Speaking the same language on growth and margin - CLV2.0
Updated: Oct 1, 2019
We have developed a tool that provides a common language of growth between strategy, finance, marketing, product and design teams. The tool draws upon CLV concept from marketing science, Jobs To Be Done thinking and broadly Management Science ideas. We are calling this tool CLV 2.0. This article provides the motivation (why) CLV2.0 is going to be useful for our clients and businesses in the coming future. In our next article we will publish the basic theory (what) and structure (how) of CLV 2.0.
CLV reveals the margin opportunity
How much is a customer worth? Is a market worth entering? What’s the margin?... This is the language of CLV. It quantitative. It weighs heavy on the minds of marketing and the C-Suite.
CLV sees consumers as a walking stream of present and future cash flow. Many organizations value CLV highly. They align company processes to measure, forecast, and affect CLV. It’s all about the numbers. The demand driving those numbers is of little concern.
After CLV is calculated and opportunities are identified, CLV thinking is turned off and demand thinking is turned on. The important questions to answer now are:
What can we sell to extract those margins from consumers?
How should we promote what we should sell?
JTBD reveals the growth opportunity
Creating growth (what to sell and how to sell it) is what demand thinking focuses on. If CLV want to see your credit card statement so they know the price of the products you buy every month, then demand thinking wants to know why you even consume those products.
JTBD is an elegant theory of growth and demand that helps us understand what causes consumers to adopt and continue to consume a product. The idea is that when consumers desire to make a change in their life, they will “hire” new products to help them make that change. And because consumers now desire new experiences, the products they used in the past lose their value, and are “fired”.
Demand creators value JTBD because it enables them to understand the true value a product offers to the consumer. Consumers adopt Amazon Prime - not because they get goods cheaper, better, or faster, but because adopting Amazon Prime means not having to make a decision - between spending 30 minutes with the family, or spending those 30 min driving to the corner store to pick up laundry detergent. This re-definition of value and market behavior is fertile ground for marketing, product, and strategy.
Different ideas that share goals (growth and margin)
Historically, CLV and JTBD ran on different tracks. They may have run together, but they were calculated and studied separately nonetheless.
But does this make sense? Isn’t the ultimate goal of both to enable businesses to grow revenues and increase margins? And if they do share the same goals, why are they calculated, investigated, and executed separately? If you do investigate each separately, what comes first, demand estimation or demand generation? Why start with one over the other?
We all understand Growth and Margin, but we rarely speak it when collaborating
We intuitively know that increasing growth and margin is our ultimate aim. If margins are bad, growing negative margin at scale is a dumb idea. If growth is slow in high margin business, demand generation is an excellent idea. If margin is slowing in a high demand business, demand estimation and margin control are the appropriate steps.
Growth and Margin should be everyone’s goal
You don’t need a $200K MBA to understand growth and margins:
Growth happens when:
A consumer using a substitute / competitor’s product adopts your product
A new consumer enters the market and adopts your product
An existing customer starts buying more of your product
An existing customer starts buying different products that you offer
Margins falls because:
Customers’ willingness to pay is low for your product
Your costs are increasing
Every team within a company, whether it is regional sales, product marketing, product design, corporate HR or [fill in your favorite team] is responsible for growth and margin. It's another matter that each one is accountable for these in different ways; but when either growth or margin fails, the entire company pays for it somehow. Why then is it not everyone’s responsibility? That's because we do not speak a common language and are entrenched with different jargon and different loci of responsibilities.
CLV 2.0 brings together JTBD (growth) and CLV (margin)
JTBD speaks growth. CLV speaks margins. CLV2.0 brings them together and creates something new. It is more than the sum of its parts.
CLV 2.0 = CLV x JTBD
CLV2.0 was developed by drawing from the deep well of Marketing Science and expertise with JTBD. Shout out to the #MarketingScience community and #JTBD practitioners on whose shoulders we stand.
We are excited about launching our CLV2.0 service line. Reach out to us, we would love to hear your thoughts.