Strategies to Increase Customer Lifetime Value
Customer Lifetime Value (CLTV) is the total worth to a business of a customer over the whole period of their relationship. CLTV is an important metric, especially considering it costs less to keep existing customers than it does to acquire new ones. In fact, an overwhelming majority (91%) of companies report that investment in growing CLTV is more profitable than investment in customer acquisition.
Despite the importance of implementing strategies to increase CLTV, only one-third (33%) of survey respondents report that customer lifetime value is a measurable and reported KPI for their company, per a report by Econsultancy and RedEye.
Despite the relatively low number of respondents who focus on CLTV strategies within their companies, many marketers plan to increase their focus. Approximately three-quarters (76%) of client-side respondents reported that driving customer lifetime value is a high or medium priority for their organization, and 74% of agencies reported that driving CLTV was a high or medium priority for their clients.
When asked what strategies are most effective for increasing Customer Lifetime Value, 52% of brand respondents and 50% of agency respondents stated that more effective uses of data topped the list. Additional tactics included using customer segmentation/personas, cross-selling/upselling and utilizing personalized interactions.
Effectiveness of Strategies to Drive Customer Lifetime Value
Of those companies focusing on CLTV, how effective are the strategies they are using? The majority (77%) of companies report that they are ‘very’ or ‘quite’ effective at turning prospects into sales, and only 23% report their company is ineffective at this. 65% also felt they were very or quite effective at turning single sales into multiple purchases.
The majority (56%) feel they are not effective at predicting who will be their most valuable customers. In addition, only 28% feel they are ‘very’ or ‘quite’ effective at predicting customer lifetime value, while 72% report they are ineffective at this.
A focus on cross-channel experience is thought to increase CLTV by 36% of companies surveyed. Consumers wanted to be treated with consistent and positive experiences, both offline and online. Some of the tactics that companies are using as part of their cross-channel strategy include:
- Social media (53%)
- Focus on cross-channel experience (36%)
- Customer self-service tools (30%)
- Highly trained call center staff (30%)
When consumers have a positive experience, statistics show they are willing to buy more and at a higher premium:
- Customers who had a very good experience are 3.5x more likely to repurchase and 5x more likely to recommend the company to friends and relatives than if they had a very poor experience. (Temkin)
- Loyal customers are seven times as likely to test an offering, five times as likely to buy again and four times as likely to refer. (Temkin)
- Millennials will pay 21% more to do business with companies who excel at customer service. (American Express)
- Friendly employees or customer service representatives are what make a memorable experience that causes consumers to stick with a brand, for 73% of customers. (Harris Interactive)
- Around the globe, 96% of consumers say customer service is an important factor in their choice of loyalty to a brand. (Microsoft)
- When asking consumers what impacts their level of trust with a company, offering excellent customer service is ranked number one. (Zendesk)
- 52% of consumers say they have made an additional purchase from a company after a positive customer service experience. (Zendesk)
Technology to Boost CLTV
To meet customer lifetime value KPIs, marketers are investing in technology tools and platforms. The top tools include email marketing platforms (65% o company respondents, 59% of agency respondents), personalization (45% of company respondents and 53% of agency respondents), and customer data platforms (33% for company respondents and 39% of agency respondents).
An increasing number of brands are increasing investments in the area of predictive analytics. Predictive analytics is the use of data, statistical algorithms and machine learning techniques to identify the likelihood of future outcomes based on historical data. This branch of analytics is highly effective in creating hyper-personalized campaigns and experiences.
According to the Econsultancy and RedEye survey, there is significant uplift from employing predictive analytics, according to 32% of respondents, while 59% report some uplift. Additionally, 30% have seen significant uplift from using machine learning while 65% have seen some uplift.
Companies are taking customer lifetime value seriously and are recognizing its potential. They are planning to invest more in the right technologies to meet their goals. The majority (71%) of companies are planning to increase investment in technology that improves CLTV. Almost two-thirds (64%) of agencies report that their clients are planning to increase technology investment.
Challenges and Limitations
Boosting CLTV is an important tactics but certainly poses its challenges. The top challenges include:
- Data limitations/no single customer view
- Inability to measure Customer Lifetime Value
- Poorly integrated marketing technology
- Siloed organizational structure
Improving your Customer Lifetime Value can have a dramatic impact on your revenue, customer loyalty and overall business success. Understanding these metrics provides marketers with a better understanding of what’s driving customer spend and loyalty and what it’s delivering back to the bottom line.
Interested in learning more about additional marketing strategies and tactics to provide today’s consumers with exceptional experiences? Download the Customer Experience Marketing eBook.