“CLTV is the net present value of the profits linked to a specific customer once the customer has been acquired, after subtracting incremental costs associated with marketing, selling, production and servicing over the customer’s lifetime” – Robert C. Blattberg, Professor Emeritus of Marketing, Kellogg School of Management.
Customer Life time Value or CLTV is the current assay of the ensuing monetary gains or the value of future transactions ascribed to the customer during his or her entire relationship with the company.
CLTV is the monetary value a particular customer contributes to your business over his or her entire lifespan. It is a very critical gold standard and is put to use while key decisions about sales, marketing, product development, and customer support are taken.
By using the postulate of Customer Life Time Value an organization can swiftly arrive at the monetary value associated with the long-term relationship with any customer. It is difficult to forecast the tenure of each individual relationship, but marketing executives can make a reasonable prediction and state CLTV as a periodic value.
It is an important and useful benchmark used by marketing managers, especially at a time of customer acquisition. Hypothetically, lifetime value should be substantially higher than the cost of acquiring a customer. This is also known as a break-even point.
The basic formula for calculating CLTV is the following :
(Average Order Value) x (Number of Repeat Sales) x (Average Retention Time)
Assume you are the operator of a Health Club in A tier 2 city in India, where the customers pay INR 1000 per month for membership, and the average time that a person remains a member of your club is 3 years.
Then the lifetime value of each customer as calculated using the formula above:
INR 1,000 per month x 12 months x 3 years = INR 36,000
This means each customer is worth a lifetime value of INR 36,000. Thus the business can arrive on the relative spend on customer acquisition through various sources such as events, advertising, social media initiatives, referral programs, etc.
Another method (more accurate) to calculate CLTV is depicted in this image:
Primarily there are two types of CLTV that are generally agreed upon:
Historic CLTV: calculated simply, it is largely precise when it comes to unprocessed numbers. It is the total profit from previous purchases a customer has made. It envelops all costs related to the buying of a service or product.
Prognostic CLTV: tenacious in character, it is more pragmatic to a business because it facilitates prediction. This postulate considers existing purchases and the underlying buying behavior. All occurring transactions, along with behavioral data, fortifies this approach. This model helps you progressively forecast and adapt with the ever-changing landscape of consumer behavior.
Business Utilization of CLTV:
“Companies should be willing to pay a premium on advertising to higher CLTV consumers,” says DEG Strategic Planning Director Tony Toubia.
The most effective way to benefit from a CLTV score is to establish definitive variables for the different stages of your customer journey. This enables you with the capability to identify the problems that may be hampering various stages of your customer journey and experience.
If a particular month shows receding performance numbers, you may arrive upon the fact that your retention rate dipped or that you are taking a beating on repeat business. This provides crucial actionable information that you can use to skyrocket marketing strategies and tactics to fix bottlenecks in specific business areas.
“Your CLTV can be based on a number of things and should vary by brand, for example, companies in need of a PR boost could consider scoring individuals who publicly support the company higher for helping draw people in and reassure past customers,” says Travis Mccan, DEG senior relationship marketing strategist.
CLTV scores also help in customer segmentation; this allows the companies to send timely and relevant communication to different segments on the preferred channel of the customer, based on what the companies face in the form of variables from their CLTV calculation.
Food for Thought:
Males aged 54-65 may have a great retention rate but low acquisition rates while females aged 24-35 may have low average order values. Knowing specific data allows organizations to fix business issues within each segment as opposed to making broader changes to the entirety of the business and hoping it affects all segments.
To know more about CLTV please reach out to us here!
The paradigm of Loyalty Programs is witnessing certitude (a feeling of certainty) for a drastic makeover, as the interactions with the growing consumer base of Millennials and Gen Z surge. A generational shift in the principals and practices of traditional Loyalty Programs is highly warranted to entice and engage the prospective customer base comprising largely of this pool which exercises tremendous influencing capability as well on their 360-degree environment. Millennials are the “Go-To” people today for influencing and buying decisions at most domestic fronts.
The new Loyalty Attitude paints a picture of the young consumer preferring and allocating more weight to Experiences than any other form of redemptions unless of course redemption provides a memorable experience. It is almost a cliché to state that the Novo consumers “Prioritize Experiences over other Transactional Shenanigans”.
Some companies today do offer Customer-Centric Experiences as a part of their Points/Miles or other Redemption plans and rely mostly on Novo loyalty tech platforms to understand what form of reward or experience works for each individual, at what time and with what message.
A McKinsey report on German Retail Banking tells us “that when banks invest in delighting their customers, the returns are significant and measurable.”
This resonates with our conviction that Customer Loyalty is directly proportional to Customer Experience (each time, every time)
The Whys? (Corroborated by Data)
The data analysis of a study by Eventbrite yielded that 78 percent of Millennials preferred to spend money on experiences in lieu of physical goods. Another example is their willingness to share personal information (a core objective of any loyalty program) in exchange for more customized and seamless interactions with brands.
Further, the recently published Bond Brand report leaves no ground for doubt when it reveals that 81 percent of Millennials and Generation Z consumers are open to having data about their behavior collected in exchange for more personalized rewards and brand engagements.
There is a steady rise in what’s been dubbed the “Experience Economy” and this can certainly be attributed to enhancement in Information Dissemination Technology leading to Higher Customer Awareness (for traditional customer segments) and the Buying Power of the Millennials known for doing things a little differently and how they shop is certainly no exception.
The main drawback of most loyalty programs of today is that they aren’t aligned with those attitudes, leading to growing dissatisfaction with and reduced participation in loyalty programs among consumer segments.
Loyalty research firm Colloquy stated that 54 percent of loyalty program memberships are currently inactive. In order to redesign loyalty programs for an evolving consumer mindset, companies should stop thinking about loyalty strictly in terms of the prevalent practice of points and miles. Instead, they should focus on dynamic, targeted and custom-made loyalty solutions that enhance the brand experience while delivering today’s consumer the loyalty experiences they crave and fancy. This will help reduce the cost of customer acquisition tremendously while simultaneously ensuring that particular brands are top-of-mind when a purchase is made or a service is booked.
Some programs are myopically designed in such a way that they try to reduce the cost of the program by encouraging “breakage” (Points that are never redeemed). This in a way potrays the unethical mindset of the Business owning the program. It will be naive to assume that the customer is unaware of this deceit and con of sorts, and is one of the primary reasons apart from unawareness for the customer’s disinterest in the specific program. This also dilutes the personal objectives of the customer and the business simultaneously.
The ideal program running on an ideal platform would constantly update the customer about their Accrual and Redemption status and at the same time suggest redemption options based on behavior, preferences, and patterns.
Subscribers of such a program are also able to set their Experience Goals with the program and work toward achieving them all within the platform.
Taking care of points 1 through 3 guarantees an optimum level of customer loyalty and tremendous brand recall @ moment of truth
“Loyalty programs were never just about rewards accrual and redemption,” Daniel Farrar CEO – Switchfly
Simply by optimizing and fortifying their loyalty strategies by the use of Novo-technology to generate customer insights and create meaningful experiences, brands today can increase stickiness, brand recall and tap on new earning potential.
Reciproci, a Customizable, Robustly agile Experiences & Loyalty Platform underlined with Hyper Proximity Assets helps brands maximize the value of their loyalty programs.
Reciproci believes in these strategies Brand Executives should use to ensure they’re reaping the rewards of today’s changing attitudes toward loyalty.
Food For Thought
77 percent of Millennials stated that their best memories came from events and live experiences. In the sphere of loyalty programs, this means that organizations need to look for opportunities that will generate excitement and anticipation of future experiences. Doing so will help forge longer-term emotional connections with customers.
Standalone and uni-focus Loyalty Programs are a thing of the past and passé. The Loyalty Program of this age is built on and nurtured by a strong foundation of Customer Experience principles and practices. Organizations that understand this and are raring to become front runners, in this pursuit of the elusive Customer Success that will catapult them towards top seed.
The Tailspin – Are Discounts Eating Into Wallet Share?
Discounting is a reactive tool to primarily drive volumes. You end up catering to numbers (vanity) while neglecting revenues (sanity). With each discounting campaign, you are leaving some part of the customer’s money on the table.
Studies have shown the additional wallet share not necessarily mean the customer is buying more volumes. That means the customer is left with more in their wallet – which they are spending with your competition or other categories you don’t serve.
What does this mean to your loyal customers?
Changing their purchasing behavior i.e. plan shopping during discounts.
Losing focus from WOW experience to ONLY pricing
If this is the case, why is discounting still an accepted practice?
Sale to coincide with holiday or event React to a competitor
Match sale numbers to prior period
To a limited extent, the first point of coinciding with a holiday or event is focused on the customer and can still be partially excusable. The others are simply NOT. They MUST stop. PERIOD,
So what can single or multi-brand retailers do to offset the sales deficit that can likely happen because of a cessation of discounting? Run Stackable Programs.
Pray, tell me what are stackable programs?
Reciproci stackable programs address these enabling retailers to run programs that reward loyalty points to provide the uplift required. The Reciproci stackable programs enable the retailers to personalize the programs based on:
The specific set of stores for accrual and redemption
It can be further fine-grained to drive traffic and marketing efficiencies as desired by a brand manager.
This ensures the wallet share remains with you and proactively drive customer-shopping behavior. Let me illustrate with a real-world example in the words of our customer success team member:
“Buy One Get One Free is a 50% discount, right? Wrong! Learn how.
Reciproci powered stackable point program hit its purple patch with one of the large customers when the analytics reports revealed a “beyond expectations” increase in sales due to an innovative promotional campaign. This campaign not only drives the clearance stock volumes but also created an uplift in the new season volumes. We are happy to share with you the secret sauce of that campaign. Instead of giving a flat 50% cashback, the brand offered 50% of brand points credit back to the loyalty wallet. These points were redeemable against the same brand within the expiry date. Lo and behold, not only did the customer come back to redeem these points, they bought even more. Say, a purchase of $100 results in $50 in the original scheme. In the new scheme, $50 worth points were credited to the wallet. In order to redeem this, the customer ends up buying new stuff that is not on discount for another say, $180. So, the retailer has effectively given a discount for $50 for a purchase of 180, resulting in an effective discount of 50/280*100= 17.8%. The uplift for the new season volume has been 21%”
Loyal customers feel privileged and exclusive with the customer experience and the objective of driving volumes is also achieved.
If you are asked about the last time you delivered impeccably outstanding customer experience, one that was acknowledged by her? And if you are at a loss of words thinking about this query to be platitudinous at best, and cliched in general, then read on.
Would she too, your customer, be non-committal about giving you a thumbs-up for her experience with you?
If the answer to the above questions bears a hesitant “I dunno” or a yes, then you need to rethink your multiple Customer Journeys that lead to an aggregated Customer Experience?
Today’s predominant industry focus is on “Experience Commerce” constituting Customer Experience (CX) and Customer Journey (CJ) – which in principle is to understand and improve each and every interaction that she; your customer has with the business in question. The foundational tenet here is to understand and act on the cumulative impact of multiple interactions over time, many of which occur outside of traditional growth hacking boundaries.
The picture above determines her; your customer’s feeling of a real relationship with an organization. In a recent blog advocating contextual marketing, Forrester Research postulates that it is marketing’s job to identify and use the context of these ongoing interactions with her to create a repeatable cycle of connections, foster deep engagement and apply what is learned during the process to make her future interactions equally engaging.
So what is Customer Experience (CX)?
Customer Experience is the phrase used to describe the relationship a customer has with a business. Customer experience refers to the total of all experiences the customer has with the business, based on all interactions and the resultant thoughts about the business.
Recent Forrester data confirms that 72% of businesses say improving customer experience is their top priority.
“Until you understand your customers, deeply and genuinely, you cannot truly serve them.” — Rasheed Ogunlaru, life coach and author of Soul Trader
And Customer Journey (CJ)?
The Customer Journey encompasses optimal customer engagement through proper management and credit attribution of touchpoints and channels through which the customer interacts with an organization or a brand. The necessity of such an approach arises from the realization that all interaction points and mediums have value in the process and should be stimulated appropriately. Moreover, it tries to create a more holistic view of customers’ behavioral patterns – understand emotions, desires, and needs as well as influences of the company’s endeavors on them.
“As a brand, I find that predicting what a customer wants means that I’m in control and I’m trying to define your customer journey, but when I anticipate, I’m trying to create as much flexibility for you to be in control of your customer journey.” – Jerad Zoghby, Global Personalization Lead & Southwest Agency Lead at Accenture Interactive.
Customer Journey Mapping entails all the touchpoints of a customer’s interactions with a brand. If a company plots this map diligently and empathetically they could create a “magical experience” for her and for themselves increase revenue by providing the necessary information, personalization and engagement by harnessing transactional opportunity at various Moments of Truth along her Journey.
Some of the benefits of Customer Journey Mapping for businesses are:
helping you see where customers interact with your business
focusing the business on particular customer needs at different stages in the buying funnel
identifying whether the customer journey is in a logical order
giving an outside perspective on your sales process
showing the gaps between the desired customer experience and the one actually received
highlighting development priorities
allowing you to concentrate efforts and expenditure on what matters most to maximize effectiveness
Does It Matter?
Customers don’t just buy a product or service, they perceive the entire Journey as an Experience or memory they recall when doing business with the company again.
Irrespective of the location of your playground, every single company generally has an idea about how they want their customers to perceive their brand. This perception defines the ethos and essence of the business.
But when the ground reality hits, the kind of experience a brand envisions is not always what the company is able to deliver. In most cases, it is merely getting the job done. However, the stalwarts of CX know that their level of customer experience far surpasses anything their competition will remotely be able to conjure.
So when she; your customer compares her experiences she will not do it in really quantitative or percentile manner, she will do so in simple but impactful terms like Awesome, Amazing or Harrowing, etc. these words register immediately and creates a tremendous recall when a person referred by her is going to buy a product or avail a service.
Championing Experience Commerce
Capitalizing on these moments, the moments of now, requires that businesses shift their focus from simply understanding what discount and which promotion to offer to her, at various points of her Journey to truly understanding the context of her interactions – what is her intent, how can I engage her, and how can I provide value? And this is the epitome of delighting her.
Google calls these “micro-moments”, which enrich the Customer Experience much fold and although they are not exclusively experiences, new experience platforms have ratcheted up the need for immediacy of recognition and response.
In this day and age, mobile phones are an essential part, part of the anatomy of everyone’s everyday lives. Hardly any person leaves home without them. So it is safe to state that at any given point of time, many of your customers are definitely on mobile, and more importantly you should too, as a business, be where your customers are!…. Are You?
“A good design shows respect for your customer and you’re either respectful of their time or respectful of what it is that they desire, and so it makes it a very fundamental element to everything that you do.”– Penny Wilson, Chief Marketing Officer at Hootsuite
Mobile Apps allow for a richer, deeper, and more personal customer experience, and puts your business on the global playground. It gives an upper hand to the business’ that understands that their customers don’t want to be bombarded with unsolicited messages and now desired notifications, but they do want to be kept in the loop, and this is very tricky as there is a very fine line between the two. Just one proactive, relevant and time-sensitive message can teleport an unsatisfied/disgruntled customer to a star-struck loyal fan, the one that will Influence all the “INFLUENCE” in their purview, about you!
Mobiles today are used to inform, entice and engage customers throughout (before, during and after) their journey, and as a channel for transactions, as well as to ask for and receive customer feedback.
“The mobile channel is emerging as the consumers’ primary choice for all possible service activity.”– Michael Maoz, Vice President, Gartner Research
The mobile platform allows customers to act at the point of impulse. This becomes the quickest and surest way for anyone to react to any call to action today. As mobile has matured into one of the most important channels for consumer and retailer handshakes and interactions, customers have become extremely picky about the apps they use and will quickly delete an app that doesn’t meet their needs and yield immediate value.
Reciproci provides customers with something above “the daily and routine”, really beyond what they would otherwise get from just walking into a physical store. This means #Reciproci is imagined in a way that has been validated to explicitly be both useful and engaging + profitable to the user and business alike.
Fortunately, building an app that meets & exceeds these criteria, in the passing of time seemed both extremely expensive and time-consuming, till the time “we” invested primarily our know-how & consumer intellect, to bridge the gap between the retailer and the consumer.
A high level of creativity and a clear value proposition is required to create a truly beneficial app — hence the relative scarcity of quality apps, that are not uninstalled by the users within 15 days!
Some well-researched grey areas are:
Too much business centricity
The why? Specific points often remain unanswered
Do you need an app, a mobile site or a hybrid variant?
How do customers’ requirements for shop usability and checkout processes change?
What is the cost of acquisition and retaining a customer?
What are your customer messaging and communication plan?
So it becomes very crucial that when you are putting in place your mobile strategy, you have comprehensively thought through the various aspects of :
Understanding and Articulating your (or your customer’s?) Mobility Needs
A strategy is in place that has to buy in of all the stakeholders of your business
What defines a successful mobile app, varies from business to business. Depending on the type of business even the nature of app varies. Having said this, on the whole, there are certain key performance indicators which remain constant howsoever and these are:
Daily Active Users
Monthly Active Users
Cost Per Acquisition
Revenue Per User
Revenue Per Paying User
Return on Investment
The above factors are just an indicative measure on the basis of which an app can be classified as a well-performing app.
Mobile has become the first Moment of Truth between a brand and consumer – A. G. Lafley, former CEO, P&G
Mobile as an extension, allows consumers to act at the point of impulse. This is the fastest way anyone can react to any call to action or initiate a two or multi-way communication with the business. Mobile allows and leads the way of instant gratification for the customer, thus instilling a sense of belonging within the customer, this, in turn, results in comprehensive brand advocacy by them. This subjects the brand to preferential treatment, and they (the customers) expect the same in return each & every time, always progressively hungry for more!!
Why Enhance Mobile Customer Experience?
Looking at the above-mentioned data inputs it is impending that businesses’ harness this trend and become leaders in adding value to their offerings. While focusing on Mobile Customer Experience the business can look forward to:
And this is just the tip of the iceberg!
“To connect with new customers, don’t try to get inside their heads. Get inside their hearts. Create an emotional connection.” – Bill Quiseng, CEx Expert
Since Customer Experience as a principal and practice is directly related to how your business is perceived by the customer and how this experience affects their behavior and loyalty towards your business, it is very important that proactive steps are taken by you to leverage the Mobile CX approach.