Customer lifetime value has long been one of the key performance indicators businesses track, but once a baseline is established, what are the best ways to improve it?
“Firms needs to change the way they interact with their customers,” said Nicolaj Siggelkow, management professor at the University of Pennsylvania’s Wharton School. “Firms who have transformed the way they interact with their customers from episodic interactions to frequent, low-friction and customized interactions, can often even anticipate the needs that their customers have. This can help firms address more fundamental needs of their customers, e.g., rather than selling a running shoe, Nike sells a system that allows a customer to fulfill her dream of running the first marathon. This system includes tracking miles via an embedded chip, giving running tips, and support via a peer-based network, all customized to the particular runner.”
Siggelkow said companies need to consider how to delight customers at every point in the customer journey. The first step is to determine:
- Why does the customer engage in the interaction?
- How does the customer identify, order and pay for the product?
- What products and services are provided?
“Over the last 10 years, advances in technology, like the internet of things (IoT) and artificial intelligence have enabled firms to find new answers to these questions,” Siggelkow continued. “By moving their interactions with the customer from a set of episodes with long unconnected periods in between, firms can now engage in rich and continuous relationships.”
Establish Customer Relationships Early
The first step in building the customer relationship and customer lifetime value is proper onboarding, said Sandi Lin, CEO of customer training and education platform provider Skilljar. “You greatly increase the odds of a productive long-term relationship by delivering value as soon as possible after purchase. To achieve this, work backward from the goals and milestones you would like your customers to accomplish. You can then develop implementation plans, project timelines and customer training content that’s customized by personas (roles) and difficulty level to influence product adoption.”
It’s important to remember that customer relationships aren’t static, Lin added. “You will eventually experience turnover in terms of individual product users due to role and employment changes. Even after your account is initially stable, your users will change on a continual basis. Adopting continuous, self-service user onboarding strategies, such as on-demand training, can help you engage with these new users over time.”
The Importance of Segmentation
To maximize customer lifetime value, it’s important to remember that one size doesn’t fit all, said Sachin Kumar, senior director of customer and partner success at Riversand, provider of master data management and product information management solutions.
“Classical need-based and worth-based segmentation models cannot be relied upon,” Kumar said. “In order to help the customer relate with you as a business, you need to combine a number of relevant factors to create the ‘best-fit’ model that works in their market, geography and competitive landscape.”
He recommends segmenting customers into three to five groups and to draw up a business plan for each.
“For truly gaining sustainable CLTV, the value for the customers in each segment (not for you as a business) needs to be at the absolute heart of how you cross-sell and up-sell to grow your share of wallet,” Kumar said. “Before running that broad-brush aggressive campaign in your installed base, sales or account management team needs to clearly understand and articulate the additional value product/service proposed brings to customer segment and, where possible, to that specific customer.”
Listen to customers via surveys to refine and improve the business strategy strategy across segments to guard against churn and maintain high CLTV, Kumar said, adding that the tone and structure of such surveys need to demonstrate that the business fundamentally cares about the customer.
Be Where Your Customers Are
“Mobile is no longer just a companion offering, it IS the product experience that attracts and develops the highest value customers,” said Anand Janefalkar, founder and CEO of UJET a mobile customer service platform. He pointed to mobile banking as an example, which is now a prime financial services product, not just a side offering.
Blockbuster, major bookstore chains and many other companies failed to lead with digital and are no longer in business, Janefalkar said. “It is paramount that companies consider the touchpoints between them and their customers and focus on delivering delightful and efficient experiences. Afterall, lifetime value (LTV) is a measure of loyalty and engagement. Neither can be impacted without a focus on the points of customer interaction.”
In many industries, outstanding customer support with on-demand delivery, technology, etc., is often the differentiator between the companies that build customer lifetime value and those that don’t, Janefalkar added. So having a digital platform that allows customer support to be available instantly, with context, anywhere and anytime the customer is accessing a product/service, whether on a website, an app or via a phone call, becomes critical in customer retention, and customer retention is a key factor in building lifetime customer value.