Customer Lifetime Value: The End Goal Guiding Your Digital Transformation

What percent of companies consider customer lifetime value (CLV) as a measure of business performance?

A. < 40%
B. 41% – 60%
C. 61% – 80%
D. >81%

Answer: C. A recent Frost and Sullivan report shows that 70 percent of companies surveyed use CLV, which is the present value of all the future cash flow attributed to a customer relationship. Of these companies, 67 percent consider it to be an essential measure of their business strategy. If you want to learn more about how to improve customer lifetime value in your company, read on…

The strategic value of service reps

Customer service representatives know more about your customers than anyone else, so why aren’t you harnessing this treasure trove of data?

It’s no secret that loyal, returning customers have a higher customer lifetime value (CLV) than new ones. They spend more money, are more likely to sing your praises to their friends and across social media, and, if you have enough of them, they can help you weather even the most brutal economic storm.  According to a SumAll survey, businesses with 40 percent repeat customers generated nearly 50 percent more revenue than similar businesses with only 10 percent repeat customers. And every time they return, they become more valuable to the business and, in turn, increase their projected CLV. A customer who has only made a single purchase has a 27 percent chance of returning, while someone who’s made three purchases has a 54 percent chance of coming back.

One of the best ways to increase CLV is by providing customers with a more seamless, communication experience, driven by content optimization capabilities that focus on connecting the customer to the right channel at the right time. “Every interaction with a customer is an opportunity to create a brand advocate or a raving-mad critic,” says David Rodnitzky, CEO of 3Q Digital, a Harte Hanks company.

That includes human interactions, says Lauren Edvalson, CEO at Edvalson Marketing in Sacramento, a marketing consulting firm.. While some companies think digital transformation means eliminating the need for customer service reps (CSRs), you have to first consider what your customers want.  “We would never eliminate our CSRs,” she says, noting that many customers prefer to interact with a live person, especially when dealing with complicated issues. “They are incredibly valuable to the service experience, and they know better than anyone what customers like and don’t like about the company.”

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CSRs can no longer operate as isolated entities within the company. Digital transformation means companies can, and need to, integrate all of their customer channels–website, mobile apps, call centers, brick and mortar locations – to create a seamless experience, regardless of how the customer moves through the system. CSR’s play a vital role in this process – both in recognizing customers as they enter the system, and capturing valuable data about their experience to shape future customer engagements. But none of that can happen if the rep doesn’t have access to the right information.

No matter how charming your reps are, if the customer has to rattle off their name, billing address, email, and credit card number before they can even ask a question, you’ve already lost the opportunity to wow them. Customers today expect to be recognized instantly, whether they are on your website, app, or service line. To do that reps need to be able to know who they are, what they purchased, and where else they have engaged with the brand before picking up the phone. This integrated service experience not only eliminates time wasted gathering data you already have, it allows the rep to immediately focus on the customer’s needs, which directly impacts their experience.

Don’t be a fool

Providing great service is the first half of the equation. Companies also need to make sure they understand and leverage the vast amount of data these services reps are gathering. From trending complaints, to surges in product requests, and even customer demographics, the feedback CSRs get should directly inform how you connect with and better meet your customer needs. “When a customer visits your site, your online analytics tool follows their every move,” says Rodnitzky. Combining this data with the feedback collected through the call center, you can reverse-engineer why customers contact you. “All of this information can be mined to create additional FAQs and resources to resolve future customer needs.”

You can also use the data to inform communication and marketing efforts, Edvalson says. She uses center data to make media buying decisions and to determine how best to engage with customers, i.e. to send an email scheduling a system tune-up, or a phone call to address a repair problem.  “Understanding their needs helps us decide the best way to communicate with them.”

Edvalson admits that figuring out how to use all of this data to better engage with customers has been difficult but absolutely worth the effort. “As we grew we realized that we are capturing so much information about our customers through our service centers,” she says. “We’d be fools not do something with it to make our company better.”

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Brand-loyal to a fault: Brainwashing or persistently positive customer experience?

I was on a call the other day when my husband, a once avid runner looking to get started again, texted me a picture from the shoe store. He had dropped in to browse running shoes from his favorite manufacturer and wanted my opinion on the style and color of one particular pair.

Now, I’m no running shoe snob, but these were the ugliest shoes I’ve ever seen. They just screamed “NOTICE ME!!!”—not my husband’s style at all. Trying to be positive, I texted back that they were okay, but that he might want to consider another shoe or even another brand. Interestingly, he declined and said he would wait for his favorite manufacturer to issue another new shoe—he has bought the same brand for years and wouldn’t even consider another one.

That got me thinking about brand loyalty. Was my husband just being stubborn, or did he really feel he had no other option beyond his favorite brand? That, in turn, got me thinking about the customer journey, customer lifetime value (CLV) and where a company can capture a customer’s interest—and loyalty—across that journey (yes, I am a geek for this stuff!). My husband has bought the same brand of shoe for years. When he originally selected this brand, like many others who shop for new running shoes—or any other product—he typically checked out reviews in the running magazines, did online research to see what other runners were saying, and talked to his running buddies (in person, by phone and through social media). Only after all that, did he finally go to the store to actually look at and try on any shoes of interest.

Think about all those opportunities for the manufacturer to make an impression on a potential customer—advertisements and reviews in running magazines, social media presence, information and reviews on its website, other marketing outreach such as e-mails, the contact center (should he have questions or a customer service issue), and in-store promotions and interactions with sales associates. For some of those interactions, like my husband’s discussions with his running buddies and visits to other forum sites, the company can only be an indirect influence at best. But all the others are opportunities to directly interact with a possible customer to create and reinforce a favorable impression—and to build on established brand loyalty.

Brand-loyal to a fault: Brainwashing or persistently positive customer experience?

Given all those opportunities, I began to wonder what communications tools that shoe manufacturer uses to engage its customers and enhance their experience. Does it use something like Avaya Customer Engagement solutions, for example, which enable our clients to deliver a true omnichannel experience by supporting all types of customer interactions more efficiently and having the right resources, with the right tools ready to service consumers? Does the company contact its customers when it’s time for a new pair of shoes based on its knowledge of their running goals to grow CLV? Whether it’s enriching the customer experience at the point of interaction, orchestrating interactions between channels and resources, or optimizing engagement by capturing, analyzing and applying vital intelligence about customers and interactions, the technology is available today to take customer engagement and the customer experience to entirely new levels.

Brainwashing? I don’t think so. Informed and educated customers who are treated well and consistently are given products of sufficient quality for a reasonable price will gravitate toward and stick with a brand. Even a brand that every once in awhile lays a big fat goose egg (like a shoe that shouts “NOTICE ME!!!”) can recover quickly by having established, and by persistently reinforcing, the qualities that lead to brand loyalty. Customer engagement technologies can play a big role in that process.

Are your customers brand-loyal to a fault? Have you walked in your customers’ shoes to know the experiences they get and if that differs from what they want? How does your company build and maintain customer loyalty? I’d love to hear from you.

In the Digital Economy, the Human Touch Still Matters

According to Gartner, by year-end 2018, a customer digital assistant will recognize individuals by face and voice across channels and partners. Gartner predicts that the last mile for multichannel and exceptional customer experiences will mimic human conversations, with both listening and speaking, a sense of history, in-the-moment context, and the ability to respond, add to, and continue with a thought or purpose at multiple occasions and places over time.

The digital era has made it possible for many customer service functions to be automated, alluding to a possible future where customer service representatives could be replaced by robots. However, the human touch still has incredible value to the service experience. Customer service representatives (CSRs) have the deepest insight into customer likes and dislikes and are most likely the closest to the ground when it comes to customer sentiments—a variable that cannot be measured by robots. This is where companies need to move service reps from mere dispensing of services to customer engagement.

Today, communications must be centered on improving human connections, delighting customers, and energizing employees. This context-aware communication and collaboration is known as engagement—the active connection between team members and customers to the information, experts, and decision-makers they need to complete the task at hand. As the pace of business accelerates in the digital economy, employees need to have critical information at their fingertips at all times—making engagement experience more crucial than ever.

The true value of engagement is only realized when meaningful, communications-empowered connections among individuals, teams, contacts, and customers are formed. Supporting participation across time and space on any device, engagement will lead to better business outcomes; more productivity, loyalty, enthusiasm, customer satisfaction, and customer advocacy.

It’s no secret that loyal, returning customers have a higher customer lifetime value (CLV) than new ones. They spend more money and are more likely to recommend businesses to their friends and across social media. According to a SumAll survey, businesses with 40% repeat customers generated nearly 50% more revenue than similar businesses with only 10% percent repeat customers. And every time customers return, they become more valuable to the business.

Engaging Customers in the Digital Era

To drive engagement, businesses need simple, human-centric communication and collaboration built deep into business processes. Tight business application/process integration ensures customer data is always updated and CSRs have the latest knowledge about their customers—allowing businesses to provide more personalized customer service standards.

To truly empower the CSRs of the future, companies can, and need to, integrate all of their customer channels—web site, mobile apps, call centers, brick and mortar locations—to create a seamless experience, regardless of how the customer moves through the system. Whether the customers are on your web site, app, or service line, customers today expect brands to instantly recognize who they are, what they purchased, and where else they have engaged with the brand. An integrated service approach will not only eliminate time wasted gathering data you already have, it will also allow the rep to immediately focus on the customer’s needs, which directly impacts customer experience.

With Gartner predicting that 90% of companies will compete almost entirely on the basis of customer experience in 2016, there is no room for siloed business practices and protocols that get in the way of good customer service.

In a digital economy, human interactions will continue to play a crucial role in customer retention. CSRs need to be aided with the right tools and intelligence to deliver even more superior customer service that doesn’t just solve customer issues but also anticipates company needs to surge ahead of the competition.

How to Get Smart about Customer Lifetime Value

Every business is focused on the bottom line: Making sure revenue exceeds costs each month. One big line item for most companies is spending hundreds–or, in some cases, even thousands–of dollars on acquiring new customers. Once you get that customer, what then?

Customer Lifetime Value, or CLV, is a different way of looking at the customer equation. If your business isn’t measuring CLV, read on. Doing so could be the key to a healthier bottom line.

Avaya Customer Lifetime Value

Your relationship with your customer likely didn’t happen by accident, did it? There was intent on the business end, and that is manifested in money spent. You need a customer, and your customer needs solutions. The “monkey in the middle,” as it were, is the cost of doing business.

Related article: Maximize Customer Lifetime Value by Improving all 360 Degrees of a Customer’s Experience

No one likes the the cost of customer acquisition. In an ideal world, your product or service would “go viral” and you’d have people lined up around the block to just hear about it, but that’s something most people just dream of. Here’s the good news: customer retention can help balance out the costs spent on customer acquisition. It’s much less expensive to keep a customer than it is to court a new one.

By minimizing costs, you’re able to boost your gross margin on customer revenue. These elements provide the core of Customer Lifetime Value.

Avaya Customer Lifetime Value

Let’s take a look a simple CLV example, based on the customer’s activities (excluding referrals, for clarity). We’ll peg the cost of acquisition at $100, the gross margin on annual revenue at $200, and annual support costs at $25. Let’s say the relationship is four years in length.

This gives us a CLV of $600, when you subtract the support cost from the gross margin of $200, multiplied by four years.

A quick aside: Customer referrals are always good to have. Word-of-mouth carries a great deal of weight, because there’s a certain vouchsafe that comes from more personal nature of the recommendation. Why else do you think Facebook was pushing social ads?

Avaya Customer Lifetime Value

So what happens when a CLV goes “negative” (into the red)? Let’s suppose the acquisition cost is increased to $600, with the rest of the stats remaining the same. It would take three-and-a-half years for the business relationship to yield growth.

Avaya Customer Lifetime Value

Let’s get back to customer retention. A customer who is retained produces revenue and consumes support costs, but does not incur any more acquisition costs. Higher customer retention means less revenue is lost to customer churn, and when the numbers are all worked out, equates to more selling days each year. Imagine if you magically had the equivalent of 25 extra selling days a year – When you look at the increased efficiency, the end result is very much like that. (If I was a retailer, I’d place those days between Thanksgiving and the end of the year in the United States).

Avaya Customer Lifetime Value

So, how do you get started? Begin considering customer retention as the third lever of the business, joining the “revenue” and “cost” levers. As you get started, your CLV isn’t going to be perfect, but you can refine it over time and use it as a sounding board when you consider projects. If you are refining your customer segments or defining new customer “personas,” look at the CLV for each one as another way of informing yourself about each segment or persona – some segments might surprise you when viewed through the CLV framework.

It takes time to work out the kinks, but retaining customers for the long-term will yield serious growth for your business as you determine real Customer Lifetime Value.

Avaya Customer Lifetime Value