How to improve your Customer Lifetime Value
It’s cheaper to retain existing customers than to acquire new ones, especially in industries where the customer lifetime value is more important than the profit of an individual sale. Globally, the average cost of a lost customer is $243 (KISSmetrics).
64% of companies rate customer experience as the best tactic for improving customer lifetime value, followed by better use of data and personalization. There are many methods you can use to optimize your customer lifetime value, but here I will detail a few:
1. Treat your best customers differently
How would you call a world where everyone gets the same reward. No matter how impactful they are? Where everyone gets the same bonus, no matter how hard they work?
Well, if your eCommerce is sending the same special offers and discounts to all their customers, that’s what’s happening.
A good idea would be to incentivize customers to like you more by giving them special treatments, ultimately, increasing your chances of turning them into advocates.
That’s exactly what Booking.com is doing with their best customers through their Genius program.
2. Offer a personalized experience
94% of businesses believe that personalization is critical to current and future success.
Let’s take a look at a case study we’ve made for Avon. Based on online surveys, the data showed that the most important barrier women had in order to buy from Avon was their distrust that the make-up will match their eyes color.
So, an actual beauty expert showed up on a triggered overlay to help them out:
The website displayed only relevant products for their eyes color, remaining consistent on the checkout:
3. Offer free returns
Free returns mean additional costs for you. But these costs need to be considered together with the extra conversions they bring and the potential to boost the retention rate.
However, to identify to whom you should offer free returns and to optimize the kind of products you are selling, you need to do deep diving into data.
Zappos found out that people who regularly return items are their best customers. Those Zappon clients who buy the most expensive products are also the ones with an orders return rate of 50%.
“Our best customers have the highest returns rates, but they are also the ones that spend the most money with us and are our most profitable customers. – Craig Adkins of Zappos.
4. Address the reasons why orders are returned
For fashion e-commerce stores, one of the most frequent reasons items get returned is the size. So many stores have implemented fitting tools and virtual wardrobes that make up for the fact that customers cannot try on the clothes before buying.
Shoefitr, an app that helps online shoe shoppers find proper fitting footwear, managed to reduce the fit-related returns of an online footwear retailer by 23%.
Another example is GlassesUSA who lets its customers upload a picture of them and try on glasses before purchasing. And this strategy can be implemented for non-fashion related online shops as well. MyDeco 3D room planner is another tool that helps online shoppers try out room looks before buying furniture.
5. Provide multi-channel returns
The fit is not the only reason items are returned. Since customers will return products anyway, you should make their experience as easy as possible. If you are an omnichannel retailer, allowing customers to return items bought online to brick and mortar stores is a must.
Customers really appreciate the flexibility and convenience of multi-channel returns and are more likely to become loyal customers. And think about it this way: when you allow your customers to return items in store you also take advantage of the opportunity to upsell or cross-sell; a well-thought multi-channel return strategy rarely lets customers leave the store empty-handed.
6. Reward your most loyal customers
Offering your most loyal customers some kind of reward is a powerful way to strengthen brand affinity. Your loyal customers are your brand ambassadors. Your influencers. Some retailers offer special discounts or private sales, but it can be much simpler than that (like responding to your customers’ tweets).
ASOS has another strategy worth copying: creating an exclusive community for people who love the brand. The retailer launched #AccessAllASOS, a community that provides members exclusive access to news and events.
7. Focus on your ideal customers
The best in class retailers pay special attention to their VIPs by running RFM segmentation. RFM is a way to segment your customers according to their buying behaviors:
– Recency – How recent is the last order?
– Frequency – How often that customer bought?
– Monetary value – What is the total revenue you got from each customer?
Loyal customers are valuable, but loyal customers who also spend a lot of money with you are even more valuable.
Here are a few benefits you can offer them after you will find out who they are:
- Priority Support
- Free returns
- Free delivery
- Tailor-made offers
- Packing and dispatching their orders first;
- Notifying them about new or limited products first;
- Sending them personalized lookbooks, exclusive previews, and presentations;
- Assigning them personal shopping assistants who can help them plan their wardrobes.
- Thank-you notes or gifts
8. Provide outstanding customer service
I don’t think there’s a brand out there that purposely provides bad service to its customers. Nonetheless, there aren’t many retailers that provide excellent customer service either. But they should. A study by Zendesk revealed that consumers rank quality (88%) and customer service (72%) as the two biggest drivers of loyalty.
The same study also revealed that providing exceptional customer service 24/7 is the best way a company can build customer loyalty.
However, few companies are making efforts to understand how their customers are feeling after the purchase using customer surveys.
Measuring NPS or customer satisfaction or customer effort is an effortless way to stop broadcasting, but establishing a two-way communication model between you and your customers.
Moreover, if you mix RFM with NPS, you can reveal some hidden reasons why your CLV is being affected. Putting your customers first will not be an option in the near future. It will be a vital thing to do if you want your company to survive and thrive.
Most businesses try to reduce costs associated with customer support so they make it difficult for customers to actually speak to someone on the phone (marketers who have tried at least once to contact Facebook Ads support can surely understand how frustrating this feels).
So improving your customer service will also boost your customer retention rate and customer lifetime value. Also, social media is an increasingly popular support channel and many brands have a Twitter feed dedicated to resolving customer queries.
9. Acquire sticky customers
After you identify your ideal customer profile through RFM segmentation, you can improve customer acquisition by targeting the customers that are more likely to buy again from you.
You may think that you can find this kind of demographics data in your Google Analytics or Facebook Insights. But, the truth is that what you are seeing there is the data regarding your visitors, not your customers. And the customers are what matters to you. Moreover, your best customers (true lovers) are the ones you should really focus your customer acquisition efforts.
10. Build a subscription model
You may not have control over the delivery process, but you can still improve how the package looks like. Birchbox, a company that offers monthly subscription boxes of cosmetic samples, delivers a personalized selection with a beautifully written letter in a branded box made out of Birch trees.
Another well-known retailer who invests in his packaging is Net-a-Porter. Many customers are so in love with their beautiful boxes that they can’t help posting their orders everywhere on social media (which, by the way, is a great method to increase customer loyalty and advocacy).
11. Diversify your product offering
As you can see, optimizing your customer lifetime value goes hand in hand with optimizing your retention rate. And the retention rate is improved when you make your customers’ lives easier.
If you identify the buying patterns of your most important customers, you can free them from the need to use other websites or channels to acquire the goods they are in need.
Uber is one of the companies that have diversified beautifully.
From the need to get a ride to the need to get food delivered at your door.
Customer lifetime value is more important than you think. It impacts customer retention rates, it helps boost brand loyalty, and, overall, ensures your business remains profitable and increases the overall business valuation. So, if you’re not actively monitoring and trying to improve your CLV, now is the time to start!