Customer lifetime value (known as CLV or LTV) is one of the top five most valuable KPIs for marketers and yet it remains the least tracked metric overall with only 61% of ANZ marketers leveraging the valuable customer data it can reveal.
But there's a good reason for that. CLV tends to be a more complicated metric to track than other commonly used metrics like average order value or cost per acquisition. Such metrics are easier to measure and readily available through the different tools and technologies that marketers use. Tracking CLV requires a different level of capability – not just pulling information together and measuring it, but understanding what can be gained from it.
At The Warehouse Group we had been running performance-based marketing for some time. Our command centre team has an audience-led, always on approach to activation that consistently uses intent data to drive immediate profitable outcomes across different audiences and channels. Customer lifetime value became the next logical step for The Warehouse Group to explore – it was a natural evolution to looking both at ROI across our marketing efforts and examining it up close in relation to individual customers.
For many organisations, being able to track CLV can be an indication of where they are on the marketing analytics maturity curve and their technical capabilities. At the Warehouse Group we have a team of data scientists working with the marketing team to measure CLV. For organisations considering measuring CLV, here are a few valuable things The Warehouse Group has learnt along the way.
Ultimately, businesses build revenue by growing the value of their customers. Understanding your customer is a key enabler of business strategy success.
The Warehouse Group has always been a very customer centric organisation so introducing CLV as a metric made sense as an outcome of all the other strings we were gathering to create a full view of the customer. It was just a matter of building up the expertise and resources in order to do it.
With models built by our data science team based on two years of historical data for model fitting and another year of historical data for model validation, we can address business critical questions like: How should we allocate our marketing budget between customer acquisition and customer retention to maximise overall profit?
The trick is when understanding when a customer has a low or high lifetime value how to leverage that knowledge productively. It goes beyond customer segmentation because it takes into account that even customers in a specific segment will be different. Not all 35-year-old working mums, for example, have the same motivators to engage with a certain product.
CLV is a data point and the real benefits come from understanding the value creation events that move a customer up in CLV. Do they, for example, download an app and enable push notifications, join a loyalty program or leave a review and how each of these actions might drive a lift in CLV.
Measuring CLV can help you more successfully balance short-term tactical activity with long term customer growth. At The Warehouse Group, for example, we have products that cover childhood right through to the later years in life. So, while our short-term tactics might be to provide nappies to new parents, our long-term strategy is to develop our relationship with a customer who will return to us across different stages of their life. It’s about asking ourselves how we can provide an experience for our customer that helps them start their shopping journey with us and then stay with us.
And that means creating a very personalised and relevant customer experience – a goal that remains paramount for marketers given 80% of customers agree the experience a company provides is as important as its products or services.