Lifetime Value versus Market Share

In a discussion forum, someone asked "When will companies finally figure out that market share is leading them in the wrong direction?"   My sense is that it was a rhetorical question, asked in a tone of despair at the failure to adopt a lifetime value metric, and with the sense that lifetime value is not sufficiently considered in decision-making.   I'm inclined to agree.

Market share is inherently a short-term metric that focuses on one-time sales and neglects to consider the profit (rather that revenue) derived over a longer period of time.   Firms speak about the market share they had last quarter, the market share they hope to achieve next quarter, and implement myopic strategies to push immediate sales to the neglect, and often to the detriment, of customer loyalty.   Market share thinking does not care if a person has ever purchased before, nor if they every purchase again - it's about making sales right now.

Another participant in that discussion alluded to the fable of the little red hen, which is a favorite of mine when speaking to those who don't seem to recognize the problem of myopic marketing plans.   Nobody wants to help the red hen to plow the fields, plant the seeds, pull the weeds, cut the wheat, thresh the stalks, grind the grain, and so on - but all the other animals in the barnyard show great interest when there's bread to be eaten.  It's particularly germane to the financial services industry, whose business it is to help clients manage their wealth - but who show utter disinterest in helping those who are not yet wealthy manage their investments to become so.   Products and services are restricted to those with sufficient liquid assets, generally about $1 million, and anyone with less is unqualified and treated with disdain.

Perhaps they fail to consider that the vast majority of wealthy individuals were not born into wealth, but earned it slowly over their lifetimes.   They certainly fail to consider that those who spend years managing their own finances do not suddenly feel the need for assistance when they have achieved success on their own - and often resent the firms that come crawling out of the woodwork when they've made their bread.

Granted, that's an individual perspective - I've only known a small number of people who have amassed wealth in excess of $1M, but I have heard the same story from a few of them, who feel a sense of disgust when they hit the magic number and firms that could not be bothered to serve them, and even those who treated them with an air of contempt while they were struggling to build their wealth, suddenly come calling.

It would seem to make sense for firms that seek to serve the upper income levels to take a look not at the present market of qualified customers, but to consider what their customers looked like before they became qualified - and to reach out to customers who are not in their desired income bracket, but who show signs that they eventually will be.  I'm not aware that's a common practice - they are still fighting over share of market, showing up on the doorstep of "new" customers who have matriculated into the market they prefer to serve, and wondering why it is so difficult to gain their trust and their business.

This is true of other industries as well, and I do see some signs of improvement in this regard.  Consider the Mercedes-Benz C-class of automobile, affordable to the lower ranks of the bourgeoisie, as an overture to a long-term relationship.   It is likely easier for Mercedes to usher them into an S-class vehicle after providing them with years of service that it is for them to woo affluent prospects whom they had previously treated with disdain.  I've seen information about an A-class (which has not yet hit the American market) at an even lower price point to begin the brand relationship even earlier in life.

Naturally, there is some argument that reaching out to scruffy people denigrates the brand, and that a luxury product that stoops to serve the lower income brackets loses its appeal to its wealthy customers.   Said another way, there is not nor should there ever be an entry-level Rolls Royce, but it should remain aloof as a trophy for those who have arrived at a certain level (I understand their target market to be individuals with a new worth of $30M or greater) an unavailable to them until they have qualified, if for no other reason than to maintain the prestige of those who have earned their rewards.

But arrogance is not becoming, and many brands wish to perceive themselves (or to be perceived as others) as luxury when they are merely premium brands.  Mercedes is an excellent example - even their most elite model is not a luxury car, but a premium one (people choose between a Mercedes and an Audi or BMW, not between a Mercedes and a Rolls or Bentley) - and pretensions to the contrary are counterproductive.

As such, a luxury brand must remain aloof, keeping a distance from the customer until they are qualified to join the club of the economic elite, but other firms must be careful to be objective and humble about the status of their brands.  Automobiles, clothing, jewelry, and the like have the qualifications to claim luxury status, in that their conspicuous consumption is a badge of social distinction to their owners.  The car you drive speaks to the world of your status, the brokerage house that manages your money does not, nor do many other categories of product.

I sense that I have transitioned to an entirely separate meditation about the nature of luxury, having wrung out the original topic of the difference in the nature of short-term and long-term measurements of success - and may need to consider splitting this meditation in future.