5 Early Ways to Use Customer Lifetime Value Strategically
The following excerpt is from The Age of Customer Equity: Data-Driven Strategies to Build a Sustainable Company. Available at Amazon, Barnes & Noble, Porchlight, and your local bookstore.
Customer interactions stretch across so many departments, the addition of customer lifetime value (CLV) to the master data set could affect and align performance measures across the company. It can be tempting to identify CLV as a “holy grail” of measurement and run it into the boardroom at this point, but do not do it. Instead, spend the time opening the gates of customer learning by using CLV strategically. CLV is a powerful tool to make strategic decisions that keep a company healthy, but you should never view your customers as only a number. Experimentation helps you know more about the people behind all that wonderful potential. Here’s how:
Segment the customer base by customer value to unpack performance. As the volume of data rises, the demand to measure performance increases. Use CLV as a long-term measure of customer quality (high, medium, low value) across every customer touchpoint.
Within marketing, for example, you can tie CLV to your marketing acquisition spend, commonly called the customer acquisition cost (CAC), to the CLV ratio. Now you can have a good argument for what to spend in each channel or even why your marketing budget deserves an increase. This is a useful application, but not a favorite of mine for two reasons. First, channels don’t buy products, customers do, and I think this tends to shift the focus away from the actual customer. Second, CLV is a long-term projection so tying it to short-term acquisition strategies is directional at best.
Cohort customers by the acquisition month, quarter, or year to see if your company continues to acquire high-quality customers or if the quality is dropping over time.
Use cases defined in the Listening Zone can be powered up with an anonymous hash ID (a string of 20+ numbers or alphanumeric code that form a temporary customer ID) on the website, which creates a hook to connect customers to previous behaviors once identification is known (e.g., when a purchase is made). When a company adds CLV, it quickly becomes clear where valuable customers are getting frustrated.
When customer value is connected to behavior, your experiment strategies can be ranked according to the future dollars saved or even recaptured.
This is just one way you can play around with CLV to gain the insights you need to delight and keep your customers.