It’s the metric every marketer can fall madly in love with.
Customer Lifetime Value promises improved efficiency, focus, and profitability.
CLV impacts revenue forecasts and operating budgets.
It can...
- Set the tone for an organization’s culture
- Serve as a leading indicator
- Function as a rallying point for marketing teams who want to make sure the appropriate amount of attention is paid to customer retention.
But getting it right and assigning accurate numbers to CLV is easier said than done.
And strengthening what can be a flawed process goes well beyond the usual challenges of accessing quality data and interpreting it accurately.
Minefields Of CLV Misinterpretation Are Easy To Create
Perspective matters.
The marketer might see a loyal customer as a high margin annuity.
But the loyal customer might expect financial benefits and service advantages, which can easily lower margins, in return for their loyalty.
A failure to resolve these two contradictory assumptions won’t just upend the numbers behind CLV. It can send misunderstood customers running for the exits.
CLV And The Organization’s Marketing Strategy
Marketing for profits and marketing for loyalty are two different strategies.
There may be a crossroads, a point where loyalty and profitability intersect, but there may not be. The loyal customer and the low margin customer may be one and the same.
These distinctions are not always apparent.
Targeting customers who are easy and comparatively inexpensive to acquire and retain sounds appealing... so long as they’re profitable once retained. (Not always a given.)
If marketing people focused in customer acquisition aren’t sharing data with their counterparts focused on customer retention, CLV initiatives can wind up in the ditch.
Summer Zixia Cao, an assistant professor of marketing at the University of Colorado Denver, says this can be an expensive problem.
“While many firms closely track the costs (acquisition cost and retention cost) and profitability, they often focus only on the short-term transactions not long-term profitability. Customers who are easy to acquire and retain may not yield the most profits.”
The alignment of acquisition and retention can achieve the balance required to make CLV effective.
Better acquisition can support retention by steering clear of low loyalty, low profitability customers.
Better retention processes can help make sure the loyal customer is also a profitable customer.
What Else Can Be Done To Improve CLV?
One tactic may be the creation of better content to accompany the customer journey.
Specifically, personalized content that is more relevant.
“More so than ever, organizations have increasingly rich data that provides unique insights about customers across channels in real-time,” says James Schorr, SVP with Epsilon’s Analytics Consulting Group.
“Intelligently harnessing this data to orchestrate relevant and individualized marketing content to create positive customer experiences has shown to improve CLV.”
The Future Of CLV
As marketers evaluate their CLV efforts, they may find that there are opportunities to innovate when it comes to segmentation.
“A common pitfall is asking too much of CLV on its own,” says Schorr.
“Many organizations consider the forecast to be the sole input to an enterprise customer segmentation. As a best practice, CLV should be a component or input to a broader segmentation scheme that also considers a customer’s current relationship depth and value, as well as their attitudes, preferences, and needs.”
