The challenges of customer lifetime value
Working in silos and managing multichannel are stopping brands from realising the full value of a customer over time.
The multichannel digital age and the siloed nature of organisations are hindering brands and companies from calculating one of the key measures of success – the lifetime value of a customer.
Customer lifetime value (CLV) is the total worth of a customer to a business over the entirety of the relationship. But with the various ways that consumers can engage with brands, from social media to call centres, the barriers to measuring and acting on that value are proving a challenge.
New research by Econsultancy, carried out in association with Sitecore and comprising 900 responses, shows the CLV concerns of client-side organisations, agencies, vendors and consultancies.
The study reveals that more than three quarters of company respondents (76 per cent) either somewhat agree (25 per cent) or strongly agree (51 per cent) that CLV is an important concept for their organisation. However, only 11 per cent strongly agree that they are able to measure it.
Furthermore, only 6 per cent of agencies strongly agree that their clients have a handle on measurement.
“It’s difficult to put in place, particularly if a brand has many different product categories,” says Neil Costello, head of marketing at Aviva. “It’s difficult to calculate because there are so many different parameters and demographic and macro influences that will shape the calculation process.”
Differing product categories are not the only challenge in measurement: the various departments involved in the customer journey also affects the metric.
The research shows that 35 per cent of respondents say that the siloed nature of their organisations and lack of coherent marketing is a key factor hindering their ability to increase CLV.
In addition, around a third (34 per cent) feel that poor systems or lack of integration are hindering the customer experience, which is one of the most significant factors negatively effecting the ability to build CLV.
Customer relationship management tools teamed with the technology available to marry up the offline and online channels should help brands ensure they are taking into account all consumer touchpoints.
Costello says that if Aviva takes a deliberate pricing strategy for a customer based on their age, gender and location, the brand would make sure that the technology is in place to avoid conflicting price messages. If that consumer contacts the call centre, the same rule would apply and the operative would not give an offer over that price, ensuring that all customer touchpoints are in line.
The study shows that a single customer view, customer experience management tools, dedicated retention staff and more interaction between online and offline channels are the most effective tools for enhancing CLV.
As for the future, almost two-thirds (64 per cent) say improved customer service will help them increase the amount someone spends, over half say using data will aid this, and half of respondents say better consumer insight and increased personalisation is key.
Gourmet Burger Kitchen (GBK) works with Cardlytics, a company that enables banks to use consumer-spending data to offer personalised rewards from selected brand partners, to offer cashback rewards to GBK customers.
As well as strong redemption rates, it claims it is seeing longer term benefits of increased customer frequency following the initial offer. The ability to track this over time helps GBK to see the long-term value of this type of targeted mechanic.
The brand regards loyalty and rewards as an important way to increase customer value. Marketing director Katie McDermott says: “Communicating effectively with our customers is key to increasing their value. We launched the GBK loyalty app last year and we now see around 10 per cent of our customers using it to earn rewards based on their frequency of visit.”
Over 250,000 customers have downloaded the app. McDermott adds: “The loyalty platform and the data insights it generates are helping us to target customers with relevant communications.”
The study shows that CLV has moved from post-purchase strategy, such as employing loyalty schemes and customer retention tactics, to taking into account the lifetime value from the first interaction. This is due to consumers engaging with brands before the purchase, whether online or in-store research, recommendations or by becoming a fan on social media.
The research suggests that understanding the consumer, not just in terms of their product needs, but also their online and offline behaviour, is one of the keystones for establishing the relationships that brands see as critical to creating CLV.
Only 57 per cent say they understand the key physical touch points, while 55 per cent understand the key digital touch points.
Respondents say personalisation is vital to build CLV, with half the sample regarding this as a top priority in future. Furthermore, after improvements in customer service (42 per cent), personalised interactions (34 per cent) is the option most likely to be selected by respondents as a top three tactic for boosting CLV.
The study finds that each sector has its own challenges in building CLV. For example, in the automotive industry, consumer demand is driven by technology, public opinion, cost, life stage and fashion. Loyalty can be affected by factors such as quality of aftersales and the vehicle, influence of others and competitive pressure.
David Wilson-Green, aftersales director at Mazda says: “Relationship and trust with dealership staff is critical to continued loyalty. A customer will usually only defect [to another company] for servicing because of their experience within the dealership or their perception of price.”
Mazda believes consumers will pay for great service and ensuring they understand that value is vital in building confidence in the dealership.
Wilson-Green adds: “Any garage can change engine oil but to really understand the nuances of a brand and have the knowledge to maintain a car to factory standards is best within a franchised dealership, where technicians are trained by the brand. So we have to educate customers of the value of using a Mazda franchised dealership.”
As for the financial services sector, those in the market would benefit from finding ways to add value to consumers’ lives, which would prevent switching and generate trust.
Costello at Aviva says: “You have to make sure that there is a relevant loyalty proposition that isn’t just [about a] discount. You have to make sure, when you look at the rise of the aggregators, that customers are aware of the features of those products that are in aggregators.”
The consumer goods sector has the most work to do in calculating the lifetime value of a customer because of the choice, innovation and price promotions from brands and retailers.
The research shows that many of these goods do not find a natural transactional home in the digital environment, which makes tracking purchase history and the acquisition of a single customer view difficult.
Each sector and each brand will have a different view on how to build CLV; the research shows there is no single model for boosting CLV or measuring it.
It is clear that each brand will need to take into account and put value on the interactions of its customers in all of the channels where it operates. By tracking and putting this value on consumer engagement, brands can start to build a customer view that will help build lifetime value through loyalty programmes, personalisation and relevancy in marketing messages.
The big three challenges
Digital touch points
A poor digital strategy is named by almost a quarter (23 per cent) of respondents as a hindrance to enhanced customer lifetime value. In addition, only 15 per cent of respondents strongly agree that they understand the key digital touchpoints.
As more consumers engage with brands through digital media, understanding how, when and where consumers are buying, researching and becoming advocates of a brand will be vital.
Working in silos
Over a third of agency and company respondents note that siloed organisations result in a lack of coherent marketing approaches. The challenge is for companies to work and communicate with other departments in the business to ensure that there is a seamless customer journey, whether the customer interacts through
a call centre or via social media.
Almost a third (32 per cent) of respondents say a single customer view is the most effective tool for enhancing customer lifetime value.
Measurement
Measuring value is third of the top three concerns companies have about increasing CLV. It is calculated by taking customer revenue minus the cost to acquire and then serve the customer.
However, this depends on variables specific to each company as well as taking into account the multiple channels used to acquire and sell to consumers.
Sponsored viewpoint
Shawn Cabral, Marketing director, Sitecore UK
Customer lifetime value (CLV) is taken for granted. It can be a good measure of marketing success, because marketers have the ability to engage with all customers, prospects and build a longer-term relationship like never before.
It’s going to be important in future because we are moving towards greater personalisation in marketing. Brands recognise that a great customer experience journey is important and they need to understand the different stages.
In the digital age, the journey starts with the first time a consumer visits a website or tweets about a brand: there are now so many more touchpoints at different stages than before.
Digital brands can now keep an experience and relationship going in ways that can’t be done in the offline world. Marketers should recognise that they can ‘own’ the whole waterfront from the start to the end.
Brands need to put a value on interactions. There are people who are fans, and advocates of the brand who maybe don’t buy the products. For example, Ferrari’s website gets many visits but people aren’t buying a car every week.
However, these consumers are important as they are having conversations about the brand, so brands should capitalise on that.
The data aspect has to be a given for pursuing CLV. Companies are grappling with the concept of ‘big data’, but it’s being able to see the entire customer conversation which is important. One thing can affect another: you can see if people who have engaged via social media also respond well to email and you can plan that journey for them. It’s about the integration of data so that all channels feed into one platform.
Personalisation is also key to CLV. Marketers have to think about whether they are doing anything different with their customers that make them feel the brand is giving them the special attention that they deserve.
If a brand can recognise who customers are and what they have bought, that is key to building lifetime value because it means understanding and reacting to customer needs.
A brand might know that it has a set of valuable customers, for example a top 10 per cent who deliver a chunk of the profit. However, there might not be much recognition for those top consumers currently.
If one of those people visits a website, they may be treated the same as others, so brands are potentially missing out on the opportunity to do something special for their most valuable customers.
