#10Q: Building lifetime customer relationships

Nearly half of all marketers struggle with customer lifetime value (LTV), from defining to targeting to tracking. This is a serious problem when a majority of CEOs (53%) and heads of sales (49%) depend on LTV to inform their strategic decisions. These are just a few of the critical findings in a recent report by the Chief Marketing Officers (CMO) Council, in collaboration with Deloitte Consulting LLP, called Humanizing + Analyzing Relationships To Drive Revenue, Retention And Returns. The report found that the vast majority of CMOs — 82% — track LTV only moderately well or worse. More than one out of four don’t track LTV well at all. This is an edited extract from the CMO report.

1. Why do brands need Customer Lifetime Value?

Think of LTV as an overall health check on marketing and the business. Are you targeting the right customers? Are they getting the right experiences that lead to brand loyalty? Is the lifecycle of customer acquisition, retention and enrichment paying off? When we asked marketers what the most influential factor is in promoting deeper analysis of customer long-term value, the top answer by far (44%) was strategic organisational focus on customer retention and value creation. That’s a pretty good reason. On a more tactical level, LTV can help marketers justify spending on marketing campaigns targeting particular customer segments. LTV can show that these groups will generate the most amount of sales over their lifetime.

2. What are the opportunities for marketers to improve LTV?

A redesigned LTV that reflects the new digital realities and the empowered buyer gives marketers greater insight into valuable customer segments and campaigns that truly impact the customer experience. This allows CMOs to design a more effective, efficient marketing mix. For LTV to be truly insightful, though, marketers have to re-design LTV in a way that reflects the truth about the empowered digital customer in relation to their company. The formula must take into account a host of factors, among them: customer segmentation, psychographics, discount rates, cost of acquisition (CAC), retention costs, churn rates, revenue per user, transactions per user, commercial metrics, brand health metrics, penetration frequency, advocacy.

3. This is what LTV is not…

LTV isn’t a one-size-fits-all metric or a quick fix. It requires the commitment and ongoing participation of executives across the company. LTV has to be defined and re-defined over time to reflect the changing market, product and buyer. But the payoff can be significant, and there are ways to start small to get buy in and traction.

4. So, why do marketers struggle with LTV?

It is because figuring out what to measure is not simple. When marketers think of LTV, the first thing to come to mind is the traditional definition — that is, a prediction of revenue attributed to the future relationship with a customer. That’s why 66% of marketing leaders in our survey cited revenue per user as a core component for measuring LTV. But revenue per user alone doesn’t give the complete picture. A host of other contributing factors come into play. Among them: transactions per user, sessions per user, session duration per user and page views per user – all of which show customer engagement that can lead to brand loyalty.

5. Why should marketers not only focus on revenue metrics?

It’s important to keep in mind that customer engagement metrics add to the narrative but don’t tell the whole story, either. Multiple sessions per user might not have any impact on LTV. Lengthy phone calls, chat sessions and customer service interactions will drive up costs and negatively impact the CAC to LTV ratio. Companies only focusing on revenue and profit when measuring LTV also exclude their most valuable customers — brand advocates. They’re the new, unpaid salesforce influencing peers on buying decisions over social media and online product review sites.

6. Why is segmentation and customer targeting so critical?

Brands wanting to grow LTV should take a hard look at how they’re segmenting and targeting customers. Done improperly, a brand can end up wasting resources chasing the wrong customers. Our survey found many marketers (84%) are only moderately effective or worse at segmenting and targeting customer sets with the most potential for long-term value. Marketers often rely on traditional demographics, but demographics don’t reveal buying behaviours that would lift LTV scores. Many marketers would benefit from creating a psychographic of their customer (i.e., personality, values, beliefs, lifestyle, attitudes, and interests) and track online and offline purchasing behaviour.

7. This is LTV’s dirty little secret…

The dirty little secret of LTV is that it suffers from distraction. Both marketers and business executives are distracted, having set their sights on other priorities. Even though LTV is a metric rooted in marketing, our survey found that only a third of CMOs feel they own it. Some of the respondents to the survey reported that marketers became addicted to online advertising on social media networks and forgot about retention and LTV. LTV requires months to set up as marketers figure out how to define, formulate, measure and track LTV in the best way for their particular businesses. It’s a considerable investment and commitment, and many are unwilling to take ownership.

8. Who owns the area of strategic growth and profitability?

The answer is everyone. It is more powerful to get everyone involved, not just marketing. Sales, fulfillment, customer service and other departments have to contribute to the LTV equation. Our survey found that marketers have an idea of what they need to do to grow customer relationships and LTV. They are putting the customer at the top of the priority list. According to our survey, over the next 12 months, marketers will seek to gain a deeper understanding of customers through a unified view of their experiences. They’ll attempt to establish lasting connections, identify opportunities to cross sell and upsell, and deepen relationships through more dynamic brand experiences.

9. What are the main challenges to growing LTV?

In our survey, the top three challenges for developing lasting customer relationships are related to data and data-driven insights: aggregating the right data for a robust view of the customer (55%), shifting from assumptions to predictive knowledge of customers’ needs (47%), and identifying the moments of opportunity to deliver delight and differentiation (44%). Yet marketers struggle with getting actionable customer insights from data in a timely manner. Nearly 60% of marketers point to inconsistencies with the level of depth and granularity of customer insights, while 36% admit they just don’t have the data to know their consumers, let alone anticipate their needs, according to a previous CMO Council study.

10. These are the most sought-after data-driven insights…

According to this survey, here are marketers’ seven most sought-after data-driven insights: level of satisfaction, LTV, incidence of churn and defection, brand loyalty, values and beliefs, incidence of repeat purchases, and psychographics. Our survey found that the three most important requirements in building long-term customer relationships, are: humanising connections; aligning the organisation to fully deliver on the brand promise; and offering products that meet well-defined needs. For converting customers, the top four most important initiatives are: better communicating the product value proposition (47%); doing more sophisticated targeting, profiling and engagement (42%); improving relevancy of marketing content (42%); and analysing and addressing customer journey and path-to-purchase obstacles (35%).

Main image credit: Pixabay.

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