THE BUSINESS LOGIC OF LTV: WHY AMAZON GIVES THINGS AWAY FOR “FREE” By Kevin Suer, Senior Product Manager at Zuora
It seems like every day Amazon is adding some new “free” benefit into its popular subscription membership service Amazon Prime — free videos, free music, free book rentals. The list goes on and on. The same goes for lots of other vanguards of the Subscription Economy. Google launches a few free apps that make living your life and work just a bit easier; Netflix ships a brand new batch of kids movies that would’ve cost thousands of dollars in Blockbuster rentals back in the ‘90s; Tesla pushes a few wireless updates and suddenly your car just got better at driving itself. These Subscription Economy companies are the envy of entrepreneurs everywhere who want to surprise and delight their customers with new and unexpected features and benefits, seemingly with a spirit of unbounded generosity.
34
Such “free” customer benefits are not limited to the most innovative Subscription Economy companies either. Look no further than cellphone providers like AT&T and Verizon and their inducements of the newest and most high-tech smartphones at free or near-free prices when you agree to sign-up for their service for two years. What is driving this endless string of giveaways by subscription companies? The answer can be summed up in a single, very important metric: Customer Lifetime Value or LTV. Sure, it goes without saying that all of these companies care about the experience they provide to their customers, but they offer these wonderful benefits as part of the experience through a lens grounded in a set of financial facts around how much value a given customer can create for their shareholders.
