It’s Official, I’m a Cheapskate

The Wall Street Journal had a fascinating article about how companies use CLV, or Customer Lifetime Value, to decide the financial value of a customer. Your score can determine the prices you pay, the products and ads you see, and the perks you receive.

So now I know why I am put on hold for so long when I call certain places; I have a pretty low CLV.

There was a link in the article that allowed the reader to take an online survey that required one to answer a series of questions, and after each question, you could see the impact of your response on your CLV.

I thought I’d step through the questions and show you how I ended up being considered a cheapskate.

At the start, you are told that your CLV could range from $8.52 and $203.93 for a hypothetical clothing retailer, Smart Style.

  • question 1: gender and age. By responding male and over 40 my CLV range changed to $9.62 and $119.59. The survey notes that if you picked male, then you can never score above $140 because Smart Style’s past customers are mostly female. If you are female between ages 18 and 24 or over age 40, then you are on your way to a high score. Oh well.
  • question 2: this set of questions focused on how often you tended to shop and how much you tended to spend when you did. I selected that I buy all my clothes at once and that I spend sparingly. My score is now between $9.62 and $65.59. The algorithm notes that if you place orders more frequently and spend more, you are more likely to have a higher score. I think we can see where this is heading…
  • question 3: married or single. By choosing married, my score went up to between $10.82 and $65.59! If you are married, Smart Style assumes you will buy more clothes for family members and therefore deserve a higher score. (they obviously don’t know me that well…)
  • question 4: this looks at the influence of price. I chose that I wait to buy until items are deeply discounted. This lowered my score to the range $10.82 and $43.73. The model notes that taking advantage of a few discount offers could increase your CLV, a sign that you are an engaged customer. But if you only buy on discount, you are more likely to have a lower score. Some retailers may even give you a negative score for using too many discounts.
  • question 5: this looks at your likelihood of returning items that you have bought, and I selected never. I can’t remember the last time I returned something. This might mean that not only am I cheap, I’m lazy too. Let’s see what the model says. My score changed to between $18.07 and $37.08. I’m not sure why the upper end of the range dropped, but at least the lower end increased. The model notes that if you return more than one item, Smart Style assumes you are unhappy and might not remain a customer for long. Since returns can be expensive, a retailer might give you a negative score.
  • question 6:  level of education; I selected graduate degree, and my score is now between $22.18 and $37.08. Once again the lower end increased, and no change on the upper end. The analysis indicates that if you have a degree from a college or graduate school, Smart Style is more likely to award you a higher CLV than someone who only has a high school diploma. At companies that sell goods to low-income shoppers, the opposite may be true.
  • question 7: where do you live; I chose suburb and my score is now between $25.34 and $35.12. This response raised the lower end but lowered the upper end. If you live in a rural area, Smart Style is more likely to give you a lower CLV. A retailer could penalize shoppers who live far away from a store or warehouse because of higher delivery costs.
  • question 8: looks at price and quality choices; I selected that I browse cheap items and buy stay within my budget. My score is now between $29.11 and $31.59. Apparently, if you browse for more expensive items or products with higher profit margins, you are more likely to have a higher CLV.
  • question 9: this final question asks about when you browse websites; I chose weekends, and this gave me my final score CLV score of $29.11. If you shop on a weekend, you are more likely to receive a lower score than a weekday shopper. A retailer could lower your CLV for shopping on sale days or typical paydays, assuming you are price-sensitive.

The final page then shows the user which of three categories they fall into, cheapskate (a CLV of under $30), middle of the pack (a CLV between $30 and $60), or big spender (a CLV over $60).

So my score falls into the cheapskate category, but at least among cheapskates, I’m a big spender.

Here’s the link if you want to give it a shot.

I wonder if my results were influenced at all by the fact that just before taking the survey I had read an article about devotees of the FIRE approach to life, which stands for Financial Independence, Retire Early. The article featured young people who are obsessed with saving as much as they can so that they can retire early, possibly in their 30s and 40s.

And while it sounds appealing, it looks like I missed out on that particular lifestyle.

So despite being a cheapskate, I won’t be retiring early.

All that sacrifice and no benefit. Maybe I should start splurging and see what happens. Perhaps a trip to Target is on the horizon…

*image from MSN Money


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