Peter Fader | Wharton School | The Warby Parker Case - I Can See Clearly Now With My CLTV Glasses On

Summary

CMO Confidential Episode Summary: Peter Fader Discusses Warby Parker's IPO Through CLTV Lens

Podcast Information:

• Title: CMO Confidential
• Host: Mike Linton
• Guest: Dr. Peter Fader, Professor at the Wharton School
• Episode Title: Peter Fader | Wharton School | The Warby Parker Case - I Can See Clearly Now With My CLTV Glasses On
• Release Date: January 6, 2025

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Introduction to Customer Lifetime Value (CLTV) and Company Valuation

The episode opens with Mike Linton introducing Dr. Peter Fader, a seasoned marketing professor and expert in predictive analytics. Dr. Fader provides foundational insights into how customer data, particularly Customer Lifetime Value (CLTV), is instrumental in valuing companies.

Key Concepts Discussed:

• Predictive Modeling: Dr. Fader explains his extensive work in building models to forecast customer behavior, including acquisition rates, retention, purchasing frequency, and spending patterns.
• Integration with Finance: He highlights the collaboration between marketing and finance teams to decompose revenue into customer behavior metrics, thereby bridging the gap between these departments.

Notable Quote:

"It's all about acquiring, retaining and developing customers, period."
— Dr. Peter Fader [04:38]

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Warby Parker's IPO: Expectations vs. Reality

The core of the discussion revolves around Warby Parker's Initial Public Offering (IPO) and its subsequent stock performance. Dr. Fader and Mike delve into the expectations set during Warby Parker's IPO and how these aligned—or misaligned—with actual performance based on CLTV analysis.

Highlights:

• Pre-IPO Analysis: Dr. Fader mentions their early analysis predicting Warby Parker's stock should be valued around $22 per share based on their unit economics.

  Quote:

  "We say they're worth about two, two and a half billion dollars overall."
  — Dr. Peter Fader [07:14]

• Market Reaction: Contrary to their predictions, Warby Parker's stock surged to $54 a share post-IPO, reflecting a significant overvaluation from their perspective.

  Quote:

  "They're worth $6 billion for a very fleeting moment or a couple of weeks."
  — Dr. Peter Fader [07:52]

• Model Reassessment: Despite the initial overvaluation, Dr. Fader emphasizes confidence in their models, asserting that even with optimistic scenarios, the valuation wouldn't justify the inflated stock prices.

  Quote:

  "Suppose you give yourself the most optimistic but potentially conceivable assumptions... you could get up to maybe, maybe $35 a share."
  — Dr. Peter Fader [10:40]

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Critical Analysis of Warby Parker's Metrics

A significant portion of the episode discusses discrepancies in Warby Parker's reported metrics, particularly Customer Acquisition Cost (CAC).

Key Points:

• CAC Misreporting: Warby Parker calculated CAC by dividing acquisition costs by the total active customer base in a period, inadvertently lowering the CAC figure.

  Quote:

  "They divided by the total size of the active customer base in a given period. So it had a much larger denominator. So CAC makes it lower."
  — Dr. Peter Fader [16:09]

• Implications: This miscalculation led to an understatement of CAC, skewing the perceived health of their unit economics.

• Simulator Tool: Dr. Fader and his colleague developed a simulator to assess under what conditions Warby Parker's stock price could be justified, consistently finding that the high valuations were unsupported by their models.

  Quote:

  "There was no scenario where you could justify the kind of stock price that they were momentarily enjoying."
  — Dr. Peter Fader [10:40]

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Warby Parker vs. Peloton: The Tortoise and the Hare

Drawing a parallel with another case study, Peloton, Dr. Fader contrasts the two companies' approaches to growth and valuation.

Comparative Insights:

• Peloton (The Hare): Aggressive expansion and high growth expectations led to eventual stock price correction.
• Warby Parker (The Tortoise): Steady adherence to their core business model and robust unit economics despite initial overvaluation.

Quote:

"The tortoise and hare metaphor is so shockingly appropriate."
— Dr. Peter Fader [20:28]

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Lessons for Marketers and Financial Teams

The discussion culminates with actionable insights for marketing professionals, emphasizing the importance of data-driven decision-making and collaboration with financial teams.

Practical Advice:

1. Understand Underlying Metrics: Break down company performance into acquisition, retention, purchase frequency, and spending metrics.
2. Cohort Analysis: Analyze customer behavior on a cohort-by-cohort basis rather than relying on averages to uncover deeper insights.
3. Collaborative Forecasting: Work closely with finance to align marketing strategies with achievable financial outcomes.

Notable Quote:

"Your company's not different. Okay. Your company is going to obey the very same laws of gravity."
— Dr. Peter Fader [30:05]

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Conclusion and Final Thoughts

Dr. Fader concludes by reiterating the significance of adhering to robust analytical frameworks and resisting the temptation to chase transient market trends. His final thoughts underscore the value of patience and consistency in maintaining a sustainable business model.

Final Quote:

"It's going to manifest. People are going to see it and eventually the stock price will rise."
— Dr. Peter Fader [28:30]

Mike wraps up the episode by encouraging listeners to apply these insights to their own marketing strategies, reinforcing the episode's key takeaway: solid, data-driven marketing grounded in customer behavior metrics is essential for long-term success.

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Episode Takeaways:

• CLTV as a Valuation Tool: Understanding and applying CLTV provides a more accurate picture of a company's financial health than market sentiment alone.
• Data Accuracy Matters: Precise measurement and reporting of key metrics like CAC are critical for informed decision-making.
• Consistency Over Hype: Adhering to a proven business model and maintaining steady growth can withstand market volatility better than aggressive, hype-driven strategies.
• Interdepartmental Collaboration: Effective communication and collaboration between marketing and finance teams lead to more aligned and sustainable business strategies.

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For further insights and detailed analysis, listen to the full episode of CMO Confidential on Spotify, Apple Podcasts, or YouTube.

Transcript

[Mike Linton]

The CMO Confidential Podcast is a proud member of the I Hear Everything Podcast network. Looking to launch or scale your podcast, I Hear Everything delivers podcast production, growth and monetization solutions that transform your words into profit.

[Dr. Peter Fader]

Ready to give your brand a voice.

[Mike Linton]

Then visit iheareverything.com welcome to CMO Confidential.

[Dr. Peter Fader]

The podcast that takes you inside the drama, decisions, action and choices that go with being the Head of marketing. Hosted by five time CMO Mike Linson.

[Mike Linton]

Welcome marketers, advertisers and those who love them. The Chief Marketing Officer, Confidential CMO Confidential is a program that takes you inside the drama, the decisions and the politics that go with being the head of marketing at any company in what is one of the most scrutinized jobs in the executive suite. Mike I'm Mike Linton, the former Chief Marketing Officer of Best Buy, ebay, Farmers insurance and Ancestry.com Today's show is brought to you by Props. Props is a performance driven content platform which combines the attraction of creator content with the results of paid media. Instead of impressions or posts, Props takes responsibility for leads and customers. Now I am here today with my guest, Dr. Dr. Peter Fader. Today's topic, the Warby Parker case. I can see clearly now through my CLTV glasses. Now, Pete is a professor at the Wharton School of the University of Pennsylvania where he has taught marketing for more than 35 years. He's also built a predictive analytics firm called Zodiac, which he sold to Nike in 2018 and founded Theta with his partner Dan McCarthy, a Maryland professor and also a guest on the show. This is Pete's second time on the show and it represents the second time that CMO Confidential has discussed a math case in detail. Of note, this is a companion piece to Dan McCarthy's show on Peloton called the Rise and Fall of Peloton As Seen through the Eyes of cltv. Welcome Pete.

[Dr. Peter Fader]

It's great to be with you Mike. Love talking about this stuff and appreciate the chance to mix it up with you.

[Mike Linton]

All right, let's have some fun. Hey, but before we dig into Warby Parker, let's ground our listeners in how you use customer data, including cltv, which is customer lifetime value and how is it a way to value companies? Let's give everybody just the background on how this all works.

[Dr. Peter Fader]

Sure, thanks. So for most of those 35 plus years that you mentioned, I've just been building predictive models. How many customers are we going to acquire? How long are they going to stay? How often are they going to buy? How much are they going to spend? How's it going to change across customers over time under different business circumstances like forecasting things? The marketing applications are pretty obvious, helping figure out which email we should send to which customer, which time. And that's been most of my career. And then I met Dan McCarthy, former hedge fund guy, got his PhD in the statistics department. So even though he's a marketing professor now, he's really a finance guy and has done that for long, longer than he's been a marketing professor. And he helped us build the bridge between these predictive models for marketing purposes, to use them for financial purposes. And the whole idea is what a finance people do all day long. They want to forecast revenue or cash flow or ebitda. And if you think about where that stuff's coming from, well, it's coming from acquiring customers and having them stay and having them buy more often. So we can basically decompose revenue into these different customer behavior building blocks. Again, the building blocks are interesting by themselves, but taken together, whether it's to project revenue or to project customer lifetime value, it just creates just a real hand in glove relationship between marketing, finance, the kinds of things we all aspire to have, but usually we fall short of it. And Dan and I have been blessed with just a lot of success getting these different species to talk to each each other, respect each other and make decisions that align with each other.

[Mike Linton]

And this helps this customer lifetime value really helps because the stock price is whatever the company's worth today, plus expected earnings in the future. And one of the ways you can look at expected earnings in the future is through the lens of customers. And the more data you have, the more you can project out those earnings. Is that right, Pete?

[Dr. Peter Fader]

That is it. And it really should be the case that when investors or others are looking at a company, when it's quarterly numbers or investor call or whatever, they should be asking more about different kinds of customer metrics because that's where the revenue is coming from. And it's shocking that the conversation is always about product and channels and leadership. Not that there's anything wrong or unimportant about this stuff. No, of course, but, but ultimately it's, it's about acquiring, retaining and developing customers, period.

[Mike Linton]

Well, and, and you can, you can adjust this, this if, if you get better retention and better, better customer cohorts over time, you can say the stock is worth more as the price earnings multiple versus just guessing it. So that's it really interesting.

[Dr. Peter Fader]

And a lot of people, even if they, they agree conceptually with everything that, that you and I have just said they think, yeah, but my company's different. Yeah, but my customers are different. Yeah, but those models might be fine for, you know, some other company, but you don't understand mine. And so there's this bit denial or delusion about. About the applicability of these models to a lot of companies. I'm not just talking B2C, by the way, B2B products, services. And what's shocking is just how robust and reliable these models are across a wide variety of domains and circumstances. And that's kind of our job is to show that they're more rule than exception and get people to lean into them instead of coming up with excuses to ignore them.

[Mike Linton]

Thanks. With that as a great background, let's go and tell the story of Warby Parker as seen through both the eyes of Wall street and also through the lens of customer profitability.

[Dr. Peter Fader]

Love it, love it, love it. You know, you mentioned the rise and fall of Peloton here. It's going to be the fall and rise of Warby Parker. It's just, it's a beautiful kind of counterpart and contrast.

[Mike Linton]

We envision these as bookend cases.

[Dr. Peter Fader]

So it's amazing how well it works out. You know, two iconic brands kind of going in different directions for different reasons. And it's great to be able to name names and to do so not just with 2020 hindsight, but at the time that big decisions were being made. Dan and I kind of going out on a limb and saying this is what the company's actually worth, and then letting time pass by and kind of just watch things happen just in the ways that we predicted.

[Mike Linton]

And let's go back to Warby Parker. The story, it actually starts before ipo, but it really kicks into high drama during the ipo, which is Warby Parker comes out at IPO time and it is a darling. It like explodes and then it actually pulls back and it follows the peloton thing of it explodes and then it eventually pulls back. But this is going to be a different story. Tell us what happened when Warby came out and it came out its initial public offering and then skyrocketed. And you said, what about the stock then?

[Dr. Peter Fader]

Well, let's back up a month because again, we want to. We're forecasters. Why not just Monday morning Quarterback. So when they put out their S1 filing back in August of 2021 to their cred, they put some very rich data, just enough data for us to be able to do the reverse engineering and to predict how many customers they're going to acquire and how long they're going to stay and how often they're going to buy and how much they're going to spend. So, you know, real credit to Warby for putting some good metrics out there. They weren't perfect. In fact, we had a whole blog post about, you know, thanks for the data, Warby, but you know, there's problems with this and that. For instance, the way they reported customer acquisition costs and a few other issues that again, again, not faulting them. Some cases it was that there's just not standards about how these things are measured and reported. That's our job. So we go through it, we make these forecasts, and we basically say the company's worth about $22 a share. This is before the IPO. We're saying they're worth about two, two and a half billion dollars overall. And it's all about the unit economics. It's all about everything. I mentioned acquisition RET. If you look at the numbers in the IPO, they were aiming for a valuation of about 3 billion. We're saying it's not worth quite that amount. It's not far off. Company's not bad at all. But late September 2021, they go public and they're selling for $54 a share. They're worth $6 billion for a very fleeting moment or a couple of weeks. It was very interesting because we looked like idiots. They're saying this company is worth barely a third of that. Maybe you should rethink your analyses. The good news is that Dan and I, we really, really believe in what we're doing. Again, it's not some kind of flavor of the month thing. We know we're right. And so we actually did a lot of interviews with marketing people, with finance people, with just kind of just general press about what's up with that. And it made us wonder under what circumstances could they justify evaluation? Maybe some of our assumptions, maybe some of our projections are wrong.

[Mike Linton]

And some of those projections that would be like repeat purchase, retention, number of glasses bought, you know, exactly right, as.

[Dr. Peter Fader]

Well as different accounting assumptions on the cost and, you know, discount rates and so on. So we actually developed a simulator and it's really fun and I'm hoping we can even post a link to it where you can go in and we'll.

[Mike Linton]

Post it with the show.

[Dr. Peter Fader]

I love it. And then we could basically play with all of those toggles. How quickly will you acquire customers? How long will they stay? How often will they buy? And so you start asking yourself under what circumstances could you justify the kind of valuation that they were enjoying for that time? And the answer was never impossible. There was no scenario where you could justify the kind of stock price that they were momentarily enjoying. In fact, we said, suppose you give yourself the most optimistic but potentially conceivable assumptions on every one of these dimensions that we've described. You could get up to maybe, maybe $35 a share. That's if everything goes just incredibly well, maybe get up to 35, not 54. And again, we're saying they're worth a little over 20. So it's really great to have. It's kind of discipline to be able to look at a company and size it up and really kind of break it and ask yourself these kinds of questions. And in fact, this way of doing this kind of decompositional analysis, and exactly that. Under what circumstances could we expect a stock price of X or Y that's been a big hit, not just with marketing people to justify our existence, but even with a lot of Wall street people.

[Mike Linton]

So, for instance, it's a great bridge to your CFO as a marketer. One, I need this much money to do this. Two, if retention falls apart, we're going to get crushed. So we got to keep the customer experience in. And three, let's forecast together instead of you giving me a number and me arguing with you.

[Dr. Peter Fader]

And it's so great to get people together and just play with a simulator like this. And again, exactly as you said, to get everyone together or maybe to argue a little bit, but to at least have some real basis for those arguments.

[Mike Linton]

We have a basic argument versus, versus arguing about an outcome. The financials are an outcome of all these efforts. But that's right, they're not actually an input. Only the spending is an input. But what happened, Warby was unaffected by this high stock price. They didn't do what Peloton did. They didn't run off and think, oh, my gosh, we're amazing. They just stayed the course. Right?

[Dr. Peter Fader]

Incredible. Credit to Warby and his leadership. Not that I'm biased, but of course, they're all Wharton along. That's right. Well, these aren't Warby glasses. They should be. But anyway, so they stayed the course. And yeah, they weren't overly tempted by those temporary riches. They didn't want to expand the brand too broadly. I mean, going from online to stores, that was a pretty big stretch. Worked out really well for them. But you look at what Warby's strategy has been. You look at their product line, you look at their positioning, it's incredible how few companies will kind of stay the course so effectively for such a long period of time while going through this kind of roller coaster ride. And fast forward to today and they're selling pretty much the same things they were selling before, pretty much in the same way. I mean, obviously there's going to be always some refinement and so on. But it really is amazing about how the strategy hasn't been overly influenced by, by the pendulum of Wall Street.

[Mike Linton]

Hey, so Pete, help me with the Wall street part of this because Warby is saying we're just doing our thing. You price us as you want and then you got to figure out comp and share pricing with your employees through comp committee when you do this. But they're just saying we're doing this. So it's Wall street that was overvaluing the stock and then until recently, actually in your mind, undervaluing a stock, right?

[Dr. Peter Fader]

That's right. So what happened is for, again, they were high for a couple of months there. And then in spring of 22, I mean, basically the stock was just kind of working its way down very soon after the IPO in spring of 22. I remember noticing, because that's when the stock crossed the point where we said it was worth. Again, in our initial analysis, we said $22 a share. We were very specific about it. Again, that's before the ipo. They crossed that line and kept working their way down, down, down, down, down. And let's point out Warby Parker, because around this time, the pendulum has swung for all digitally native companies. All of them. People look at them and saying, what were we thinking back then? They worked their way down to single digits for some time there, yet stayed the course and kept doing the same thing in parallel. And as much as I know the Warby guys and have great admiration for them, these analyses were not done in conjunction with them. In fact, as I mentioned, we're being critical of some of the metrics that they were putting out there. They had to make some drastic changes based on some of the things that.

[Mike Linton]

You said because you caught an error in their math, right?

[Dr. Peter Fader]

We caught a bunch of errors, actually. Tell us about that.

[Mike Linton]

Because the main one here for marketers and financial people too, it's if you're going to put out this stuff out in public, you probably got to get it right. Tell us this story.

[Dr. Peter Fader]

Yeah, so. So a few things. Again, there's a whole blog post on it. But, but the main one that really does matter has some, some, some significant consequence is cac customer acquisition costs. And if you think about the way you'd calculate CAC in a given period, it's how much have we spent on customer acquisition divided by how many customers we've acquired? Well, what Warby did in the last one is they divided by the total size of the active customer base in a given period. So it had a much larger denominator. So CAC makes it lower. That's right. So we kind of redid the analysis. This is what the CAC really is, and it was not easy.

[Mike Linton]

And the other one, Pete, sorry to interrupt, but the S1 is pre IPO filing. Is it?

[Dr. Peter Fader]

That's exactly right. It came out about a month before and we said, wait a minute, wait a minute. All these are good metrics here, some of them. There's just some questions about how they're measured. But in particular, this CAC thing, it was a pretty substantial understatement of cac. Now, is that illegal? No, there are no rules now. There are some informed standards that gets.

[Mike Linton]

Open to so much interpretation when you think about brand advertising and everything else, and what you think and what you don't.

[Dr. Peter Fader]

Yeah, exactly. And this has been something that Dan and I have been on for a long time of trying to create standards about the way that we calculate these things, the way that we report them, the narratives that arise from them. So it's something we've been talking about for a long. A long time. And Warby just happened to kind of, well, not pay attention to that. There are a bunch of other problems as well with some of the other specific numbers, but none quite as like, whoa. As the CAC thing turns out that even when you use the higher and more appropriate CAC number, their unit economics were pretty good. In other words, their lifetime values were actually fairly healthy. Much more than a lot of people would think for the traditional digitally native company. So we're actually quite pleased with what we found, even with some of these issues in measurement. So when we put our second blog post out saying, here's the unit economics of it, we felt we're shedding a very, very positive light on this company. It's just then ironic that a week or two later they go public. Our numbers are half of what went out there. That's what led to the next blog post, say, wait a minute, what is this company actually? And how can we simulate under these different kinds of conditions? So we ran the analysis again about a year later. We said, okay, now that they have, you know, exactly more data, let's just see what's changed. And you know what? Nothing. Turns out that a year after their ipo, the way that people buy glasses, still the same. Still the same. The unit economics of customers, still the same. The economic health of the customer base and therefore the value of the company as a whole, still the same. Now granted, there were a couple of tiny differences. Interest rates were a little bit higher and so on. So we kind of downgraded the valuation. We originally said $20 a share. We said, okay, maybe 20. Basically the same story.

[Mike Linton]

I have to interject here, which is this is so important for marketers and, and, and the finance teams they work with, which is you're not your stock price, you're whatever your actual economic flows are. And one of the things that I, I want to pull out here is don't conflate your stock price with whether or not you're doing great marketing or not.

[Dr. Peter Fader]

That is right.

[Mike Linton]

That's why we need customer metrics customer is doing. Because what I, you know, you and I talked it a little bit in the, the, the pre discussion on this about peloton being the hair and Warby Parker being the tortoise, where Peloton got all revved up about how great it was doing and it, it decided it was going to be a massive growth company and Warby Parker decided we're just doing our thing. Is that right?

[Dr. Peter Fader]

The, the tortoise and hare metaphor is so shockingly appropriate. I'm going to give you credit. You came up with me. But it is amazing. It was amazing at the time and it just continues that way. And it's really surprising to see not just one case study that over so many years is borne out, but this pair of case studies largely happening exactly the same time as each other, that are just taking that old children's fable and saying, here it is, there's something to learn from that. And again, here we are today. And today as we're recording this being November 18, 2024, again, we want to be accurate about that. The Warby stock price hit and went above $22 a share for the first time in whatever it's been two and a half years. So for the last two and a half years, while that price was sinking, I'm saying just wait, wait, just wait, just wait. That pendulum's coming back. It's only a matter of time. We know that eventually the stock market will catch up to the unit economics of the customers. Today is the day it happened.

[Mike Linton]

There we go.

[Dr. Peter Fader]

Even though the hair is winning the, the tortoise is winning the race is finally pulled ahead.

[Mike Linton]

Because, you know, one of the things about I, I have two questions here. One is if I'm sitting in the marketing seat and people are saying, all right, we're going to expand internationally now, how do I do the TAM for that? Do I take your data and I project it? Like, so we're going into Warby Parker and we're going into Europe, we're going into Brazil or something. How do I, how do I take this and project it? There is question one and then I have a follow on question.

[Dr. Peter Fader]

Let's talk about question. Because it is so important. You look at so many companies and you see curves going like this. You see different kinds of hockey stick curves going on. And then you apply your compound annual growth rate, your CAGR to it and you say, this thing's going to grow forever, as people like to say. But when you look under the surface and realize, wait a minute, it's all about customer acquisition, retention, repeat, purchase, spend, there's only so many customers out there, there's only so much we can do with them. There's only so much we can expect out of them, those curves will turn over. And I have bad news, people. The faster, the more dramatic it rises, the more sudden it's going to peak and the more dramatic it's going to fall. This is math. There's no exceptions to this rule. And we're not doing it from a curve fitting standpoint. We're doing it by understanding the underlying drivers of customer behavior. So number one, what goes up must come down. But number two, if we start cutting into it even more carefully, we always want to do these analyses on a cohort by cohort basis. We always want to look at the customer, not segments, but cohorts. We want to look.

[Mike Linton]

That means when we come in, when they come in acquisition, a lot of companies, when it's averaging, which is what they did in the S1, they're averaging everything. And the average does not show the degradation or acceleration of new cohorts.

[Dr. Peter Fader]

Actually, no, Warby, let's give them credit. They actually were, they did break out some cohort data. So we weren't able to play connect the dots across the existing cohorts and to project forward what the new cohorts are going to look like. And so to answer the question, you know, when we're moving into a new geography or new product line or offering, we have to ask ourselves, how are those customers going to compare to the ones that we've had? In some cases, like if we can open up in Some dramatic way those first couple of cohorts we get might be better than the more recent cohorts we've acquired. Yay. We've kind of defy the law of gravity. Because most of the time, if a business is just staying with its strategy, the cohorts are going to get little worse. Little worse, Little worse.

[Mike Linton]

Because the early adapters are more likely to be in there.

[Dr. Peter Fader]

Exactly. As you start scraping the barrel, they're going to get a little bit worse. You should expect this so you can temporarily go against those laws of gravity by different kinds of expansion and so on, but you can only expand so far and for so long, and these kind of cohort dynamics will kick in. It's kind of boring. But, for instance, I don't want. Want to, you know, make too much blah, blah about it, but I have this, this, this book on the customer base audit. The customer base audit. So how are the, the most recent cohorts comparing to the previous ones? And if you just look at things through the right lens at the right level, it's plain as day. Okay, it's, it's.

[Mike Linton]

Let's talk about this, because the second question here is. So you're sitting here as a market marketer. Everyone's excited about the stock price. Let's draw a parallel between the peloton case and Warby Parker. And people say we have a right to grow the business at speed. In the Peloton's case, that means we're going to go into rowers and treadmills and people will spend all this money and all we have to do is put our brand on it and get it out there and we'll grow. And the Warby Parker guys are going, no, we're actually going to just stay with our model and win with our model. All we're gonna, we're gonna do that way. If you're a marketer and you're sitting in the peloton seat and everyone's going, hey, our stock price is much higher. You got to grow to the price or you gotta. Your marketing, it must, it must be. Your marketing is wrong.

[Dr. Peter Fader]

Yeah.

[Mike Linton]

What?

[Dr. Peter Fader]

Yeah, you know what? This is so arrogant. You call Pete Fader and Dan McCarthy to kind of.

[Mike Linton]

Let's.

[Dr. Peter Fader]

Of course, of course to lay out the right narrative. Like, wait a minute, hold your horses. Let's really understand what the data is telling us and understand how high this thing can go and just all the dynamics around it. And again, what would be the levers that can help nudge this up? Is it more about acquisition More about retention, more about increasing frequency. It comes back back to marketing and it comes back to customers more than product. It's not just a matter of what's the next thing we should develop. It's what kind of customers should be acquiring and to and then how are we going to do that? By developing the right things for them. Products are at this, at the service of customers. Not the other way around.

[Mike Linton]

Exactly. Look, I think there's an important piece here which is you need an arguing bridge with your financial team on this. And the stock price. Isn't it? Probably it is something about for us to deliver the revenue Wall street expects. One of these variables has to change. CAC has to go in half. We have to find a whole new tam. Customers have to buy three times as much or we have to be able to increase pricing 100%. That's a better argument than I can't do it or I need more marketing money.

[Dr. Peter Fader]

That is right. Exactly. It's all about those customer metrics and it's about the bridge, the metaphorical bridge we keep talking about. It's not just a matter of talking about those metrics in a vacuum. It's important to then link them up to revenue and profitability and share price. And again it takes some math and it takes some kind of cross disciplinary knowledge that isn't as common as it should be.

[Mike Linton]

I, I, I think it's dead right. And it's also don't argue the average. Break this down into an actual equation.

[Dr. Peter Fader]

That's right.

[Mike Linton]

So before we get to our traditional last question. Any rap you want to put on the tortoise and the hare or the Warby Parker case.

[Dr. Peter Fader]

So right now I'm, you know I'm, I'm, I'm sitting here saying I told you so. You know, I said there, there's, there's value here. It's going to manifest. People are going to see it and eventually the stock price will rise. And who knows, it could be that it gets trendy with Wall street again and it rises above 30. Now we haven't redone the analysis in a couple of years. Now maybe there have been some dynamics and maybe there are circumstances where we could justify the potentially higher stock price. We should redo that analysis. It's probably a good time to do so. But at least as of the last time we did it we're saying and low 20s good enough. That's where it should be. It's there now. Okay. So let's just kind of stay with it and not get all crazy again. The company, to its credit, has been just remarkably steady. There is no indication with the good success they've enjoyed both on Wall street and Main street and over this past year that they're doing anything differently. And I hope that's going to be the case. Again, so much admiration.

[Mike Linton]

You can say it didn't go to their head when their stock price was up and it didn't discourage them completely when the stock price was down. They still believed in the model. And I think that's a good lesson for, for marketers. Which brings us to our last and traditional question. It's a two parter. You have to take one or you can take both. Practical advice for our audience we haven't discussed yet and. Or the funniest story you can share on the air. You can pick one or both, but you have to pick at least one.

[Dr. Peter Fader]

Okay. Well, I like to be a funny guy, but I like to be a practical guy more than anything. And so a lot of it's just going to be to kind of restate some of the points that just came up along the way. Number one, your company's not different. Okay. Your company is going to obey the very same laws of gravity. And so you really do need to break it down into acquisition, retention, repeat, purchase, spend, and do so on a cohort by cohort level. I was waving my book around the customer base audit. I'd like to recommend it to your listeners except for one thing. It's really boring. It's super boring. It's the opposite of funny. And you know what? It should be. Too often marketing books are too interesting. Interesting. It almost gets in the way. There are aspects of marketing that should be boring, it should be routine and it should be regular. And when we run our audit next quarter, we're kind of hoping that the results are pretty much the same as they were last quarter because very often interesting is bad.

[Mike Linton]

So, yeah, look, I think you're making a great point. And I one of the things I think is instead of starting out by thinking your company is different, you should start out by thinking your company is the same and then prove why it's different. It's like if I go to another planet, the chance of that planet having gravity. Gravity is much higher than it not having gravity.

[Dr. Peter Fader]

That's right.

[Mike Linton]

A lot of ways people approach us is they say I'm a totally different planet, therefore you have to prove I have gravity. And I think that puts marketers in a bad way. You should do the math whenever you can.

[Dr. Peter Fader]

That's right. And even if there are differences. Even you say, see, your model's wrong right over here. Is it really sustainable or is it just some kind of transient blip? Very often it is. And that's why, just like with the Peloton story, we're looking at these things over a long period of time where the blips go away and the trends endure. And if people could just look at other companies through the same manner, you'd see very similar kinds of patterns.

[Mike Linton]

Well, I think that is a great way to end the show. Thank you, Pete, and thanks to Props, our title sponsor. And thanks to everyone for listening to CMO Confidential. If you are enjoying the show, hit the like button and subscribe. Look for all of our shows on Spotify, Apple and YouTube, which include the rise and fall of Pelt Crown as seen through the lens of cltv, the Budweiser case, How not to manage a socio political issue, and Pete's first show, ignore customer data at your peril. It's the secret sauce for growth. Hey, all you marketers, stay safe out there. This is Mike Linton signing off for CMO Confidential.