Retailers need to focus on customer lifetime value for long-term success
Through a special arrangement, presented here for discussion is a summary of a current article from the Retail TouchPoints website.
A strong case for customer lifetime value (CLV) was made by Peter Fader, professor of marketing at The Wharton School, and Neil Hoyne, head of customer analytics for Google, during the recent Sourcing Journal Summit.
Companies like Adobe and Salesforce along with platforms like Facebook and Google offer data, analytics and technology to “make each customer visible to us,” said Prof. Fader.
In addition to making marketing more effective, CLV can positively impact financials, R&D, sourcing and product design.
“If you can come up with a lifetime value measurement, it’s like a number shining over each customer’s head,” he said.
CLV, however, leads to a different framework for running a retail or brand business. “Rather than focusing on product, you would want to figure out what you could do for these really valuable customers,” said Prof. Fader. “What products and services should you offer to enhance the value of those customers, and to find more customers like them?”
The goal is creating a two-way conversation between the retailer and the customer.
For example, e-commerce platforms tend to continuously steer customers to a certain product purchase once they show interest including offering coupon incentives at the expense of margin. A CLV-focus responds to shifting preferences throughout the shopper journey and follows the consumer afterwards so the relationship doesn’t start again each website visit.
Mr. Hoyne stressed: “The relationship doesn’t have to end with the purchase. You can project it forward by multiple years. Then you can answer questions like, How do you find more of these people? How do you develop the ones you have? And how much should you spend to retain them?”
Focusing on CLV doesn’t mean ignoring the remaining 80 percent of customers, but it does mean paying more attention to the high-value 20 percent. “Most people are content to buy once from a retailer, and then never buy again,” said Prof. Fader. “That doesn’t mean you’ve failed; it means they’re not looking for a relationship.”
DISCUSSION QUESTIONS: What are the pros and cons of a customer lifetime value-centric approach for retailers and brands? What are the practical issues that need to be addressed for those looking to shift to a CLV model focused on retention?