Most companies aspire to design goods and services that encourage repeat business. Yet businesses often invest in expensive features without adequately understanding how the features that attract new customers may differ from those that will retain existing ones.
COMPANIES MUST MAKE important decisions about which features to include in the goods and services they offer to customers. Understanding the return on investment (ROI) for a feature is essential to increasing profitability. Adding features increases costs, but it may increase revenues as well, either by attracting new customers or retaining existing customers. Notably, as we describe in this article, the features that retain customers may be different from the features that initially attract customers.
Customer lifetime value is the net profit earned over the course of a company’s relationship with the customer. 1 To maximize customer lifetime value, a company must not only convince customers to buy its product or service once; it must also retain them. Hotel and airline companies, for example, invest heavily in loyalty programs designed to encourage their best customers to come back again and again. About one-third of leisure guests and about one-half of business travelers say they are loyal to a hotel brand. 2 Subscription-based services such as Netflix and Amazon Prime frequently offer free trials to attract customers, hoping that they will recoup their investment when customers sign up and become paying subscribers. Profits flow to video game app developers not when their apps are downloaded for free, but when users decide to keep playing and spend money to upgrade the app or make in-app purchases. Yet in many cases, the notion of generating revenue is no more than a pipe dream: According to one estimate, less than 40% of video game players return to a free-to-play game after the first session; 3 another analysis found that, on average,three-quarters of people who download apps stop using those apps within 90 days. 4
Denne historien er fra Winter 2017-utgaven av MIT Sloan Management Review.
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Denne historien er fra Winter 2017-utgaven av MIT Sloan Management Review.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
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Avoiding Harm in Technology Innovation
To capitalize on emerging technologies while mitigating unanticipated consequences, innovation managers need to establish a systematic review process.
Make a Stronger Business Case for Sustainability
When greener products and processes add costs, managers can shift other levers to maintain profitability.
How to Turn Professional Services Into Products
Product-based business models can help services firms achieve greater scale and profitability. But the transformation can be challenging.
Do You Really Need a Chief AI Officer?
The right answer depends on the strategic importance and maturity of AI in your company.
Where To Next? Opportunity on the Edge
Doing business in regions considered less stable or developed can pay off for companies. But they must invest in working with local communities.
Make Smarter Investments in Resilient Supply Chains
Many companies invest in resilience only after a disruption. Applying the concept of real options can help decision makers fortify supply chain capabilities no matter the crisis.
The Three Traps That Stymie Reinvention
Organizational identity, architecture, and collaboration can be either assets or liabilities to pursuing growth in new sectors.
What Makes Companies Do the Right Thing?
Vaccine makers varied widely in their engagement with global public health efforts to broaden access to COVID-19 immunizations. Ethically motivated leadership was a dominant factor.
Build the Right C-Suite Team for Your Strategy
CEOs can foster a more effective leadership team by understanding when to tap senior executives' competitive instincts and when to encourage collaboration.
A Better Way to Unlock Innovation and Drive Change
A strengths-based approach to building teams can win employee commitment to change and foster an inclusive, agile culture.
