Customer Retention: The Quiet, Potent Driver of Customer Lifetime Value

Smart investors love compound interest–the longer they can hold onto an asset, the more valuable their portfolio becomes. The same is true in business: Smart companies that are able to retain customers will see a similar compounding effect on the lifetime value of their customers.

Customer lifetime value (CLV) is a measure of the present value of all future cash flows attributed to a customer relationship. As I noted in an article late last year, recent research indicates 47 percent of companies find measuring CLV essential to their business strategy. As you’d expect, strategic CLV users significantly outperform nonstrategic users.

To appreciate the impact of customer retention on CLV, it’s important to understand CLV’s four core elements–revenue, support costs, length of customer relationship and customer acquisition cost–and the relationship between them.

Interestingly, that impact can cut both ways, positive and negative. For example, if customers perceive new self-service tools to be cumbersome or they balk at being driven to an offshore contact center where language becomes a barrier to service, your focus on reducing customer acquisition or support costs could backfire by diminishing the customer experience. Any cost savings could be negated as dissatisfied customers move on to another provider.

Now consider the positive, compounding impact of customer retention on CLV:

  • As customers stay longer they spend more (revenue)
  • Their support requirements decline through familiarity (cost of support)
  • Acquisition costs amortize over a longer period of time, reducing their impact (length of customer relationship)
  • As longtime customers advocate for you, they can become your greatest marketing asset, actively helping you win new customers (acquisition cost)

Let’s take a look at these dynamics in action:

Widget Universe is a fictitious technology company with 250,000 customers. Last year, their customer retention rate was 68 percent. Average annual revenue per customer is $1,000, and gross margin on revenue is 50 percent. Annual support cost is $100 per customer. Average length of customer relationship is 3.13 years. And acquisition costs average $500 per customer. Using the CLV formula, the average CLV per customer comes to $750, measured on a gross margin basis.

This year, Widget Universe implements a new customer engagement solution that helps raise customer retention from 68 percent to 70 percent. Average annual revenue per customer stays the same, as does support and acquisition costs. However, because of the retention rate increase, the average length of the customer relationship grows to 3.33 years. As a result, average CLV per customer increases to $833, an $83 increase (see nearby figure).

Customer Lifetime Value

That doesn’t sound like much, does it? Until you apply it across the Widget Universe’s customer base. Just a modest 2 percent increase in customer retention, applied to the customer base of 250,000 people, translates into a nearly $20 million increase in CLV!

Although this CLV increase can’t be banked today (it will occur over several years), Widget Universe did see approximately $5 million in retained revenue increase in the year after the retention increase. That is revenue that would otherwise have been lost to customer defections and attrition.

How much can an increase in customer retention contribute to CLV in your organization? This self-assessment tool on avaya.com can help you explore the potential impact of CLV’s four variables on your organization. I encourage you to take the tool for a spin. And, if you’re interested, we’d be happy to discuss how you can positively impact those components to drive higher CLV. The return on your time could be astounding.

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Leveraging Big Data to Fine Tune Customer Experiences

Whether you realize it or not, big data is at the heart of practically everything we do today. Billboard companies, for example, are now leveraging eye tracking and traffic pattern analysis to gauge interest among drivers. Chances are one of those drivers owns a 4G-enabled vehicle that can track such things as performance and maintenance history. That person can also now record and analyze their utility usage via smart home solutions—anywhere, anytime. On a more critical level, doctors can now record and analyze patients’ heartbeats and breathing patterns to develop life-saving predictive algorithms.

In today’s smart, digital world, big data has opened the floodgates to never-before-seen possibilities. It has the power to course-correct potentially devastating outcomes, and it’s become a necessity for continually refining the customer experience. If you ask us, though, the best customer experiences today are supported by customer journey analytics.

The Need for Customer Journey Analytics

Customer journey analytics is a process that requires tracking and analyzing the way customers use a combination of available channels to interact with an organization. These channels range from human interaction (like speaking with a contact center agent) to fully automated interactions to assisted service (like live chat and co-browsing).

The need for customer journey analytics is simple: data solutions of the past simply won’t meet the next-generation customer needs of today and the future. Consider that just 10 years ago, channels like Web chat and social media were in their infancy (Facebook had only been around for two years). At the same time, the world’s first smartphone had only been on the market for one year. A lot has happened to transform the customer experience in a very short amount of time. As companies move forward in today’s age of rapid tech innovation, they must be armed with the right data strategy.

As mentioned, customers today use a vast number of channels and devices to interact with the brands they love. Each channel and device offers its own set of diverse scenarios for linking to other channels and devices, making no two customer experiences the same. Companies must be able to understand customers’ actions on any given channel or device in order to infer insights and create anticipatory engagement at the individual account level. For instance, why did one customer choose to purchase a product in a retail store verses online? Or, why did a customer end a live chat session before his or her inquiry was handled?

This level of understanding requires a comprehensive view of the data gathered from all channels and interactions that proceeded the moment in question. Customer journey analytics is a process designed to provide this comprehensive view and deliver deep benefits organization-wide—so much so that 60% of all large organizations are expected to develop customer journey mapping capabilities by 2018, according to Gartner.

Making Customer Journey Analytics Work for You

Companies need a data-driven customer approach to survive—and it needs to be effective to thrive. Many companies, however, struggle with taking their customer data and turning it into actionable results. In fact, a 2015 study conducted by PwC found that 43% of companies obtain little tangible benefit from their data, while 23% derive no benefit whatsoever.

To effectively apply your data, you must first determine what you wish to achieve with your data in the first place. In other words, what key objectives do you hope to achieve or improve upon by using big data (or specifically, customer journey analytics)?

Not sure? Here are four core initiatives to start you on a path to maximize your customer journey analysis efforts:

  1. Enable self-service.

    Self-service options—especially mobile—are rapidly increasing in popularity. Just consider that in 2015, Apple users downloaded over 51,000 mobile apps per minute. Also last year, 90% of customers used their smartphones in stores to make price comparisons, research specific products, and check online reviews.

    In today’s mobile-first world, businesses should leverage customer journey analytics to develop a sophisticated and integrated mobile experience—one that seamlessly integrates self service into their mobile app via visual, in-app self-service options. Conversely, this experience should offer customers callback options (either immediate or scheduled), as well as mobile chat (automated or agent-assisted) and video service. In addition to offering a stellar mobile UX, businesses should ensure backend capabilities that intelligently route customers to agents based on available context in order to drive relevant, meaningful interactions.

  2. Improve resource matching. We live in a world today where cars can park themselves and doctors can 3D print new organs, yet we still struggle with routing callers to the right subject matter experts. The time for next-generation routing is now, and it all starts with improved resource matching—specifically, attribute-based matching. This means matching customers with agents based on rich context, business KPIs, and organizational goals across all work items, channels, and resources to drive segmentation, increase prioritization, and determine the best course of action per customer.

    This also means choosing the right resources for each customer, regardless of where the resources reside within the organization. The right subject matter expert, for example, could be a contact center agent, a supervisor in your billing department, or your VP of sales. Customer journey analytics provides a 360-degree view of available resources organization-wide to support this level of attribute-based matching.

  3. Increase agent awareness. Not only is it important to collect the right information, but it must also be presented in a way that is visually understandable and easily accessible for agents. Imagine, for example, an agent being able to see where a customer has been on the company’s website over the last month, as well as that person’s live chat interactions last week. Imagine an agent being able to quickly see that a customer sent an email two days ago regarding a recent bill, or reached out via SMS because the company’s mobile app wasn’t working properly. Imagine if agents could gain this 360-degree, comprehensive view all in just one or two clicks of a mouse.

    Data is continuously generated in different ways, and is consumed by different people across different processes and applications. Having the right information at the right time empowers agents to focus on customers’ needs without having to ask for the same information multiple times (which, as we all know, is one of today’s greatest customer frustrations).

  4. Ensure continuous improvement.

    When it comes to big data, businesses can’t manage what they can’t measure. Therefore, it’s important that companies measure their data both in real-time and historically to help improve systems, processes, and applications over time. This is what will enable them to consistently deliver on key business objectives, operate within budget, and maximize every customer experience. Here are four key technologies for ensuring continuous improvement:

    • A data collector that can collect, standardize and normalize raw data across any data source so it can be used for enterprise-wide reporting and analytics.
    • A processing engine that can correlate, translate, calculate and publish normalized data into meaningful business measures.
    • A visual presentation platform that provides unified, real-time and historical reporting and analytics dashboards that can be used to visualize, analyze and explore key business measures.
    • Predictive analytics to discover new trends, apply changes based on insights, and continuously improve applications, workflows, self service and routing decisions.

So, how can you succeed with these four objectives to fine tune your customer experiences? That’s an entirely new discussion—however, we can tell you this: invest in a customer engagement platform that:

  • Provides a single view of customer interactions across all systems
  • Allows you to add data sources quickly
  • Can correlate data across both real-time and historical systems
  • Boasts an open and extensible reporting and analytics framework

Experience is everything. Learn How Avaya Oceana Works.

Verbio Brings Voice Biometrics to Avaya Breeze™

If you’ve been following the Avaya Connected Blog in recent weeks, hopefully you’ve read about the changes Avaya expects to see in Customer Engagement as we roll out the Avaya Oceana™ Solution, a contact center suite for the digital age.

And perhaps you’ve read how Avaya Oceana is built upon the flexible platform of Avaya Breeze™, which offers extensibility through a Snap-in architecture, creating new opportunities to extend and customize customer and team engagement interactions further.

I’ve previously highlighted how some of our DevConnect Technology Partners are leveraging the Avaya Breeze Platform to do just that, and I’m happy to add Verbio to the growing list of value-added Snap-in vendors.

I had the opportunity recently to speak with Piergiorgio Vittori, who heads up Americas Sales and Global Partnership opportunities for Verbio, as they recently completed DevConnect Compliance Testing of their Verbio Voice Authentication Snap-in for Avaya Breeze. Piergiorgio indicated that it took “about two months, end to end” to bring this voice biometric solution to market, “including design and requirements, programming, testing, demos, tuning, and documentation.”

I daresay that there aren’t many ways to bring out a flexible, biometric-based capability set in that short of a timeframe, which I offer up as a tremendous proof point for how Avaya Breeze really simplifies key aspects of application and communication services integration.

Verbio’s solution, which couples a Breeze-based Snap-in with their core SaaS-based biometrics capabilities, extends the speech search and ASR/TTS capabilities inherent with Avaya Breeze to a new level of speech capabilities, while maintaining a consistent and familiar type of request and error handling methods to be leveraged by other application developers. The Snap-in itself simplifies many of the tasks associated with passing data to the Verbio engine, acting as a sort of Verbio-proxy for application developers already working in an Avaya Breeze environment.

Voice Biometrics has a number of potential use cases, especially when it comes to automated events and actions. From a security perspective the use of voice biometrics can help ward off social engineering hacks, while its application in contact center domains can increase agent utilization and reduce overall call time by eliminating the need to verify a specific users’ identity through numerous Q&A interactions. In this latter case, a users’ voiceprint can very much act like their conclusive identification.

Enterprises and contact center (or even public safety concerns) can further leverage voice biometric analytical capabilities as an emotion detector to determine whether the validity of the users request is being influenced by stress or emotional status.

All of which makes a great proof point for the power of Avaya Breeze in helping to transform how our customers conduct business in this digital age.

Avaya Oceana: Riding the Next Wave in Customer Experience

Earlier this month, the CFI Group, which issues the annual American Customer Satisfaction Index, issued the Contact Center Satisfaction Index (CCSI). Here are some of the key findings:

  • The index shows a four-point decrease in customer satisfaction from 2015 to 2016, sliding to the lowest score in the nine-year history of the report.
  • Difficulties are driven by the ability (or lack of) to quickly and effectively solve customer issues: Only 52% of contacts were resolved on the first contact and a third could not successfully self-serve through the IVR system.
  • Millennials have higher expectations for service than those 45+ perhaps largely due to their sense of immediacy and highly digital, multi-modal nature.

Bottom line: The CCSI news isn’t good regarding contact centers’ ability to deliver an excellent experience. And that results in reduced revenues for your business as customers go elsewhere to satisfy their needs.

From our point of view … the timing couldn’t be better. Here’s why: Avaya Oceana just went generally available.

As long-time leaders in customer experience technologies, we know there are two critical points of opposition underlying the findings of the recent CCSI report. One is that consumer technologies and customer expectations change at an ever-increasing pace—even more so for millennials—your next generation of disposable income. This change is so rapid that some business technologies can be nearly obsolete before fully implemented. Second, because of this rapid pace of change, enterprises often hesitate to commit to new technologies that may disrupt a precariously-built, but functional operation—many of which resemble a Jenga stack whereby if one piece is touched the whole shebang comes tumbling down.

There’s a third factor that’s worth mentioning: traditional contact center technologies have been rigid, highly complex solutions, making changes to deployed systems difficult at best. Over time, what may be left as a result are ancient artifacts of routing patterns, complex integrations, and more that—at minimum—slow responses to potentially already frustrated customers.

Avaya Oceana to the rescue! Oceana simplifies that with a flexible, software-based solution that can negate those opposing forces. Suddenly, aligning customer needs and business strategies is as easy as drag and drop, so changes can be made without the traditional hold-your-breath-and-see-what-happens approach that causes migraines and drives significant resource requirements. The easy-to-use, self-adjusting system knows how—and in many cases, why—the customer is reaching out, managing proactive, self service and assisted service as a single thread.

Intelligence gleaned via Oceanalytics can be automatically applied and visually reported to those who need to know, who can also make immediate changes in the workflow pattern without esoteric programming requirements.

What’s more? Since Avaya Oceana is built on Avaya Breeze™ Platform, companies have massive flexibility to quickly customize their approach to customer experience—again with simplicity and ease through the development tools or pre-made Snap-ins from the Avaya Snapp Store.

The end game? To deliver the best experience possible every time in the course of a transaction or in the relationship overall.

While much of the magic of Oceana is behind the scenes, essentially, the solution enables companies to fully realize the omnichannel experience that many talk about and few truly deliver.

Experience is everything—Avaya Oceana enables proactive, persistent, contextual highly personalized experiences. The kind of experience even a millennial could love.

Watch the Avaya Oceana video.