Think Customers: The 1to1 Blog

What makes 888.com interesting to me is that after careful correlation analysis of behavior and value, Gigi and his team can tell - within 48 hours of a new player's first visit to the online site - how much that player will be worth to the company over the customer's lifetime of play. This is top-floor value differentiation, and allows accurate allocation of resources toward those customers who will be the most profitable.

Clearly, 888.com will continue to attract entertainment customers and make a good living from providing entertainment and amusement. But the real opportunity for the company lies with helping other companies do what 888.com does - learning today what each customer will be worth tomorrow.

The basic tenets of shareholder value:

• By definition, customers create all the revenue for a company.
• Because there are a finite number of customers, a company's goal is to create as much value from each customer as possible.
• Customers create value two ways: They spend money today, creating this quarter's profits, and - also today - they become more or less likely to do more business with this company in the future, and to recommend this business to others.

Businesses are good at measuring this quarter's numbers, but since predicting the future value of customers, as of today, is pretty hard, many companies just don't bother. Of course, failure to know or manage future customer value to drive decisions today doesn't mean that customer equity is not being created or destroyed - it just means that it's not being managed, and the firm could be building the current numbers at the expense of the future.

The opposite: companies that build simultaneous value in the short and the long term. (We're told CIBC does it in Canada by rewarding customer portfolio managers on two things simultaneously: (1) the bank's current-quarter revenue from assigned customers, and (2) the rolling projected three-year value of that same group of customers. Sounds logical, but one of the toughest dilemmas facing companies whose execs have decided to balance short and long term goals is how to put into place the metrics that would make balanced management possible. What variables should be used? How should they be weighted? How accurate is the resulting prediction?