Route in Life

Do you also intent to follow the simplest, direct or easiest route in Life?
Right you are....
Going from A to B in life is like a risk management game.
As the captain of your Body&Mind-Ship (BMS) heading for a New Land at Port Novaya Zemlya, you'll have three starting issues:

Three starting issues

1. Define your target (B): Know where you want to go in life
2. Define your starting point (A): Know Where an Who you are in life
3. Define your Route: Know How you want to go from A to B

In terms of risk management there are two main targets:

Main Risk Management Targets

1. Long term Target
   Reach your final target (Novvaya Zemlya)
2. Short term Target
   Avoid short time risks, tackle problems along the way (avoid ice floes)

So, what kind of approach is right for reaching your goal?

• If you concentrate too much in life on your 'final goal' or you want to achieve your goals too fast or too direct, you'll certainly hit a short term problem, like an ice floe, and end up crashed as a hero or a martyr.
• If you concentrate too much on the short term problems in your life, you'll loose sight on your final goal and certainly fail to reach Novaya Zemlya.

The solution of this paradox is (of course) to concentrate on the short term goals as well as keep an eye on the long term goal at the same time.

The optimal route?
But what is the best strategy for finding the optimal route in life?
Take a look at the next map to find out the best strategy for this ship.

Strategy I: Don't think, go to your target in a straight line
The most logical route from A to B would of course be a straight line. However following this line as a blind man would certainly lead to failure.

Strategy II: Keep as much is possible to the straight line
As BMS captain might look like the 'best strategy' solution. This is how we often directly respond in life when we do not succeed in getting what we want the way we planned it.
Often this route is 2 to 3 times longer than the 'straight line route' and does not always guarantee that you reach your goal in the labyrinth of life.
As mostly in life , the best advice is....

Strategy III: Get help and plan!
As BMS captain with the right attitude and perseverance to succeed, you consult your friends and foes and draw yourself the best possible satellite map, so that you'll be able to oversee the 'seascape' of your life, with all relevant problems, like ice foes ahead.
Often this optimal ice route is 1.5 times longer than the 'straight line route', but it guarantees the highest success rate.



But what to do if you have no information at all? That's when thinking and mathematics come in, or it gets time for an alternative approach before you freeze in reaching for Novvaya Zemlya....

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Client Lifetime Value (CLV)

In a Harvard Business Review called "Why satisfied customers defect", Jones & Sasser explain that even a 80% 'satisfied clients score', is no guarantee for sustainable success.

Common management misconceptions are:

1. A client satisfaction level below complete or total satisfaction is adequate.
2. It's not profitable to invest in changing customers from 'satisfied' to 'completely satisfied'.

Their conclusion is that, in most cases, 'complete customer satisfaction' is key in order to secure customer loyalty and generate sustainable financial performance.

Loyalty & Satisfaction
Despite of what sometimes intuitively is assumed, the relationship between loyalty and satisfaction is in most cases not linear, but depends on the competition level of a specific market segment.

In a Dutch presentation, called "CRM Myths", direct marketing professor Janny Hoekstra confirms this relationship and shows that even 'satisfied clients' are in the so called 'indifference zone'.

The 'art of client management' is obviously to create 'Apostles' and to avoid creating 'Terrorists'.

So stimulate, instead of discourage, your clients to give you feedback and to complain, because this is the only way to create new apostles.

NPS
A relatively new and, according to Harvard (The One Number You Need to Grow), probably better method to measure client loyalty is the 'Net Promoter Score' (NPS). Simply score your clients on a 0-10 points scale on the question: "Would you recommend company X ?'

Now simply calculate the NPS score (%) as:
NPS = Promoters% (rating 9&10) - Detractors% (rating 6 or less)

NPS scores of 75% or more prove world class loyalty.

Loyalty effect
Another, intuitively driven, perception is that the more customers are loyal, the more they generate profit.

In general this seems true, however as Hoekstra shows: not every 'more loyal' client is also per definition 'more profitable'.

Just like Reinartz (Insead) stated in his article : 'Not all custumors are equal'.

Reinartz defines different client groups called: Butterflies, Strangers, True Friends and Barnacles.

Each group urges a different approach in a Customer Client Strategy.

Investing in 'True friends' appears essential and eventually pays out.



Customer Lifetime Value
Actuaries that combine marketing an actuarial sciences could help by defining and calculating what is called: The Customer Lifetime Value (CLV)

The CLV of a specific client(group) could be defined as the discounted value of the yearly margin (m = profits - costs), with discounting rate (i) and the (client) retention rate (r).

CLV:Rule of thumb
In the strongly simplified case with constant margin, the CLV - as a rule of thumb - could be defined as the margin (m) multiplied with the so called margin multiple = r/(1+i-r).

Example: Discount rate = i =12%, Retention rate = r = 90%, results in a CLV of approximately 4 times the yearly margin.

As is clear from the formula and table above, the choice and impact of the discount rate is only significant in combination with a high (>90%) retention rate.

Modeling and creating Client Value is not only in the interest of the shareholder, but moreover a case of creating creating added value for clients, in particular 'best satisfied clients'.

More info at: Modeling CLV(insurance), Customer Metrics