Zukunftsfähigkeit

Zukunftsfähigkeit is a German word meaning ‘the ability to face the future.’ Small businesses and the data providers that serve small businesses seek “zukunftsfähigkeit.” 

Brands need a way to mitigate the threats imposed by the ever changing consumer consciousness and marcom and data worlds. Founders, CEO’s, executive teams, and analytics teams are drilling deeper and deeper and deeper into granular metrics in order to view the effectiveness of the instances of interactions customers have with their marketing messages, user experience, brand stories, and media buys in order to optimize conversion across the customer experience value chain (value chain = merchandise, service, and communications) in the endeavor to create a valuable customer and thus a scalable, profitable enterprise. In response, the data world is unearthing more and more detail and automating more and more detailed communications in the hope that the optimizations of these singular instances will lead to scale and profitability.

It won’t. It doesn’t.

The truth is, business leaders are lost in this tsunami of detail without clarity of aggregate efficiency. No data provider to date has yet to solve for the overwhelm of detail. None are looking at the circumstance holistically. And thus, small businesses are left to sift through this tsunami's worth of tactical information and demographics in search of some form of enlightenment of how to succeed—This is the collective, grand struggle holding businesses back.

The LTV:CAC Ratio has come to sit at the center of this tsunami. LTV is the average lifetime value of a customer in the brand’s active buyer file, aka customer database. CAC is the overall Customer Acquisition Cost. The idea behind tracking the ratio is to maximize the value customers provide versus the cost of acquiring them. Quite straightforward. And, quite erroneous. Erroneous in that the ratio proposes that to succeed, one merely has to increase LTV or reduce CAC, or both. Which sounds like a silver bullet. But, if we were able, would we not have already done it? And, what if we have not, what does this metric provide us in the way of insights to improve LTV, or the CAC, or both? How pray tell does one do this?

Ultimately though, the veiled risk this ratio thrusts upon would-be marketers and data analysts is motivating behavior by these same marketers and analysts that is antithetical to the brand’s overall health and wellness. 

Bluntly said, it’s coercion driven by self interest. Thinking in terms of tactical metrics such as CAC or resultant metrics such as LTV causes the intent of the organization to try and get the customer to do something (make a purchase, sign up for a newsletter, etc.) that benefits the brand. These metrics are the tail wagging the dog. Hence why they dupe marketers and analysts into actions that are counterproductive to cultivating a relationship with one’s audience. 

There of course are no absolutes, and yet, the quest to lower CAC comes with a tendency to sweeten the deal for first-time buyers, enacting discounts and incentives, which might increase conversion, but can assign a lesser value to the brand in the consumer’s mind, and decrease LTV.

When attempting to increase LTV, often the tendency is to also promote or incentivize more frequent purchasing or an increase in average order values in single transactions. Imagine “free this or free that” for purchases over a certain amount or within a certain period of time. Or the revolving door of promoting new, new, new incessantly. 

This dynamic within the customer environment trains customers to game the system to gain the discount, or worse, shift their attention to the transaction while simultaneously distracting them from the greater overall brand value. Picture standing in the vitamin aisle at the grocery store comparing the cost of different bottles of Vitamin C. Lost is the value of the folks producing Vitamin C. The attributes of transactional detail become the focal point. As noted, these are not absolutes, but the example demonstrates the puzzlement most marketers and analysts are facing, which is that the true dilemma caused by the LTV:CAC ratio is a misallocation of attention, weighted on the front-end and back-end of the customer journey. 

Focusing on lowering CAC or increasing LTV diverts attention from serving the consumer in total, holistically. Those over indexed on LTV:CAC are missing the most crucial element of customer engagement. The human element. Why does your brand exist in your consumer’s life? How do you serve your constituency? Why are you important to them? What is it that ultimately is causing the relationship between your brand and the customer to flourish?

Unfortunately, there hasn’t been, to date, a means to identify these emotional connections and measure the efficacy of how brands are managing them to form meaningful and lasting relationships with their constituency.

Until now. Introducing The Brand Equity Index™.

The Brand Equity Index measures the efficiency of the matriculation, the “Migration,” of Prospects to become long-term brand advocates. It is the only model that predicts why, when, and how a customer will buy based on what you do as a brand. This measurement has been two decades in development and is the result of exhaustive qualitative field studies featuring thousands of interviews conducted with consumers across categories, and the corresponding analysis of quantitative data from brands featuring uniquely deep, long-term customer relationships.