Ok, wait just a minute, you might be thinking.
Where is Jim Novo going with this idea of Current Value and Potential Value in customer marketing? Does he think I can predict the future of how my customers will behave?
First Novo said to build a model of my customer behavior, then he said that change is the most important measurement in the model, and finally he said that I should use the model to maximize my customer assets like a stock portfolio, that I should divide my customers or buyers into Current Value and Potential Value.
How can I predict the future?
I understand how I could look at my customers, watch for changes in their behavior, and see whether their Current Value is going up or down. After all, I have transactions I can look at — either financial transactions once they become a customer or other transactions as they interact with the material on my website as a buyer.
But how could I look at the Potential Value? Isn’t the customer behavior that determines Potential Value going to happen in the future? Am I to become a fortune teller?
You are exactly right to ask these questions. How you measure Potential Value is not at all obvious.
It’s change in customer value that matters, not the absolute value
The answer lies in remembering that it’s not so important what the absolute value of a customer is at any one time. What’s important is to know whether the value is rising or falling. It’s changes in behavior that will tell you what will happen in the future.
Think about stocks in a financial portfolio. If you have ten stocks and their prices have all been stable for the past year and then one of them starts to trend upwards or downwards, well, you are going to immediately take a look at that stock and try to understand what is behind the change.
With customers what we want, Novo says, are “LifeCycle Metrics you can use to forecast future changes in value by tracking behavior in the present.”
Look at customer behavior for changes in Friction
What is Friction? Here’s Novo:
Friction is really about the likelihood a customer will continue to do business with you. The actual causes of friction are created on the business side, and manifest themselves on the customer side as impatience, frustration, and lack of loyalty.
Friction is especially important in B2B Marketing because customers have so much control over their relationship with you. They control the pace of their journey and their sources of knowledge and education.
The friction effect is especially true and is more pronounced as “customer control” of the business relationship increases.
As the customer ability for the customer to exert control in the business relationship increases, customers become less and less tolerant of friction.
As Friction increases, buyers are less likely to interact with you
We can’t measure Potential Value directly, but we can measure changes in friction. If we can measure friction, then we can measure the likelihood that buyers will continue to interact with us and move further along their buying journey with us.
Visitors to our sites will “signal” their current and future level of interest.
How will we respond to increasing buyer friction? By applying grease of course. When you provide more value to your buyers in the form of programs you apply grease and increase the potential value. More importantly, you can collect LifeCycle Metrics that tell you more precisely where to apply the grease. Your marketing ROI will improve simply because you are spending resources only where you need to.
Jim Novo’s book, Drilling Down, begins by teaching the reader how to use the LifeCycle Metrics of Latency and Recency to track Potential Value. They teach how to use customer friction to predict the future and improve your profits.
Then Novo goes into the Recency-Frequency-Monetary (RFM)model to use both Current Value and Potential Value to “really juice up your results and drive even higher profits to the bottom line.”
I’m going to be explore these ideas too because they apply not just to customers, but also to B2B buyers who are trying to become customers.