What is Customer Lifetime Value?
In our world of increasing ecommerce spend, growing emphasis on corporate social responsibility, and customers’ desire for brands aligned with their values, businesses are challenged to ensure their sales strategies target the ideal customer while also prioritizing the longevity of that relationship. An increasingly prevalent metric to measure this customer experience (CX) strategy is Customer Lifetime Value (CLV).
We define CLV as the net profit attributed to a customer over the course of their affiliation with the brand.
You can use CLV to measure sales, marketing, CX efforts, and new technologies focused on elevating the customer experience.
This article describes three ways to improve Customer Lifetime Value.
Three Ways for Companies to Increase CLV
1. Segment and Personalize
Using data, such as customer experience analytics, to create a holistic view of your customer base is the first step to creating an effective retention strategy and increase customer value. By accurately capturing information around one-time vs. repeat buyers, channel usage, and cross-selling propensity, your customer base can be segmented to discover the most high value customers.
A study by Consumer Intelligence Research Partners found that the average annual spend of Amazon Prime subscribers was 2x higher than non-Prime shoppers. Amazon prioritizes this segment with new benefits like video services and Whole Foods discounts, all while increasing the membership price without losing these valuable customers. In addition to aiding retention, segmentation enables businesses to target the customers with the highest likelihood to buy, thus lowering the average acquisition cost and potentially increasing average purchase value.
Takeaway: Data is the first step in devising methods to meet the needs of your customer segments and developing customer lifetime value strategies.
2. Customer Engagement
The second way to drive CLV is by focusing on customer engagement strategies. With customers able to research and select alternate options with a few clicks of a mouse, the onus is on an organization to design positive experiences from the marketing campaign all the way through using the product or service. Building on the foundation of using data to segment the customer pool, you can apply the following techniques to increase retention rate and annual purchases, thereby improving their customer lifetime value:
- Prioritize digital and unstructured channel offerings including chat bots, Apple business chat or SMS, and social media
- Reward loyal customers with personalized recommendations for new products and offers
- Create knowledge sharing options for customers to interact including posing and answering questions
Takeaway: Enhance the customer desire to interact with your brand.
3. Reduce Fallout in the Customer Journey
A third method to drive retention is to continuously monitor the points where your customers disengage through customer journey mapping. Losing clients directly impacts profit margin through renewed acquisition efforts and increased costs. Furthermore, brand loyalists require less spend to remain engaged.
Evaluating the customer journey includes collecting and documenting any complaints at each point of interaction. For example, a critical interaction point is when your customers seek to pay for goods or services. If they find this activity to be difficult or abrasive, they may abandon their cart and stop the purchase. Instead, you want to ensure this step in the journey is easy and the customer leaves feeling satisfied and with growing anticipation to consume your goods or services.
Takeaway: Commit to a company-wide culture of serving the customer by solving journey pain points.
Contact us to learn more about the intricacies of calculating customer lifetime value calculations and how RevGen can design strategies to improve yours.
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