Your Lifetime Value Score You may not know it, but companies are silently scoring you... and using that score to figure out how to treat you.
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Your Lifetime Value Score

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Your Lifetime Value Score

Your Lifetime Value Score

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STACEY VANEK SMITH: So Cardiff, you know the movie "Pretty Woman?"

CARDIFF GARCIA: Oh, yeah.

VANEK SMITH: Julia Roberts...

GARCIA: Richard Gere.

VANEK SMITH: ...Richard Gere.

GARCIA: Yeah, of course.

VANEK SMITH: And there is of course this very famous moment in that movie where, you know, the beautiful Julia Roberts, who is playing a prostitute in the movie, walks into this really fancy store on Rodeo Drive in Los Angeles. And, you know, she's not wearing a lot of clothes. She's just wearing this, like, little, tiny dress.

(SOUNDBITE OF FILM, "PRETTY WOMAN")

JULIA ROBERTS: (As Vivian Ward) You got nice stuff.

DEY YOUNG: (As saleswoman) Thank you.

ROBERTS: (As Vivian Ward) How much is this?

YOUNG: (As saleswoman) I don't think this would fit you.

ROBERTS: (As Vivian Ward) Well, I didn't ask if it would fit. I asked how much it was.

YOUNG: (As saleswoman) How much is this, Marie?

SHANE ROSS: (As Marie) It's very expensive.

YOUNG: (As saleswoman) It's very expensive. I don't think we have anything for you. You're obviously in the wrong place. Please leave.

VANEK SMITH: This is crushing.

GARCIA: What a bunch of jerks.

VANEK SMITH: It's crushing.

GARCIA: I know.

VANEK SMITH: I know. And there are a lot of layers going on in the scene, a lot of things happening. But one of the things happening is economic. Right? I mean, the saleswomen, they're trying to earn their paychecks. They see someone walking into the store who looks like she probably doesn't have a lot of money and is probably not going to be, like, a loyal customer for years. Totally different, you can imagine if she'd walked in, like, in a mink coat with a million little dogs and a fancy purse. Right? They would have started falling all over her because they think she's got money. She'll come back for years. She'll send her rich friends. We got to be nice.

GARCIA: Yeah. And you might be thinking, by the way, that an issue like this would have been solved by the Internet because if you buy something online, a store has absolutely no idea what you're wearing or how much savings you have or what you look like - or at least online stores are supposed to treat everyone the same, right?

VANEK SMITH: Right. Except...

GARCIA: Wrong.

VANEK SMITH: (Laughter) Except they don't. We came across this great article recently in The Wall Street Journal about something called a Customer Lifetime Value score. And this is a score that companies give to customers basically sizing us all up economically. And it can determine how they treat us. It is basically the scene in "Pretty Woman" on steroids. This is THE INDICATOR. I'm Stacey Vanek Smith.

GARCIA: And I'm Cardiff Garcia. Today on the show, the Customer Value Number - what it is, how it is calculated and how that score affects your experience as a customer.

(SOUNDBITE OF MUSIC)

VANEK SMITH: Khadeeja Safdar is a reporter for The Wall Street Journal. She covers retail. And she's been looking into how retailers use big data for a long time, and she just kept coming across these numbers, these scores the companies were assigning to customers.

KHADEEJA SAFDAR: This one was just so pervasive. And I came to the conclusion that basically everyone with a bank account, cellphone or an online shopping habit has had at least one CLV.

VANEK SMITH: CLV, a Customer Lifetime Value score.

SAFDAR: So a CLV score is a company's assessment of your financial worth to them over time. So the company determines what they think you're going to spend in the future, and then they treat you according to that.

GARCIA: Khadeeja says that all kinds of companies use these scores - cellphone carriers, airlines, online retailers, credit card companies. The score is a dollar amount, basically the amount that you are expected to spend with a particular company over your lifetime.

VANEK SMITH: Does it get really specific, like $5,432.18?

PETER FADER: It does. It does. It does.

GARCIA: Peter Fader teaches marketing at Wharton. And he's the author of "The Customer Centricity Playbook." He's worked with companies helping them develop CLV scores for their customers.

FADER: It sounds kind of scary. It sounds almost like witchcraft. But actually, by training I'm more of an actuary. I was trained to develop the risk tables for insurance companies. And in the same way that they don't know when you're going to die, but they do know, if they look at a bunch of people who share your characteristics, how many of them will live to be 80 years old - so it's in that same kind of probabilistic, actuarial way, for a group of customers who share relevant characteristics, I can hit the nail right on the head for that micro-segment.

GARCIA: Pretty confident-sounding dude.

VANEK SMITH: I know. Nail right on the head.

GARCIA: Peter does say that determining a CLV score's actually a pretty simple formula.

FADER: It all comes down to recency, frequency and monetary value. Tell me when is the last time you bought something from me, what's the number of transactions that you've had over, say, the last two years and what's the value of those transactions been.

GARCIA: And once they have your score, says Khadeeja, companies know how to treat you, how many resources they should allocate to serving you.

SAFDAR: So like, at credit card companies, say you call to cancel your card. The offers that the specialist will use on the phone to try to retain you will be dependent on the score. Sometimes at wireless carriers, you get routed to a different call center. And you might get...

VANEK SMITH: Like, a better call center?

SAFDAR: A call center with more skilled agents. And you're routed immediately based on your CLV.

VANEK SMITH: And what about prices? Like, would you see a different price for something depending on your score?

SAFDAR: Right. You will see a different price because CLV often impacts the discounts that you will receive too.

GARCIA: And Khadeeja says that some companies are also getting fancy about CLV numbers, especially for new customers. They are using all kinds of data, like Facebook posts, friend groups, marital status, what kind of credit card you have, even the number of bedrooms in your house.

VANEK SMITH: So the fact I only have one bedroom in my apartment is, like, potentially I might have to be on hold for longer?

SAFDAR: Well, you might imagine that might be useful at a home retailer if they're trying to sell you mattresses or something.

GARCIA: Not only that, but if you do things that cost companies a lot of money, it can hurt your score, like if you call customer service a lot or return things often or only buy things that are on a super sale or, for a bank, if you go into branches a lot instead of banking online. And all of this can start to feel a little unfair.

VANEK SMITH: It does feel a little bit like - I feel like there's sort of this, like - a sort of emotional reaction of, like, that's not fair. Like, I should get treated the same way as somebody else. I don't know. We should - like, a company should treat everyone well.

FADER: I want to be real careful about that third rail of price discrimination.

VANEK SMITH: (Laughter) Right. Right.

FADER: But the idea of having kind of an elite program for people who have not only proven that they're worth it based on what they've done in the past, but as a projected reward for what we think they're going to be doing in the future, think it makes a lot of sense. And I also think that people are becoming more and more comfortable with that. We see how the airlines - you know you're paying a different amount than the person sitting next to you. And you're saying, you know what? Good for them. They bought their ticket earlier. We're becoming...

VANEK SMITH: Maybe you say that (laughter).

FADER: (Laughter).

GARCIA: Yeah, not me.

VANEK SMITH: No, no (laughter). It kills me on flights, looking around, wondering what everybody else paid.

GARCIA: But Peter says this does help companies do certain things, like rewarding loyalty from their customers, the way that a small shop could have back in the day. He says that is enormously valuable for companies.

VANEK SMITH: Peter does worry that the system will be used badly. The scores will be miscalculated. Also, the fact that the scores aren't transparent - we have no way to see them or protest them or ask questions about them. And also, you're just never sure when your CLV score's impacting your experience with a company and when it's not.

GARCIA: Yeah. And he says some companies are actually getting more transparent about their scores in subtle ways, like they're saying, hey, you've bought a lot of stuff with us. You're now an elite customer, or you're now in our premium shoppers discount club - things like that.

VANEK SMITH: Still, Peter says it's true that some of the scores will be wrong or used badly, that people might get treated unfairly because of them. And, you know, Cardiff, I think what the worst part is - that if a company does get you wrong, you know, or does treat you badly, you'll never get to have that amazing Julia Roberts moment when she comes back into that store on Rodeo Drive holding all of her bags, looking amazing.

(SOUNDBITE OF FILM, "PRETTY WOMAN")

ROBERTS: (As Vivian Ward) Hi.

YOUNG: (As saleswoman) Hello.

ROBERTS: (As Vivian Ward) Do you remember me?

YOUNG: (As saleswoman) No, I'm sorry.

ROBERTS: (As Vivian Ward) I was in here yesterday. You wouldn't wait on me.

YOUNG: (As saleswoman) Oh.

ROBERTS: (As Vivian Ward) You work on commission, right?

YOUNG: (As saleswoman) Yes.

ROBERTS: (As Vivian Ward) Big mistake - big. Huge. I have to go shopping now.

VANEK SMITH: (Laughter).

GARCIA: It's not really the same thing to, like, send emails with pictures of how awesome you look now. You know what I mean?

VANEK SMITH: (Laughter).

GARCIA: It's a little different.

VANEK SMITH: Or to, like, say that to a phone tree, be like...

GARCIA: Less satisfying.

VANEK SMITH: ...Yeah, I bought 16 mattresses for my one-bedroom apartment. Big mistake. Huge.

GARCIA: (Laughter) Also, now you have 16 mattresses.

VANEK SMITH: (Laughter).

(SOUNDBITE OF SONG, "PRETTY WOMAN")

ROY ORBISON: (Singing) Pretty woman walking down the street, pretty woman, the kind I like to meet, pretty woman, I don't believe you. You're not the truth.

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