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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2017 Avaya Customer Innovation Awards Honor Five Companies Leading the Way in Digital Transformation

Every year, Avaya and IAUG recognize a handful of customers who are innovators. These customers are recognized with Customer Innovation Awards. Last year’s award winners included a number of technology firms. This year’s five award winners, recognized on stage at Avaya Engage in Las Vegas, include three customers in the financial services sector, a leading global retailer, and a leader in the film production industry.

Each of these customers is benefiting from the latest Avaya solutions to meet business goals—whether the goals are growth, customer experience, cost management, or risk mitigation.

BECU

BECU, which began life 80 years ago as the Boeing Employee Credit Union, today is the fourth largest credit union in the US, with over $12 billion in assets and over a million credit union members. In 2016, BECU embarked on a digital transformation journey focused on the customer experience. BECU relies on Avaya Elite Multichannel running on an Avaya Pod Fx™ infrastructure.

BECU engineer Rick Webb says, “BECU is rapidly expanding and needed a technology partner that could support that expansion and keep our members happy. The Avaya Elite Multichannel infrastructure does just that, while providing increased flexibility and allowing BECU to better meet the expectations of our more than 1 million members.”

Green Shield Canada (GSC)

Green Shield Canada (GSC) is a one of the leading health and dental benefit carriers in Canada, with over 850 employees across seven locations. Starting last year, GSC is deploying the Avaya Equinox™ Experience and seeing strong results. Competing with larger players in its industry, GSC sees strong collaboration among its workforce as a key ingredient for success.

Jim Mastronardi, GSC Director for Enterprise Infrastructure says, “Green Shield Canada has over 850 employees across seven offices in Canada—from Montreal to Vancouver. We saw an opportunity to explore technology upgrades that would enhance company-wide communications and bring our teams across Canada closer together. With just a single training session, employees have hit the ground running with the Avaya Equinox tools. The video conferencing option has provided a solution to overbooked meeting rooms, and the instant messaging feature is already cutting down on the number of emails being sent.”

Scotiabank

Scotiabank prides itself on “being a technology company providing financial services.” As a long-time Avaya customer—and a beta customer for Avaya Oceana™ and Avaya Oceanalytics™—Scotiabank is on a digital transformation journey to better serve bank customers worldwide. Scotiabank contact centers located in Canada and the Caribbean & Latin America region have benefited from a next-gen centralized architecture leveraging the latest Avaya solutions to better serve customers.

Scotiabank has already developed and deployed Avaya Oceana and Avaya Breeze™ apps, and continues to innovate in an ongoing drive to improve customer service and meet customer needs in a competitive market. The success of Scotiabank’s transformation program has enabled the bank to move with greater agility, improved reliability, and speed to market. This has changed the framework for deployment from months/years to days/weeks while improving the overall ROI/TCO.

The Crossing Studios

The Crossing Studios is one of Vancouver’s largest and fastest growing full-service studios and production facilities for film. The firm caters to companies like Fox, Nickelodeon, Showtime, and Netflix. The Crossing Studios were unhappy with the stability and quality of the disparate systems previously in place across their seven studio locations. In 2016, The Crossing Studios deployed a Powered by Avaya IP Office solution offered by local provider Unity Connected Solutions.

Powered by Avaya IP Office has improved stability, reduced TCO and provided the advanced features that the business needs to serve a very demanding film industry client base, including high scale audio conferencing, extensive web collaboration, and rich multi-vendor HD video conferencing. CTO Mark Herrman says, “We needed something that would support our rapid growth, support our clients, and support our bottom line. Thanks to IP Office and the hosted cloud model, we’re able to keep pace with dynamic, fast-moving film productions, staying as flexible as our clients need us to be.” Estimated savings are in the six figures for the first year alone.

Walgreens

Walgreens is using custom Avaya Snap-ins to bring centralized contact center reporting capabilities to local branch sites, for compliance purposes and to help improve the overall customer experience. Avaya Professional Services were instrumental with the deployment, which relies on an Avaya Pod Fx infrastructure.

These companies are each leaders in their respective industries. As part of their digital transformation journeys, they recognize that when it comes to selecting a trusted technology advisor, “experience is everything.” #ExperienceAvaya.

My Thank You Note for the Best Christmas Gift of All

Every Christmas is special. But this Christmas was even more special, thanks to my experience with children young and old who eagerly awaited the arrival of Santa Claus and called the “NORAD Tracks Santa” hotline for info. The hotline has been following Santa’s December 24 travels and answering calls for 61 years—there’s a great story about how it all got started.

The NORAD—North American Aerospace Defense Command—Operations Center at Peterson Air Force Base in Colorado Springs, Colorado is a long-time client of Avaya Government Solutions. This year, NORAD invited Avaya employees to join its team of 1,500 hotline volunteers. I stepped right up.

Mike RundaThe hotline is part of a highly-sophisticated program to make certain Santa makes a successful journey. NORAD experts carefully monitor his travels and ensure his safety using radar, satellites, jets, and Santa Cams positioned in strategic locations worldwide. As a result, NORAD Tracks Santa volunteers have an insider’s view of Santa’s progress to share as he soars through the night sky.

Calls fielded by the hotline staff have grown steadily to an estimated 691,000 since Christmas 2009. In 2015, calls from all over the globe during a single 23-hour period set a new record of 141,000 calls, topping the 2014 record of 134,970.

To prepare for this year’s calls, about ten minutes ahead of shift we volunteers got a great training booklet, with a page full of how to start and end the conversations, and five pages of facts about Santa (weighs 290 at takeoff, 1,490 pounds when he lands due to intake of cookies around the globe).

Armed with the training booklet, lots of coffee and donuts, all donning Avaya red Santa hats and sweatshirts, the Avaya volunteers were ready to answer pressing calls coming from the U.S. and Canada, as well as Europe and South America. The call volume was intense. There was zero break between hanging up on one call and getting beeped to take the next. It’s all made possible by Avaya Customer Engagement technology, the leading contact center solution in the market (shameless company plug!).

Most of the questions were about when Santa would arrive in their towns, where was he now (we had a live radar board in each room showing what city he was over at that moment, great graphic display!). Most kids were surprised that they actually got to talk to a live person! The parents loved it when I would tell the kids that Santa could only drop off presents after everyone in the house was asleep. And I kept pushing to make sure they left food for the hungry reindeer pulling the sleigh (reindeer love carrots!).

Then there were the special calls that took my breath away.

  • There was one from a young man with autism. His mom stayed on the phone to help translate what he wanted to tell Santa he wanted for Christmas.
  • Another came from a young girl who said she hoped that I would get what I wanted for Christmas from Santa.
  • And finally a call from a much older woman (who I believe might have had a learning difference) telling me the three gifts she hoped that Santa would get her from the local Walmart—though she said she doubted that he would stop by tonight. So deeply touching. I wish I could have gotten her address and given her those simple gifts.

Sigh…a very moving experience, in many ways.

Offered a chance by NORAD, I would definitely volunteer again. The military on the base were extremely polite and so happy to see so many volunteers helping to cheer up someone’s Christmas, both young and old. I felt like I walked away having been the one blessed by all the smiles and laughs that were shared by the NORAD teams and all the folks on the calls. So thank you for what was perhaps the best Christmas gift of all.

Why Multi-Touch Matters more than Multi-Channel

When it comes to customer service, it seems that change is the only constant. I know you’ve heard it all before; how single channel service evolved into multi-channel service evolved into omni-channel service. You’ve heard countless times about the importance of keeping up with this accelerating pace of change to consistently deliver amazing customer experiences.

There’s a good chance you’re part of the nearly 90 percent of companies today that compete solely on the basis of CX. But what if I told you that your customer engagement strategy is missing the mark? What if I told you that the customer experience is not necessarily about the channels you implement? Yes, you need them, but it’s how you use them that matters. 

I realize you’ve heard this statement before, but have you considered what it really means? I’m betting you have also heard the term “customer journey,” but have you considered the depth and breadth of each interaction held with your organization along that journey? Better yet, have you considered how you’re nurturing that end-to end-journey with your brand?

From Servicing Channels to Channeling Your Customers

Today, it’s not so much about what channels are used during the service experience, but rather how those channels are used to engage customers at every touchpoint, enterprise-wide.

Think about it: there are dozens of channels that customers can leverage today depending on what they believe best meets their needs, and dozens more will inevitably emerge as technology advances. By 2020, for instance, Gartner predicts 100 million consumers will be shopping in augmented reality, and 30 percent of Web browsing sessions will be done without a screen.

The question isn’t how many of these innovative channels companies can adopt. Although it’s important to offer a dynamic set of service channels that grows alongside consumer demand, what’s infinitely more important is that those channels are being seamlessly integrated to enable consistent, contextual, predictive experiences across an organization’s entire brand. This is the fundamental difference between multi-channel and multi-touch service.

The Multi-touch Difference

Now don’t get me wrong, multi-channel service has done a lot to help define and shape the end-to-end customer experience. As I mentioned in a previous blog, however, the problem with multi-channel service is that channels act independently in this environment. This means that any data captured across these channels is kept in silos, creating fragmented and isolated communications for customers and representatives alike. Unfortunately, about 90 percent of businesses today still operate within this type of environment. This is why consumers still find themselves dealing with the biggest dissatisfier in customer service: repeating the same information to multiple agents across multiple channels during the same interaction. In a multi-channel environment, channels aren’t intelligently tied together.

Omni-channel service—in which contextual information travels from channel to channel—seems to alleviate these pains; however, there’s still the issue of enabling a contextual visualization of the customer journey organization-wide (in other words, beyond the contact center).

This is where multi-touch service comes into play. This type of environment supports the end-to-end customer journey with 360-degree transparency as interactions travel across an entire brand via any channel. In this environment, for instance, all historical, transactional and real-time data is kept intact as a customer travels from a live chat session with a contact center agent to a phone call with a billing rep to email correspondences with a salesperson. In a multi-touch environment, customers are also matched with the ideal subject matter expert depending on their circumstance; it doesn’t matter who this person is and where they are in (or outside of) the organization during the customer’s time of need.

In these ways, multi-touch service allows businesses to truly keep a finger on the pulse of their customers. This enables them to create anticipatory engagement, contextual awareness and predictive insights that drive the best experiences possible throughout the entire brand journey, however long it may be. After all, a customer’s journey with a brand could be one minute or one month; multi-touch environments are timeless.  Providing the optimal experience and customer journey, all the time, every time will result in positive Customer Lifetime Value.

Research indicates this is exactly the direction the market must take to meet the next-generation needs of today and tomorrow’s customers. The findings of a recent Loudhouse study sum it up best: among 7,000 surveyed consumers, 67 percent made purchases that involved multiple channels; however, 87 percent believe brands must work harder to create a truly seamless customer experience.  

How to Master Multi-touch

Understanding the need for multi-touch is only part of the process. The other, more challenging, part involves taking the right steps to effectively gain this contextual, enterprise-wide view of the customer journey.

It’s not easy to go from “contact” to “engagement,” especially in a way that builds on your existing investments and knowledge. So, how can you begin mastering multi-touch service? To drive exceptional customer experiences at every touchpoint, you need exceptional technology. This means a solution that drives unprecedented value in today’s digital world; one that:

  • Offers integrated, multi-touch support for all media:

    To provide customers with the perfect experience, you must be able to meet them where they’re at—wherever that may be. This requires integrated support for all media (i.e. social, phone, email) across any device or endpoint (i.e. mobile, Web, phone) at any moment for any duration of time. Keep in mind that as you migrate your architecture, you’ll need to ensure the seamless combination of data gathered from past interactions (via your existing systems) with all new data to begin delivering contextual, multi-touch service.

  • Finally breaks down traditional UC&CC barriers:

    To gain 360-degree organizational alignment around the customer experience, the barriers that have historically existed between unified communications and customer contact must be broken once and for all. The right solution will deliver this lasting blow with the ability to flexibly create processes and applications that deeply embed easy-to-access communication capabilities into everyday services and workflows. In short, breaking these silos allows all applications, services and technologies to become more flexibly leveraged organization-wide. This is what ensures customers are paired with the right resources, and that those resources are equipped with the right information at the right time so that information doesn’t have to be repeated (and let’s not forget the ROI impact that will result from this).

  • Captures and capitalizes on big data across the entire enterprise:

    As I mentioned, you simply can’t rely on quarantined data. The right solution will break down the silos surrounding traditional analytics tools, empowering you with a richer visualization of data throughout your entire organization. This will fuel real-time, smarter decision making (which, of course, will drive customer satisfaction and loyalty).

At Avaya, we believe that multi-touch service is a necessity that shouldn’t be so complicated. This should be easy for companies to adopt in a way that meets their budget and infrastructure requirements, allowing them to migrate at their desired pace with no disruption or financial strain.

The way we see it, when someone asks how they can capitalize on today’s multi-touch world, you should be able to tell them that the solution is simple (literally).

Want help getting started?  Using a proven process, we’ll help you create a strategy to increase your customer experience and develop a priority plan – short term, long term, you name it – to help transform your organization.  Interested?  Interested?  Contact us.  We’d love to hear from you.