December 20, 2013
My family and I went to Disney World a couple of weeks ago, and to get around, I rented a Camry. But instead of having something really useful like a navigation system (Have you ever trekked around Orlando without one? I don’t suggest it.), the car did fun little things like track miles per gallon on the last trip.
I thought, well, that’s not really all that interesting. Sometimes I drove on the highway, sometimes I was stuck in traffic, and how about the time I waited to get into the Mickey parking lot? I may have averaged 15 miles per gallon for the last 10 trips, but what can I really do with that knowledge? Am I going to drive any different next trip? Probably not. I need more info than this is giving me.
It’s really the difference between playing the game and keeping score. And when it comes down to it, averaging out miles and keeping score are a lot like blindly using traditional KPIs—they’re interesting tidbits of info, but they’re not about playing the game any better. You’re looking in the rearview mirror at what you’ve done, but does it help you do stuff differently in the future? Instead, we should be thinking more in terms of goals—and using KPIs that help us achieve those goals.
Of course, it all depends on what you’re trying to do. If your only goal as a marketer is to get people to buy stuff, then conversion rate is a perfectly good metric because it encapsulates what you’re trying to do. If you're only goal is to get the people who buy to spend more, than average order value is perfectly fine.
For example, if I’m the Ronco knife company and I'm trying to get you to buy knives, then measuring conversion rate is cool. I can jack up conversion rate by chopping the price, or by cheaply selling you such a piece of crap that you’ll never come back. Or, if you're a pop-up store that's just trying to get rid of Halloween merchandise, you probably don’t care about lifetime value—you care about the quick sale. Screw the future—I just need to make my numbers this month because this is when it all happens.
But if you’re looking for customer loyalty and long-term, valuable relationships, you also have to look at some of the things we target that are non-traditional KPIs. We look at bounce rate, and we look at pages per visit, but we find this out after a visitor’s left the website. Wouldn’t it help to know this type of information while they're on your site? Non-traditional KPIs like people who shopped in a category, or a brand, or looked at a particular product. All of that stuff is genuinely important to know. We need to ask ourselves, what are we actually trying to measure? And does that measurement actually help us serve our customers' needs?
Here’s an old-school example that shows you what I mean. For years, whenever a hurricane was about to hit Florida, Wal-Mart would stock up on generators and give them prime placement in the front of the store. But then somebody actually looked at the numbers and said, “Hold on, we really don’t sell a lot of generators before a hurricane. But we sure sell a ton of Pop-Tarts.”
Makes sense, right? Power goes out for a couple of days, what can I eat? Ah, Pop-Tarts! Now when there's a hurricane, they’re like, “Screw the generators, get the Pop-Tarts.” That was a KPI measurement that truly mattered and helped Wal-Mart play the game. Under those circumstances, Pop-Tarts are a top-selling product. That teaches you something.
So if you're smart and you're trying to maximize lifetime value, then really figure out lifetime value. Find out what matters and you’ll deepen the relationship. Because while lifetime value may not be a cinch to figure out, it’s the best indicator out there to predict if you'll be in business for the long run. Even it means stocking up on tasty toaster pastries.