UX is such a fuzzy term; honestly, that’s one thing I can’t stand about it. Ask 10 different professionals what it means and you might get 10 different answers.
Most would probably agree that user experience is the perception a user has of their interaction with a system. So, good UX means creating a good perception of some system?
That’s all good, but it doesn’t get to the root of the issue. The question that really interests me is, why would I want to spend time and effort creating that positive perception?
Some of the softer UX philosophies advocate delighting the user or bringing them joy. But that begs the same question: why?
Clearly there is a benefit to making sure the user experience is incredible… but what is it?
User Lifetime Value
The way I see it, good user experience does have a single unified purpose: maximizing customer lifetime value. From a present perspective, this is the expected profit generated by a customer by all of their actions over a period of time — the present value of their future cash (or, value) flows.
For web systems, we can just change customers to users.
And value in this approach doesn’t need to be revenue. It doesn’t even need to be in dollars. The principle holds for any of the many ways a user might contribute value to the system’s goals.
Lifetime Value (LTV) model
So, a probabilistic model for user lifetime value estimates the expected value of a user over a certain time horizon.
- E[LTV] is the expected user lifetime value
- for each period t from 1 to T
- are profits, or positive contributions from the user in period t
- is the probability of retaining the user in period t
- is the cost incurred for retaining the user in period t
- A is the user acquisition cost
- and is the discount rate in period t
Ignoring the discounting, this amounts to a pretty simple model where user value can be manipulated in very specific and distinct ways. It pretty much tells us that expected LTV is a function of yearly profits times yearly retention rate, less yearly retention costs and an initial acquisition cost.
Implications for UX
What this comes down to is that there are a few areas of this equation where user experience can make a huge difference. Specifically, UX can manipulate parts of this equation to create more beneficial outcomes. That’s some serious power.
- Retaining users (increasing that ) is the single best way to improve your expected user value over time. Luckily, this is the variable over which user experience has the most control. This is where delight may play a huge role.
- Improving profits (increasing ) also has significant influence on LTV. Ex: streamlining the sales process, reducing barriers to contribution, increasing the value of contributions
- Reducing acquisition costs (reducing ) Ex: streamlining the signup or registration process, increasing the probability of registration
This is how great user experience can deliver real value.
Just how influential is UX?
So, even if you buy the notion that a user’s present value can be estimated by a probabilistic model of their expected value flows, and even if you agree UX can influence those flows, the question remains — just how influential can it be?
The fact is that user experience is more important now than ever, partly due to the increasing buyer power in the information marketplace. With social networks, users have bigger voices, more influence, and more power. Their word-of-mouth effects are amplified by the number and nature of their connections.
We can think of these effects in terms of a simplified network diffusion model:
- is the change in adopters in period t
- m is the number of total potential adopters (network size)
- n is the current number of adopters
- is advertising influence
- and is word-of-mouth effects
You can see that word-of-mouth effects play a significant role in the adoption of the system. Delight, joy, and all of the other squishy UX words are going to help make sure those powerful effects are positive.
Consider the alternative, where a negative or unfulfilling user experience so turns off a user that they take to their soapbox to warn others against joining your ranks. If you don’t like what users have to say, it’s gonna take a whole lot of advertising dollars to counter the effects of their two cents.
“No kidding, what people tell others about you is important.” Sure, but network diffusion allows us to perceive just how important it is. It implies that over time, even small changes in word-of-mouth effects can have exponential effects on system adoption reputation.
Network diffusion tells us that the purpose of UX is to make sure that when users talk, they’re laying the praise on thick.
Network diffusion vs user LTV
How does the network diffusion view (UX should aim to create positive word-of-mouth effects) compare or reconcile with the LTV view (UX should increase profits and retention rates, and reduce retention costs)?
Really, these ideas go hand in hand. Network diffusion is really an argument for how influential UX can be in the user LTV model — meaning, as users become increasingly connected, their effects on the variables of the LTV model are amplified. They have more sway, and their happiness is instrumental to any organization’s success.
Network effects are not explicitly captured in the LTV model, but you consider them baked into the existing variables. For instance, a user’s profit might include their own value plus that of any referrals that were made through diffusion. Same with retention rate — it increases for a user if their voice is actually creating new users.
Why does it all matter?
Creating a happy army
Happy users say positive things. They tell their friends positive things. They buy more; they stay around longer, they cost less to keep happy. They do all of the right things in all of the value models. They are so-called brand advocates — little footsoldiers of positivity that do work that would otherwise be very expensive for free. Making users happy is the closest thing we have to a silver bullet that automatically maximizes a user value projection.
As users continue to be better connected and more powerful in information networks, UX will have more and more influence over the variables in the lifetime value model. That makes the role of UX in addressing and exceeding user needs absolutely essential. The pressure is on to provide excellent experiences to users, with the viability of the underlying organization truly at stake.
What you do is… important?
Looking at user experience through the lens of expected user value tells us one thing for sure: it really does matter. To me, being able to quantify, estimate, and manipulate the way UX adds value to an organization is invaluable. It gives us a framework for articulating the value that’s otherwise just a fleeting notion in thin air.
I can finally hope to explain the first bit about what I do to friends, colleagues, employers. “Hey, you know that thing I do that doesn’t make a whole lot of sense to you guys? Turns out it’s actually really important; here’s how important.” They’re bound to get sick of this newfound smugness pretty quickly, but it will at least feel good the first few times.
There’s something incredibly satisfying about being able to articulate something in the perfect terms, and the user LTV model gives us a framework to help us do that for UX. I appreciate it, co-workers appreciate it, and certainly clients and employers appreciate it the most. Knowing the value of your craft gives you the ability to use your power for good, and the wherewithal to justify your worth.
Providing a plan of attack
Evaluating UX potential through user lifetime value doesn’t discount any of the traditional ways we like to measure UX. Do competitive analyses. Evaluate Neilsen heuristics. Research users, understand goals, map workflows, draw storyboards, develop personas. Build wireframes, iterate, iterate, iterate.
Do all of these things, just know why. Understanding your own user values can provide huge insights for the UX process:
- Knowing the expected LTV of different customer groups or personas can guide the allocation of resources across those groups.
- Identifying which LTV variables need improvement can guide the UX process to address different parts of the equation.
Because, at the end of the day I don’t want to design for the sake of designing or improve UX just to satisfy some ridiculous matrix.
I want to really understand where value can be added, then work the real magic.