It's more than just the profile. It's more than the cost of customer retention vs. acquisition. So how is it done? Step through the door and have a seat because class is in session with Marketer, Author, Entrepreneur, Co-Founder & Director at Theta Equity Partners, and Professor of Marketing at the Wharton School of Business, Peter Fader. He educates the audience on what it means to start implementing customer centricity and how to change your mindset from cost to value.   Takeaways: Customer heterogeneity-The idea that customers are wildly different from each other. There is no ONE customer, they are all different. Each customer is the unit of analysis. What do the customers respond to? How can your company build relationships with them? They need to be a business' focus. Customer Lifetime Value (CLV)- “The future projected profitability for each and every customer.”-Peter Fader To consider CLV, the marketer needs to think about how long the overall relationship with this customer will last, how many orders they will buy, what is the size of those orders, and what is the profitability margin of each one? The Recency, Frequency, and Monetary value (RFM) of purchases, that each customer's history has, all influences their customer lifetime value. Recency, frequency, and value only apply to non-contractual purchases, this outlook is best used with one-off purchases. Taking into consideration RFM, allows business owners to decide whether they want to prioritize their efforts towards a customer that is threatening to not purchase again or if they should place their focus on a customer that just signed on. Consider an abundance vs. scarcity mindset, are you more concerned with the cost of customer retention vs. acquisition, or are you concerned with the value that the customer will have overtime for your business? Being an entrepreneur provides for an exciting educational experience. Do not be afraid to take a risk and see if your business model will work.   Links: LinkedIn: https://www.linkedin.com/in/peterfader/ Twitter: https://twitter.com/faderp Theta Equity: https://www.thetaequity.com/ Wharton School Website: https://marketing.wharton.upenn.edu/profile/faderp/ Customer Centricity Book: https://www.amazon.com/Customer-Centricity-Customers-Strategic-Essentials/dp/1613630166/ref=sr_1_2?keywords=Customer+Centricity%3A+Focus+on+the+Right+Customers+for+Strategic+Advantage&qid=1561730651&s=gateway&sr=8-2 Customer Centricity Implementation: https://www.amazon.com/Customer-Centricity-Playbook-Implement-Strategy/dp/1613630905/ref=sr_1_1?keywords=Customer+Centricity%3A+Focus+on+the+Right+Customers+for+Strategic+Advantage&qid=1561730749&s=gateway&sr=8-1   Busted Myths: Businesses need to be concerned with THE Customer.-This is not so, there is no ONE customer. Businesses need to be concerned with understanding all the different customers they might have and prioritizing their efforts to the right kind of customers. Customers are all different, therefore companies need to consider how their product or service should be marketed to these different kinds of customers.   Shout Outs 9:27 Lester Wunderman, Father of Direct Marketing 50:43 Leigh McCallister 54:04 Zachery Anderson, Electronic Arts

Our guest is Wharton School Marketing Professor Peter Fader. He is the Co-Founder of predictive analytics firm Zodiac, which was sold to Nike in 2018, and is currently revolutionizing finance and retail investments as Director and Co-Founder of Theta Equity Partners. Professor Fader’s work has been published in, and he serves on the editorial boards of, a number of leading journals in marketing, statistics, and the management sciences - and he has won many awards for his teaching and research accomplishments. Join us as we explore his work, professional endeavors and insights into customer centricity, customer lifetime value, and customer-based corporate valuation.

Sarah E. Toms is an Executive Director and co-founder of Wharton Interactive where she has built award-winning EdTech teams that develop highly engaging games and simulations, which are played by tens of thousands of students globally. Her drive to modernize, transform, and democratize education led her to co-invent simpl.world, an open-source simulation framework. As an entrepreneur for more than a decade and a demonstrated thought leader in the technology field, Toms has founded companies that build global CRM, product development, productivity management, and financial systems. She is dedicated to supporting women and girls in technology through her work with the Women in Tech Summit and techgirlz.org. Follow her on Twitter at @SarahEToms.   Peter S. Fader is the Frances and Pei-Yuan Chia Professor of Marketing at The Wharton School of the University of Pennsylvania. In 2015, Fader co-founded Zodiac, a predictive analytics firm that was acquired by Nike in 2018. More recently, he co-founded Theta Equity Partners, which focuses on customer-based corporate valuation. His expertise centers on topics such as customer relationship management, lifetime value of the customer, and strategies that arise from these data-driven tactics. Fader is also the author of Customer Centricity: Focus on the Right Customers for Strategic Advantage and he has been interviewed in The Wall Street Journal, APM’s “Marketplace,” NPR’s “Planet Money,” ABC’s “Good Morning America,” Forbes, and more. Follow him on Twitter at @FaderP.   Questions   Could you tell us some of the things that really propelled you to take it a step further especially focusing on the difference between customer centricity and customer lifetime value and how an organization can really identify what that is for them. In the book you also focused on the difference between customer centricity versus product centricity. Could you share with us a little bit about that?And do you find that organizations are shifting more towards customer centricity and less in the product realm? Could you share with our listeners what are some necessary elements that help to support customer centricity in an organization? How is it that you integrate the CLV (Customer Lifetime Value) and align the customer service strategy with a proper CRM solution? Could you share with us a little bit about the loyalty programs in terms of does every organization need a loyalty program in order to have an effective or have a true reflection of what their customer lifetime value is to understand the whole metric process? Based on your experience, your research, your exposure, different interactions that you've had with different people. How do you view customer experience today and what do you think it will look like 5 to 10 years from now? Could you share with us maybe one online resource, tool, website or app that you absolutely cannot live without in your day to day operations? Are there any books that have had really great impacts on you that you'd like to share with our listeners that you think will help them in their own journey? Could you share with us, maybe one thing that's going on in your life right now that you're really excited about - either something that you're working on to develop yourself or your people? Where can our listeners find you online? What’s one quote or saying that during times of adversity or challenge you revert to that quote to help you to become refocus and to get back on track?   Highlights   Peter shared that they build a bridge from the first book to the new one and to the simulation that was mentioned that Sarah has developed. So, the first book was about this radical idea that a company can potentially make more money and have more sustainable, defendable success by focusing more on the differences among its customers by celebrating heterogeneity, that if we can figure out who the right customers are and kind of double down on them, enhance their value, find more like them, that that could do better than just obsessing over version 2.0 of the product. But the thing about the first book, it was good, and he hopes that if people haven't read it, they will but it was more definitional, motivational, aspirational, here's this concept, here's what it can do for you, here's the problems with a lot of companies out there that are failing to go in this direction. So, it was trying to get people to kind of wake up, but it didn’t really give them specific guidance how to put one foot in front of another and that's one of the things that he and Sarah have tried to do with their simulations and this new book basically takes a lot of those ideas and kind of crystallizes them, goes beyond just the simulation, makes them very real, talk about real companies, real actions.   Sarah shared that what was interesting to them was when they started writing the book they actually started to create sort of this Frankenstein, it was a combination of a simulation manual and some interesting stories and interesting content about customer centricity and how to actually put customer centric thinking into action and they brought it to their publisher and they said, “Get rid of the simulation stuff, flush out more about the book, make it a standalone piece if people want to run the simulation and read the book. That's fantastic.” But they really need something that engages folks who are working in the trenches day in day out and give them a clear guideline for how to become customer centric.   Peter stated that it goes back to some of the concepts in the first book was taking conventional business practices that they just accept as this is just how you run a business, you put the product first, that's all about what product should we develop, how do we fine tune it to meet the needs of the customer, distribution, promotion all about the old four P’s that we talk about in marketing. And we're saying, “Well no, actually let's build a business around the customers, the more valuable customers and have that.”And sort of say what product features will be most appealing, they say, “Here are the most valuable customers, what is it that they want?” And so, they start looking at product development and product management quite differently. Again, when he wrote the first book it was more about just this provocative kind of let’s do a 180 on the way we think about business. But they still stopped short of actually saying, here's an overall playbook which of course is the name of the new one to begin to not only embrace the metrics and all the “mathy” stuff that he likes to do but the thing more about how to build the right kind of organization, how to send the right kind of message, how to establish the right kinds of principles. Again, tremendous credit to Sarah for taking some of the best practices from the software world and bringing them over.   Sarah stated that at the end of the book they have a manifesto which really comes from her experience in technology and software development, where she experienced something very similar to what she’s learned now with partnering with Pete over the last four years…..five years that's happening in the marketing science world as well. And that is it, they're being inundated with all this data, there's data insights and data collection and it's becoming cheaper and easier and faster to just collect swathes and swathes of information about their customers and how they behave and what makes them buy etc. And the problem is that a lot of it is garbage and so we had something similar happen in the software development realm in the dot.com heydays where they had this tremendous capability with technology and the problem was they were really weighed down by old bureaucratic bloated software processes, she’s talking about waterfall where they had to write reams and reams of documentation and they weren't able to work leanly and be able to keep up with the technological advances in a way that was in line their our customers and their business users and what they actually wanted from the software that was being developed. And so, this sparked an idea as she was having these conversations with Pete and she said, I think what we really need for customer centricity is we need a manifesto as well. We need something that will really focus business people, it will give them just simple clarity around what is important and what they need to double down on with regards to customer centricity.   Yanique mentioned that the book is a playbook, anybody in an organization in a leadership role or non-leadership role can pick up the book and they will be able to have a guideline like step by step as to how they can really master customer centricity in their business, whether they're an organization that has customers that come in or they're an online business.   Sarah stated that the way that they've laid out the book from the playbook perspective is to really think about those different functional areas. Our goal with this to most definitely make sure that this was a cross-functional conversation. This playbook is not just for the sales person or the marketing person, this is for the data person, it's for the finance people, it's for the folks in H.R., the folks who are developing the products are indeed, this is for everybody. And it's really again pivoting and pivoting so that your customers are at the center but understanding that this heterogeneity at play within that customer base and how are you really going to focus in on what you need to do. So, when you're thinking about acquiring those customers, when you're thinking about retaining them and developing them, when you're thinking about having conversations with those in your technology team on how to tag them and track them and understand what information is actually important when it comes to figuring out who's valuable today, who will be valuable tomorrow and when I'm acquiring new customers who's more than likely going to be valuable to the organization and then taking all of those conversations and making sure that folks in your finance team understand what that means from the customer lifetime value standpoint.   Peter stated just to add one other example to that, he thinks Sarah mentioned that one of those elements being retention and development, they look at the array of new tactics that are available to either make your customers more valuable and have them stay around longer. So, things like a loyalty programme or a premium offering or customer experience or strategic account management and the problem is a lot of these tactics are so new, they just weren't done. They didn't exist a generation ago and so, companies don't really know which one to use when. When should be lean towards the loyalty program versus the premium offering? You really need a playbook to kind of lay out all these tactics and come up with a solid framework to give companies guidance about, don't invest in all of them but think strategically and have a good idea of would it makes sense to start one or pivot to another. So, that's just one example where they're starting to get much more tactical and starting to deal with issues that just aren't in what say your traditional marketing one or one type course.   Peter shared that for him, a big part of it is all about Customer Lifetime Value. And again, he acknowledged it's a bias because that's the kind of research that he has done, those are the kinds of models and activities that he has commercialized in a couple of different ways but to do customer centricity right, you have to be able to have that CLV (Customer Lifetime Value) magic wand, you have to be able to look at a customer's past interactions with you and say here's my best guess about what they're going to be worth in the future and to line up customers in that future looking way and to use those numbers and those differences across customers to really drive all these tactics. So, a lot of companies are eager to get into the tactics, they want to do that customer experience campaign but they're saying it won't be nearly as effective if you don't have a good quantitative assessment of the value of customers before and after you do that kind of campaign.   Sarah shared that one of the shining examples that they use a couple of times in the book is Electronic Arts. So, Electronic Arts is really one of the most mature organizations that they've seen with regards to customer centricity. Every day as players are playing their games they are collecting data about behaviours about what they know about who's more than likely going to be a high, medium and low value customer and they're feeding that information back to the game studios, they're letting them know, “For our high value customers, did this part of the game work the way we thought it was going to, did we see this as high engagement as we were hoping and if not why not and what do we need to do to pivot in the actual game development.” They're using information about these customers with how they advertise to them. So, not just saying, “All right well, here's our advertising campaign for this game, we'll put it out there, it'll be out there for a month, three months, five months.”They're using that information about their customers to actually fine tune how they target and attract the customers that they're looking to seek.   Yanique mentioned that it is definitely a combination of many different things all in one in terms of an organization looking at how the customer is interfacing with their product or their service, the frequency of them utilizing that product or service and of course to spend.   Sarah agreed and stated that RFM (Recency, Frequency, Monetary) is still key. RFM is a marketing technique used to determine quantitatively which customers are the best ones by examining how recently a customer has purchased (recency), how often they purchase (frequency), and how much the customer spends (monetary). To build on what Peter was saying about customer lifetime value in chapter 1, they spend some time delving into problems with CLV that they see that are common out there and mistakes that are being made with the calculation itself. So, CLV itself can be quite complex and there's lots of open source ways to leverage and create CLV calculations within your organizations. But they do spend some time going through the mistakes which should hopefully shine some light on how to be tracking and calculating CLV correctly in your organization.   Peter stated that on the CLV side, he learned so much not only from the research that he does and interacting with students and executives but through his first startup company called Zodiac where they were working with a wide variety of companies calculating the CLVs for them. And it was surprising because he really thought he is just bringing you the CLVs, “I am the expert here, take the CLVs and make money rain down from the skies.” But it was a great learning exercise for him to see the kinds of use cases that companies would come up with and actually, Sarah basically gave the list of them a few moments ago and she was talking about all of the different tactics that you need to understand and align and do in an accountable way - customer acquisition, retention development, with that customer experience campaign, it's not enough just to give people glasses of champagne when they walk into your store, you have to do the CLV calculation, you have to say how valuable were they before this campaign started, how much more valuable are they afterwards or better yet, more realistically, how many customers meaningfully increased in value and how many of them are the same as ever before. So, CLV gives us a really good lens not only to make decisions but to evaluate decisions after the fact and so again, just seeing the way that companies have been using it very creatively as far as he’s concerned across a wide variety of functions and by the way that includes getting outside of marketing and maybe in a bit we could talk about the idea of customer based corporate valuation. Let's get the CFO into this party as well so we could talk more about that but to the other part of the question, it also goes to having really good CRM systems which is a big part of Sarah's expertise.   When asked how do you know which one is the right CRM to go with, Sarah mentioned that unfortunately there aren't any great additions to CRM yet that they've seen. In her conversations with a number of the companies that appear in the book, L.A. Dodgers is a great example, they have had to build their insights outside, so they use salesforce and they're then doing the analytics sort of outside, their tracking all of their customers in their CRM but then they're running a different algorithms etc. in other systems which is unfortunate. So, she thinks Peter would agree that a lot of the companies that he has been working with they're having to kind of roll their own if you will because there isn't a good solution out there yet.   Peter agreed and stated that that is unfortunate. They were in the process, they were creating that solution through his company Zodiac, but Nike bought that firm which was of course a wonderful outcome but now it's all under the swoosh. So, he really hopes that companies can learn from those experiences. And again, a lot of that through that they're trying to convey in the book both laying out these frameworks as well as these specific company profiles that Sarah has been referring to.   Sarah stated that just to go back to the original question there was the whole point everybody thinks, “Okay well, customer service, it's to turn ugly ducklings into beautiful swans.”This is another point in the book is really think and this was to Peter's earlier point, we've got all of these sort of ways that we engage with our customers, ways to increase CX quality, ways to increase hopefully customer loyalty but it's very rare that you take somebody from your bottom tier from a customer lifetime value standpoint and boost them all the way up to the very top. And so, rather than think that you can do that and expend a tremendous amount of energy trying to achieve that impossible dream, just look at what you're doing and understand who you're serving from a CLV standpoint. So, customer service is really for your lower value customers and the same with loyalty programs like understand that that's who you're really targeting those types of programs to.   When asked if all organization needs a loyalty program - Peter stated no and a lot of companies are finding that the hard way because there's this lemming like behavior out there that, “Oh, we've got to have one too. It's a box that we need to check, some of our competitors have one.”So that's why they really try to come up with a framework that says, “Under what circumstances do you really need a loyalty program?” Sarah just said, if you think about it logically, a buy nine get one free just kind of a basic loyalty program, that's not appealing to your top platinum customers, they're going to buy from you all the time anyway.They're looking to deepen the engagement not necessarily just to buy more stuff.Whereas for those middle to lower customers if we could get them just to buy a little bit more often that that's how we can create more value out of them. So, a big part of it is that loyalty programmes are aimed more at the middle to lower tier of your customer value pyramid. And if that's where your main strategic focus is at a given time then great, that's the way to go but too often companies are thinking about the loyalty programme as something that would be appealing to or aimed at the tippy top customers. And again, they're with you not because of points, not because of bonuses, put it this way if that's why they appear to be really valuable customers, if it's all because of the goodies that comes from the loyalty programme, then they're not really loyal, then you're kind of bribing them to be with you. So, you want to find ways to appeal to the high value customers that's just a very different kind of thing, something like a premium offering where it's not a matter of giving them stuff, it's actually a matter of getting them to actually potentially pay a little bit more to kind of show their loyalty, to show that they want to have a different kind of relationship with you, that they want to have that kind of badge of honor to show that they're different than most customers. So, they're trying to bring some logic and discipline to things like loyalty programs and customer experience and customer service that they feel just doesn't exist anywhere out there to date.   Sarah shared that they actually have a new blog post or article coming out very soon that talks about customer experience and the fact that it is not customer centric.And they outlined this in their upcoming article. There are just a few small steps that organizations could be taking to become more customer centric when it comes to see CX. She alluded to this earlier in the conversation when they're talking about CX, they're looking at different ways to really reduce the friction that their customers feel when they're interacting with them, with their brand etc. And there are many different ways to measure CX and how they're doing with respect to CX, whether it be CX quality which is measured by effectiveness, ease and emotion or customer loyalty which is measured by advocacy otherwise known as a Net Promoter Score, enrichment and retention. And one of the problems that Sarah and Peter have is that these CX measurements, these metrics are one dimensional, they don't really tell them anything else that's happening with respect to their customer and that interplay with the brand. And so, what they've done with this article is they've created another framework where they're looking at the CX metrics, again switching costs and switching costs as they know are a way to measure another form of friction that their customers are experiencing. And so, what they've done in this new framework is they've said okay if they're looking at high switching costs against their CX metric and they're doing really well with customers, they've got caged customers but they're very loyal and they're happy to be with them. What they should be doing with them versus customers who have got a low CX metric and low switching can cost. So, those are their revolving doors if and that's where something like a loyalty program might come in. They don't have a lot of friction from the standpoint of staying with them, they want to try to raise that a little bit so they do stay with them more and they can extract a bit more value from them so a loyalty program would be perfect for them and then for anybody who is kind of stuck with them because of high switching costs but they've got high value, let's look at making them happier while they're kind of stuck with them. They want to keep them engaged and then hopefully once competition comes in or those switching costs may be lower, they still are able to retain them as high value customers.   When asked about tools and apps, Sarah shared that for her and her team, she’s still a technologist, she has had the absolute pleasure and honor of being able to write this book and really double down on the way she thinks about her customers that she’s designing technology for. Agile is what she lives and breathe by. So, she works with teams that are international, she brings the best of the best to the table and she doesn’t really care where their brain is as long as she gets to leverage their brain and being able to run lean teams is very important to her. And so, Slackis her go to and this is a way that she’s able to communicate very quickly and rapidly with her teams. And then also where she’s actually tracking software changes and her sprints and that kind of things, so they use GET Laband Jirato do a lot of that management. And that kind of approach, that lean approach is something that again they talk about in the playbook and the importance.   Peter shared that he’s addicted to Twitter, but whether it's for news, sports, entertainment but also just a whole bunch of people that he follows who are always looking for the best practices of how companies are using their customer level data. So, just the million anecdotes a day some good, some appalling but it's just a great way to learn a lot of different stuff and then make up your own mind about which is good, and which is not so good but good to have that kind of broad exposure. Peter shared that he doesn’t read books anymore, Twitter is the firehose that really keeps him attached to the world.   When asked about books that have had great impacts, Peter stated that he has a couple, but he’s actually very interested to see what Sarah has to say because as she was starting to develop this simulation and then write the book, she took a whole bunch of books off his shelf and kept some of them a little too long actually. So, it would be interesting to hear which one she said were the ones that really shaped her thinking the most, but he'll share which one is at the top of his list. It’s an oldie but a goodie and it’s really one that got a lot of these ideas started, it's a book called The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value by Frederick Reichheld. Kind of interesting, he's a Bain Consultant, not an academic and this was a book he wrote back in 1996 which is ‘500 years ago’ for all intents and purposes and basically laid out this idea that not all customers are created equal and if we could figure out who the just right ones are then all of these great things are going to happen, there will be this virtuous cycle once we find those customers because they'll will stay with us longer, they'll buy more often, they'll be cheaper to serve, they'll be strong advocates for us, they'll make a lot of referrals. And so, it was laying out this idea that loyalty manifests in lots of different ways and provides this kind of multiplier source of value, it's just a matter of figuring out who those just right customers are and they kind of stopped short of that, they didn't talk about lifetime value and so on. But he thinks it really was something that started this conversation and a lot of us today especially the younger generation thinks that we've been talking about these ideas forever but really until the mid 90s they were just not part of the conversation.   Sarah agreed with Peter and stated that she did so much wonderful reading and thanked Peter for your amazing library and contribution to that. She mentioned at the beginning of the interview that their guiding goal with this book was to land in that cross functional space and to really try to ignite a conversation about really the organizational and cultural changes that must happen cross functionally in organizations in order for customer centricity to really take root and she stumbled on this book called The Silo effect: The Peril of Expertise and the Promise of Breaking Down Barriers by Gillian Tettand it is a fantastic book, it's one case study after another of where breaking down the siloing effect that happens in organizations where that has been good for some organizations and where it's existed, where it's been really perilous and difficult. So that's one book she most certainly recommends. The other book that she recommends is The Effortless Experience: Conquering the New Battleground for Customer Loyalty by Matthew Dixon, but this gentleman has it right, you shouldn’t be trying to overdo it with every single customer, and he has written some incredible books in the CX space as well.   Yanique shared, I am familiar with Frederick Reichheld, I read a couple of years ago when I just started this business, The Ultimate Question: Driving Good Profits and True Growth, I haven’t read The Loyalty Effect but he definitely opened my mind up when I read the Ultimate Question.   Peter stated that he’s glad that Yanique made the connection. He (Fredrick Reichheld) laid out these ideas but in 1996 but it wasn’t until 5, almost 10 years later that he kind of translated them into the Net Promoter Score, this is the metric that’s going to help us identify companies that have been doing a good job at finding those customers and deepen those relationships. So, a lot of people think that Net Promoter Score just sort of appeared in the early 2000s, but it was really decades of work and thinking and just careful consideration by Fredrick and his colleagues at Bain that made that possible. And again, that revolution he thinks sparked a lot of the work that we’re doing and great admiration for the folks over there and enjoy his own collaboration with them.   Peter shared that he’s super happy to talk about his new startup.He mentioned the idea of customer based corporate valuation, let's get the CFO involved in this customer centricity thing. So, he has a new company called Theta Equity Partners, thetaequity.comand that's exactly what they're doing. It's a finance play, they're actually working with a bunch of private equity firms, Late-Stage Venture Capitalist, talking to some Hedge Funds to basically say, “Let's value your company from the bottom up, let's look at how many customers you are acquiring, how long are they staying, how many purchases are they making, how valuable those purchases, add all that stuff up and say that will give us more visibility and more understanding of the value of a company than the traditional Wall Street approach.”So, they're doing this for real and it's really working and it's actually creating a meaningful dialogue between CFOs and CMOs that has just never existed before, so it's been just a thrill to expand the conversation in a direction that he never thought he’d even be capable of doing but to see how receptive the finance and investment audiences for the stuff.   When asked if there was anything is there anything, she’s working on to develop herself or her people - Sarah shared that she is. About a year ago she launched a new team at the Wharton School called Wharton Interactiveand they are building platforms to transform education. So, when you're looking at creating experiential learning in classrooms, it's expensive, it takes a long time, it's hard to change and fine-tune once you've launched experiences and really what she has discovered over the last six years being in this niche in EdTech is that platforms provide a way that forward where we can start to build truly transformational experiences for less cost and ones that we can then fine tune and learn from and so they're leveraging ultimate reality gaming,they're leveraging even smaller things like text messaging and social media patterns to really create social learning and don't democratizing that educational experience for the learners. So, a lot of the work that she has been doing with Peter in understanding and fine-tuning folks’ eyes to heterogeneity with customers, she has been starting to think about how they bring that into learning space and creating more fine-tuned and tailored experiences for the learners knowing that not everybody learns the same way. So, that she’s very excited about, very proud of you can find out more about what they're doing at www.interactive.wharton.upenn.edu.   I'm especially intrigued by Sarah's approach to education, I do think it's something that will definitely impact customer experience in the long term. When I think about my daughter who is 13 years old and some of the challenges that they have in schools, trying to get through to these children with the information that they're trying to simulate. I find that we're teaching children in 2019, but we're using methods that were applicable in 1975 and it's clearly not reaching the audience that we're trying to reach now, they just need to be stimulated in a higher way. And so, I hope some of the work that you are doing, it materializes that it can stretch to different parts of the world like Jamaica. Because I don't know what it's like in the USA, I'm sure you probably have you greater exposure to better opportunities, but here, I can see that the methodology that they are using is definitely not as impactful and I think based on what you are saying if hopefully that can become more widespread in the long term these children who will become business owners or employees in organizations that we’re all going to have to be customers of it would be great for them to have that experience from early, Yanique mentioned.   Sarah shared that she has a 10-year-old son, she also has 3 teenage daughters and we're not just teaching the same way we did in the 1970s, we're teaching the same way we did in the 1900s, so there is a lot of work to be done in moving the needle and with a lot of pride.They're doing some amazing work at the Wharton School and it's with great partners like Peter Fader who are willing to take the leap and who are also pushing and challenging teams like hers to think outside the box and bring something new to the table for the learners.   Peter shared listeners can find him at – www.petefader.com www.thetaequity.com www.customercentricitymanifesto.org   Sarah shared listeners can find her at – Linkedin – Sarah Toms Twitter – @SarahEToms www.interactive.wharton.upenn.edu   When asked if there is a possibility for the playbook to be developed into an online course, Peter shared that he has some older online courses that are more about the kind of original aspirational, definitional, motivational stuff. The best thing that they have is the new customer centricity simulation, that really brought them together.   Sarah shared that they've got the existing simulation, it's usually played in teams and usually played with faculty or teachers who are facilitating the experience and so they've got that experience. Her team is also starting to work on a steam-based game, so folks who are interested in learning can just go to steam and they'll be able to download a single player game from that marketplace. And then she also has designs to work with Peter on creating something in the alternate reality gaming space on their arc platform and that will be a massive online offering, hopefully not too far down the road from now.   Sarah shared that she has a quote, and this is from the founder of the University of Pennsylvania, Benjamin Franklin. This is a quote she loves, and it is her world, it's “Tell me and I forget, teach me and I remember, involve me and I learn.”     Links   The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value by Frederick Reichheld The Silo Effect: The Peril of Expertise and the Promise of Breaking Down Barriers by Gillian Tett The Effortless Experience: Conquering the New Battleground for Customer Loyalty by Matthew Dixon The Ultimate Question: Driving Good Profits and True Growth by Frederick Reichheld

Peter Fader and Sarah Toms have written an incredibly insightful book - The Customer Centricity Playbook: Implement a Winning Strategy Driven By Customer Lifetime Value. Peter Fader is a Professor of Marketing at The Wharton School, he co-founded Zodiac, a predictive analytics firm that was acquired by Nike in 2018. More recently Peter founded Theta Equity Partners. Sarah E. Toms is executive director and co-founder of Wharton Interactive where she has built award-winning edtech teams that develop highly engaging games and simulations, which are played by tens of thousands of students globally.What IS "Customer Centricity"? Define what you mean by :"Customer Goodness". You telling me demographics are no longer relevant? Should CRM and CLV (Customer Lifetime Value) be working together? Does CLV really impact valuation of a company? If you love this interview and Peter and Sarah's book, and want to join in the movement (I did!), go to www.customercentricitymanifesto.org. You can find Peter Fader and Sarah Toms on Linkedin and find Peter on Twitter @faderpThe Business Builders Show with Marty Wolff and guest host J. Kelly Hoey is distributed by www.c-suiteradio.com. Learn more about your hosts at www.martywolffbusinesssolutions.com and www.jkellyhoey.coCall or text me at 570 815 1626 with your comments and questions.Marty Wolff See acast.com/privacy for privacy and opt-out information.

What kind of financial impact should marketing-savvy businesses expect in 2019? Dan McCarthy, co-founder of Theta Equity Partners and an assistant professor of Marketing at Emory University joins us this week in the Accelerator to explain corporate valuations based on the quality (not quantity) of customers. He talks about why StitchFix’s numbers are so good and why HelloFresh and BlueApron have a serious retention problem. Dan lays out why customer value is so important and why smart, strategic marketing matters more to your bottom line now than ever before.      Please help us spread the word about building your business’ customer equity through effective customer analytics. Rate and review the podcast on Apple Podcast, Stitcher, Google Play, Alexa’s TuneIn, iHeartRadio or Spotify. And do tell us what you think by writing Allison at info@ambitiondata.com or ambitiondata.com. Thanks for listening! Tell a friend! Learn more about your ad choices. Visit megaphone.fm/adchoices

Business Radio Special: Special hosts Pete Fader, Frances and Pei-Yuan Chia Professor of Marketing at the Wharton School, and Sarah Toms, Executive Director and Co-Founder of Wharton Interactive, lead a discussion around their new book "The Customer Centricity Playbook" now available on Amazon or Wharton Digital Press. This hour they speak with Dan McCarthy, Assistant Professor of Marketing at Emory University's Goizueta Business School and Co-founder of Theta Equity Partners, featured in The Customer Centricity Playbook for his research around "customer-based corporate valuation". Book: https://www.amazon.com/Customer-Centricity-Playbook-Implement-Strategy-ebook/dp/B07GX87GVX See acast.com/privacy for privacy and opt-out information.

Dan is an Assistant Professor of Marketing at Emory University's Goizueta School of Business. His research specialty is the application of the leading-edge statistical methodology to contemporary empirical marketing problems. His research interests include customer-based corporate valuation and customer lifetime value. His research has been accepted and published in top-tier academic journals such as the Journal of Marketing, the Journal of the American Statistical Association: Theory and Methods, Statistica Sinica, and the Annals of Applied Statistics. It has also been featured in media outlets such as the Harvard Business Review, Wall Street Journal, FT, Fortune, Barron's, CBS, CNBC, Slate, Business Insider, The Motley Fool, and Forbes. Dan was Co-Founder and Chief Statistician at Zodiac, a predictive customer analytics firm until it was sold to Nike in March 2018. Dan has since co-founded Theta Equity Partners to commercialize his research on CBCV. He received his P.h.D in Statistics from the Wharton School of the University of Pennsylvania. Follow Worthix on LinkedIn: https://www.linkedin.com/company/worthix/ Follow Worthix on Twitter: @worthix Follow Dan on LinkedIn: https://www.linkedin.com/in/danielmcc/ Follow Dan on Twitter: @d_mccar Follow Mary Drumond on LinkedIn: https://www.linkedin.com/in/marydrumond/ Follow Mary Drumond on Twitter: @drumondmary Theta Equity Partners website: http://thetaequity.com Dan's most recent projects: Customer-based corporate valuation for subscription firms: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2701093 Customer-based corporate valuation for non-subscription firms: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3040422