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Agile Customer Success Digital Transformation Insights Lean Startup System Engineering

What Dev Teams Are Missing.

UX designers, check. QA designers, check. Developers, check. The list goes on… but most highly-trained dev teams are missing a vital piece of the puzzle.

Software development is an inherently technical activity but without solving a real human need a project has no purpose. So why are those with the most immediate needs, the arbiters of purpose in this instance, missing from the team?

Standard processes for software development demonstrate the issue (sometimes jovially).

@johncutlefish

Customers and end users, the foremost experts on the business and its goals, are the critical missing piece from software development.

Aren’t they included already?

Well, yes… but not enough.

Towards Customer-Centric Software Development: A Multiple-Case Study found that, even in organisations with a high level of customer focus, that customers were only present at the beginning and end of the development process.

The authors found four key challenges with this approach:

  • Indirect access to end-users led to a lack of understanding of the reasons behind customer requirements.
  • Feature prioritisation is done based on employees’ opinions and is not continuously validated with customers.
  • Testing is seen as an opportunity to identify defects but not to validate mismatches between customer needs and product offerings.
  • A lack of systematic ways to collect, analyse and incorporate customer data into the product development process.

What’s the real problem?

By omitting the customer and end-users from the delivery team you are working on hypothesis (and to some extent guess work).

Even projects undertaken with extensive and painstaking research are based on what a potential solution could look like. This hypothesis isn’t tested until the end of the development phase when complete features are presented to the users and customers.

And now for the grand reveal… The software has been built to the customer’s specifications, or has it been built to the team’s interpretation of the customer’s initial specifications? Without fully understanding the customer’s situation there is a high chance of building the wrong software.

This of course has a huge impact on budget, schedule and, worst of all, the trust between the client and team.

So how does putting the customer and users into the project team help?

Shortening feedback cycles is a central principle of Agile delivery. By embedding key stakeholders within the team, feedback cycles are reduced from weeks to days.

Developers can demonstrate early prototypes and benefit from the unique expertise and feedback that only customers and end users possess. Rather than thinking, “what would the customer want?” at key decision points they can be asked directly.

No grand reveals, no surprises. A product is developed in collaboration with the customer and ultimately the people that will be using it.

Customers and users are busy people – do they have two jobs now?

Obviously we can’t expect the customer to be turning in 40 hours a week, that would be slightly impractical (and rather unnecessary). Attending weekly team meetings and being able to respond to questions from the team is enough.

The point is to ensure the developer feels comfortable making a call to the customer or uses to clarify a requirement or gain feedback on an early version. Essentially, you remove the subjectivity and guesswork to ensure the right product is being built.

Sounds nice – does it really work?

Digital Village recently completed the first iteration of the Race Around Australia project and was rolled out for a successful pilot in NSW schools. Program manager Emily McLachlan was deeply involved in reviewing the work in progress and making critical feature decisions and prioritising application features.

Her involvement allowed the delivery team to frame technical decisions within the needs of the department, schools, teachers and students, which reduced uncertainty around the product to practically zero.

You can read about the project’s success here.

Next Steps

Convincing busy professionals to attend another meeting/ create time for the demands of a project team sounds, well, trick. In fact, the hardest part may be convincing people who feel somewhat out of their depth in a technical project to participate in delivering it.

With the right support, however, non-technical stakeholders like clients and end users can provide invaluable contributions to a project delivery team.

The first step, of course, is a conversation with project stakeholders. Luckily that conversation will be about how they can save money, reduce risk and enjoy the benefits of their new software as soon as possible. We have a suggestion…

Working closely with the customers means the team will share the customer’s disappointments and triumphs, and hopefully shifts the team’s mindset from focussing on feature delivery to customer success.

Categories
Customer Lifetime Value Digital Transformation Insights library Organisational Change

You thought finding toilet paper was hard. How about finding your most valuable customers?

by Suraj Pabari, Partner in Customer Analytics at SingleView, a data consultancy in Australia.

Summary

  • Currently, many businesses value customers based on their first purchase. As a result, they may under-invest in customers that would be higher value over a period of time and over-invest in lower value customers.
  • However, we can value customers based on their lifetime value, which is the total spend of the customer over a given period of time.
  • One way to measure lifetime value is to segment based on recency, frequency and monetary value.
  • By calculating RFM scores for our customers, we can segment our customers and understand the highest value customers,as well as those with low frequency, low average spend and those who have not visited for a long while.
  • We can then take action based on these segments to increase long term business revenue.

What do we mean by lifetime value?

You acquire a new customer. Not only that, but the customer returns again and again, spending hundreds of dollars every time they return. This customer must really love you! However, traditionally, you value this customer based on the revenue from their first purchase and now, this customer does not look so good. In fact, you would pay the same for this superstar customer as you would pay for his discount-seeking neighbour, who only bought something because it had a heavy discount. But do not fret, as we are moving to a new world, a world in which the customer is valued based on their total spend over a defined time period… or their lifetime value. Now, you can more easily find the valuable superstars and give them that star treatment with the hope that they stay with your business, and help you discover more just like them, transforming your business into a business of superstars.

The problem with big shiny things

Let’s imagine an extremely technical person in your business spends six months on building a model to predict the customers that will churn in the immediate future. They tell you that they have found a number of relevant features that predict churn, such as delay in bill payment, location and even age. They even excitedly proclaim that they have refined the model to the point where the model can find almost 90% of the customers that will churn. You are excited! You decide to run an experiment by showing ads to customers that are likely to churn to try to prevent them from leaving. However, clicks are so low, that you see no difference in churn rate. You go home, dejected.

Can you relate? After nine years in the Marketing Analytics space, I certainly can. And I’m not the only one.

We often hear buzzwords about things we ‘should do’. ‘Optimise to lifetime value,’ they say. ‘The customer journey is complex, implement a custom attribution model,’ is a common recommendation. ‘Most of your sales are occurring offline, why not connect offline data?’ is often proposed as a solution. You spend time and money on these pet projects, thinking they will transform your business and you divert resources away from your acquisition marketing efforts. The results are often far from impressive.

Should you avoid these types of projects? Absolutely not. The intentions of these projects are generally sound. However, my learning has been that these projects only work when you think about ways that you can use these programs to drive value before you invest significant resources. Write these specific actions down. Get endorsement from other teams that need to be involved. Quantify the value (with some justifiable logic!)

One particular project that often can drive a high cost despite demonstrating a low return is ‘lifetime value’. However, hopefully by the end of this article you will realise that lifetime value can drive significant business growth, in ways that are neither time consuming nor expensive.

The most valuable customers are the ones who have spent the most, right?

To start with, let’s discuss why lifetime value is so important. The current state of measurement with many businesses can be demonstrated in the graphs below. Assume the bars represent the value of five individual customers and the horizontal line represents the cost to acquire a customer: naturally, you set that cost to be equal to the value that you will get from the customers to break even (or even lower if you want a higher margin). You can see that by optimising to this cost you end up over-investing in some ‘low value’ customers (shaded red) and under-investing in other ‘high value’ customers (shaded green).

Figure 1: The problem with optimising to the mean

In contrast, if you were to focus on acquiring more high value customers (the green bars), in many cases, the long term revenue would be higher, as can be seen below.

Figure 2: Maximise share of high value customers

So what do we mean by high value customers? The ones that spend the most money?

Not quite. Often using total spend over a period of time can be a good proxy, but it is important to take a more nuanced view. Take the example below. Which customer do you think has the greatest value to the business?

Figure 3: Looking at recency, frequency and monetary value

Were you able to guess correctly? The behaviour of the first customer suggests that they will be more loyal, as they have greater consistency and bought more recently. We saw this with one of our hospitality clients: they had customers spending a lot of money in their venues on expensive champagne, and then not spending anything for a long period; we had to think of them differently to those customers who spent the same amount, but over a more extended period. The former may have been enjoying themselves on a luxury holiday, and since they will not be coming back, it may not make sense to define them as a high value customer.

So how do we define a high value customer then?

We have a fairly simple way of measuring high value, which is based on three factors:

  • Recency = How recently the customer bought. Someone who bought a year ago is at risk of churning and may not be high value versus someone who bought last week. Note that, in some models, recency refers to the gap between the first and last purchases.
  • Frequency = Number of repeat purchases. More purchases demonstrates greater loyalty. Using frequency in this way allows us to distinguish between the tourist who came to the venue and spent a lot of money whilst she was on holiday, and the businessman who goes to the same venue every week.
  • Monetary value = Average order value. We sometimes exclude the first purchase in this average, particularly if the purchase has been driven by a voucher.

This RFM method gives us a score for each factor. The simplest way to come up with a score is to rank the value that each customer has for each variable between 1 and 5 (though the exact scoring might differ by business). As an example, for recency: bought within last week = 5, bought within last month = 4, bought within last year = 3 etc.; for frequency: 10+ purchases = 5; 8–10 purchases = 4 etc. The recommended approach to determine the actual boundaries is to ensure that 20% of the customers are in each bucket.

Now the fun begins!

With some simple maths (which can even be done in a spreadsheet) you now have three scores per customer. What does this mean?

Let’s say a customer has a RFM score of 555. Keep this customer close! They have recently bought a high value item, and will often return to buy high value items. But what about a 155? With a low recency, this customer hasn’t bought anything recently. Why haven’t they bought anything? How can we bring them back? This diagram makes it simpler to understand.

Figure 4: Developing segments using monetary value and frequency

..though note that in reality we are looking at a cube as a pose to a square!

Figure 5: RFM cube

You may already be thinking about some of the things you can do with this data. What could you do with a ‘High Spender’ to increase their frequency? Would you give the ‘Superstar’ a voucher or would you instead offer them a ‘concierge’ service? Now, rather than simply saying: “These are my high value customers and these are my low value customers,” you can answer some more complex questions, such as:

  • Who are my highest value customers?
  • Which customers are on the verge of churning?
  • Which customers have the potential to be transformed into higher value customers? How might we do that: by trying to upsell them, or getting them to return more often?
  • Who are the low value customers that you can ignore?
  • Which group of customers is most likely to respond to your current campaign?

I hope you now have a better idea about the power of LTV segmentation, and understand how you can segment your customers using RFM methodology to answer some important questions.

How do you currently segment your customers? How do you leverage the insights from your segmentation? Feel free to add some comments in the post!

Categories
Insights meetups Organisational Change

How to see more to fill the gaps in our perception

The ability to see more is always an advantage. 

Hence telescopes and microscopes, x-rays and satellites and so on – a massive amount of our energy goes into seeing more of the world.

But our ability to perceive the world isn’t just limited to physical sensing.

No matter how many details I perceive, they’re no use to me unless I can understand them.

This of course is where my mind is the limiting factor on my ability to perceive the world. So we all go to school to hopefully learn things that’ll help us understand the world.

(Or at least give us the tools to widen our perception in the future – like reading and mathematics).

This is great, because now I don’t have to be smart enough to work out everything by myself – if I want to calculate the perimeter of a circle I can do that because a teacher told me how.

(Often repeatedly)

But there’s a third kind of limitation on perception – or understanding – though.

Luckily, at Digital Village’s March Meetup, the good people at This Thing of Ours introduced us to a way of addressing that limitation.

 

But before we get into what that is – why make a big deal about perception anyway?

This is how I think about perception: if I were alive 50,000 years ago, what would improved perception mean to me?

  • Physical senses: they’d allow me to see, hear or smell food (and anything that wanted to eat me)
  • Understanding: it’d allow me to avoid dangerous things to eat, or to know how to prepare them properly

(And hey, if this COVID thing goes on long enough, this might become relevant again!!)

But what about now?

Our society is full of signals: we get them from the news, from talking to people, social media, and our own observations too.

But they amount to the same thing that the ‘me’ from 50,000 years ago cared about: some of these signals represent opportunities, and some of them are threats.

So it’s good to be able to see more, and understand more of what we see.

So getting back to that limitation I mentioned earlier.

This comes back to the natural frame we use to understand the world.

Everyone has their own, unique way of evaluating, and understanding the world:

  • Sometimes it’s in terms of understanding who’s winning, and who’s losing.
  • Or it may be a matter of understanding what people are afraid of, and what they’re greedy for.
  • Or seeing the systems that people operate in, and how those systems affect peoples behaviour.

Whatever your natural way of understanding the world is, wouldn’t it be good to step into someone else’s shoes and see the world the way they see it?

So what happened in our March Meetup is that Phil, Rachel and Chris from This Thing of Ours introduced us to a technique for doing exactly this.

 

 

The technique comes from Integral Theory and is a very straight-forward way of understanding any kind of situation the world throws up.

It’s pretty simple. I won’t go into to a lot of detail (The This Thing of Ours gang are the subject matter experts for that) but basically we create something that looks like this

So we end up with these four sections: 

  • Behaviour 
  • Systems
  • Culture
  • Mindset

And the amazing thing is, there’s not a single human endeavour that can’t be completely described by those four categories.

Let’s imagine we’re targeting a new customer, and we wanted to use this system to understand our customer better.

We’d go through each of those four sections one at a time – Behaviour, Systems, Culture and Mindset – and write down everything we could think about that particular aspect of the customer.

If I do this, what it forces me to do is step outside my normal habits of thinking and consider the world from new perspectives, and to do it systematically.

If I were doing this to understand a new customer, I’d end up with a quadrant covered in notes which I could then analyse for themes that cut across each quadrant and can become the source of powerful insights.

If you’d like to know more about analysing your own organisation, customers or anything else using the quadrant model, contact This Thing of Ours.

To learn more useful techniques for analysing and understanding the world of business, technology and people, be sure to come to Digital Village’s next Meetup!

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