September 24, 2014
Four in 10 senior execs don’t measure customer lifetime value
Through a special arrangement, presented here for discussion is a summary of a current article from MarketingCharts, a Watershed Publishing publication providing up-to-the-minute data and research to marketers.
According to a new Forbes Insights and Sitecore survey of North American senior executives, more than three-quarters say that average customer lifetime value (CLV) is a highly or extremely valuable indicator, but only 58 percent regularly calculate it.
Indeed, 24 percent have no plans to calculate it or just don’t know.
Of those who rate keeping customers for life a somewhat high, extremely high or top priority, less than half (49 percent) are well satisfied with how their current marketing technology supports those goals
Respondents identified a lack of cohesion in their own organizations, disparate technology and silos of both data and team functionality as the biggest challenges to achieving a single view of the customer for life.
Part of the problem, the study asserts, is that C-level marketers and technology executives are often left out of the process. Of the 84 percent reporting having a strategy in place to support keeping customers for life, only 38 percent involve the CMO in the process and 33 percent include the CIO. When CIOs or CTOs are involved in strategy development, higher levels of team integration are also reported — up to 43 percent and 45 percent respectively, from 37 percent overall.
Full integration of various data gathering and customer communications systems also increases from 27 percent overall to 34 percent when a CIO is also involved in customer retention strategy development. Likewise, rates of non-integration drop from 11 percent overall to five percent and two percent when a CMO or CIO is involved in strategy setting.
Another related hurdle is that while 53 percent consider creating a single customer view a high to very high priority, multiple systems, data redundancies and silos obstruct the 360-degree view.
On average, organizations use 36 different data-gathering systems and vendors for marketing efforts. Only a quarter (24 percent) of all respondents felt customer communications and data gathering systems were fully integrated for the purpose.
The top challenges to more-integrated ways of communicating with customers include a lack of willingness to collaborate cross-team, and insufficiently evolved talent or technical capabilities to warrant integration.
The study surveyed 312 senior executives based in North America across a range of industries.
BrainTrust
Recent Discussions
Discussion Questions
How important is it for retailers to understand a customer’s lifetime value? What are the organizational and technological keys to developing this understanding?
Poll
Life time value is a great concept, but very tough to measure!
Conceptually life time value (LTV) makes a great deal of pragmatic and financial sense. It is the loyal consumers that purchase more and return for more services. It is not about the sale today, but the total value of the household.
Pragmatically there is a systemic problem for measuring LTV. And it is this: “multiple systems, data redundancies and silos obstruct the 360-degree view.”
Most retailers simply can not consolidate my purchases with my wife’s and kids’ to create a “household.” It is not just physical retailers who have this problem. There are at least five different, independent and unconnected Amazon accounts at my address.
Some retailers do a much better job of LTV. The cellular industry is perhaps the best at it due to the nature of their contracts and linking devices on one plan.
For the rest of retail, life time value is the “holy grail” and worth solving for. It will take innovation in CRM, systems—and most importantly in creating perceived value for consumers to share information for calculating LTV.
You need to understand CLV if you’re going to create effective strategies to build it. One important factor is customer retention. In my experience of the three million unique customers we had every year, about two million of them did not make a second purchase within the next 12 months. In effect we had to find new customers every year for two thirds of our customer base simply to maintain flat revenues. Thankfully the 80/20 rule applied to our business, however, increasing the retention rate and consequently the CLV would have had a significant impact on sales. Frequency is also another driver of CLV, as it exponentially drives spend along with creating additional opportunities for the brand and its people to build relationships and increase familiarity, driving affinity for the brand. So in my mind CLV is of major importance.
Knowing a customer’s lifetime value can help direct overall strategies and associated tactics. It is a barometer to help measure achievement. But that can be intimidating. Without hardcore metrics there is an opportunity to rationalize performance.
Retailers can assemble the data. It’s just a matter of wanting to do so and more importantly making good use of the information.
This survey suggests that there is much avoidance in the corporate universe, aka the ostrich syndrome.
Certain retailers get this and make the most of it. Others do not. OK, simple enough. Technology-wise the simple answer is a single view of the customer so all eyes of the retailer are focused on the same customer and customer type, and can team up to create the right CLV strategy (service and products) to support the customer sets.
A common view of merchandise, customers, locations, merchandise in transit and internal team members has been a challenge. Retail technology has advanced to the point where bringing all of this together into a common view is a must, and a differentiator for retailers.
Technology is like a hot fashion, but it encompasses a retail business—move today on it or you will miss the margins and shopper gains and the ability to change faster to meet shoppers demands.
As my colleague Ray Jones would say, when it comes to business success I think understanding CLV is more correlated than causal. The measure itself is at best a forecast or estimate of future value. Nothing wrong with that, most of the measures we use to develop strategy are projections of past behaviors on average.
The real value is in knowing how to retain a customer and maximize value. To the degree that measuring CLV focuses and motivates the organization to do that—bully!
Lifetime value is not important to all products and services. For this reason the projected use seems about right. If you are selling baby food the consumer is limited to one or maybe two years. Apparel is another group where what works for teen will not work for a senior. It might be a very risky approach to adjust the apparel as the customer ages. The key data are usage and repeat purchase patterns.
What Ben Ball said:
“The real value is in knowing how to retail to a customer and maximize value. To the degree that measuring CLV focuses and motivates the organization to do that—bully!”
Absolutely!
Further, do retailers measure the value of a customer entering their doors, website, following via social media, etc., and make every attempt to maximize that occurrence each and every time? If you are not doing so, lifetime value doesn’t matter.
These are the things that I’d be quite sure that retailers that are succeeding beyond the pack are talking about every day.
Know what it means if they come. Know what it means if they don’t come back. Know what it means if they aren’t satisfied and what that can mean to other customers.
My gut tells me that many couldn’t recite those facts off the top of their heads at any moment.
This story should be shocking, but sadly, it isn’t.
It’s hard to imagine who’s attempting to calculate CLV if IT and marketing aren’t included. Increasing competition in the retail space makes customer analysis a must.
I have been in the consumer products industry for over 40 years and this is the very first time I have ever heard of this metric. I therefore believe it is just another term that has been developed to sell services to incompetent executives. Any customer who is tethered to a retailer is usually tethered by convenience and convenience alone. When the retailer forces the consumer to break that tether by ignoring quality of experience, presentation or pricing the consumer is not likely to return. Why confuse the issue by introducing terms like CLV? It is meaningless! Get back to blocking and tackling and don’t get distracted by those who would sell you shortcuts to success. They don’t work, never have never will!
Perhaps I spend too much time in bars. But what we are really talking about here is the “Cheers phenomenon.” It does not take complex metrics to understand the lifelong value of a customer. I often notice that the crowd at the bar is largely dependent on the bartender. When the bartender knows your drink and your name, you tend to come back to him or her. Yes, I love it when I step up to the bar and am greeted by my drink without even asking. When that bartender leaves for another job, you notice a definite drop off in the number of people who stop by for a drink. This is not an isolated incident. I see it play out time and time again.
You can find it in a more businesslike example. Recently, I gave my students an assignment to analyze the leadership of companies that are no longer on the Dow Jones Industrial Average. One of the students wrote about Hewlett-Packard. It took me back about 10 or 12 years, when I used HP products. I had an HP laptop and had some problems with it. I called tech support to solve the problem and got nothing but the representative apparently reading solutions off of their computer and not understanding in any way what my problem was. I never bought a Hewlett-Packard computer again. I never will, even though their customer support may have improved dramatically. I will never find out.
I did however continue to use HP printers until I needed customer support. I found the same results. I felt like there was no interest in helping me solve my problem. I have never bought an HP printer since and I never will again.
A dollar saved today can be very costly in the future. Leaders have to ask the value of saving a dollar and losing a customer. If they are not asking that question without the metrics, metrics are totally irrelevant.
The importance of this metric is not the issue. Who wouldn’t say it’s important? The issue is corporate focus, which is pretty fuzzy these days. Without focus, it is tough to reinforce the discipline needed to measure any metric, let alone react to findings.
To properly establish and leverage CLV within a retail organization, other important fundamental layers are needed, starting with a good segmentation of customers. Most retailers still use RFM as their lens for chasing after behavioral pattern shifts at the customer level. When the perspective for what constitutes customer-centricity is RFM, why is it surprising that CLV is not more widely adopted? To make matters worse, nine out of 10 organizations would use CLV to mean value-to-date rather than predicting value-tomorrow.
I don’t disagree with the barriers of silos and legacy systems (or with the percentage of transactions that can reliably be tracked back to an individual, identifiable customer), but decision-makers also need to understand the value of bringing down those barriers and connecting their systems when they tend to be “pretty happy” with their RFM-view of the world. With the proper education through use cases that demonstrate (simulate) the value of improved choices, it’s easier for CMOs/COOs to pull the funding levers to make things happen.
Bottom line, age old problem in retail—disparate systems and tools! Whether you are calculating CLV or any other metric regarding the customer, alignment across the enterprise is the key!
Of course you are going to see better results when the CMO and CIO are included in the strategy! It’s past time to get a handle on all that data, the systems and tools, and find a single view of the customer.
… And that’s my two cents!
Knowing the customer’s lifetime value allows people to make good decisions on how they will take care of the “average” customer. But not only should the executives know it, so should all employees. If we know a customer spends $5,000 over their lifetime and they bring back a $10 item for exchange or refund, it makes obvious sense to take care of them. However, many employees don’t understand the concept because it isn’t part of their training and it hasn’t been measured.
This statistic is what is expanding customer service into never before seen expenses, at a time when margin continues to erode. Companies that do know how to calculate this value generally make other mistakes that allow for the importance of this information to continue to climb.
The biggest mistake is in placing returns and overrides in the shrink category instead of marketing and sales paying for the related business costs out of their budgets. This separation alone would shed some serious light on just how overrated this information can be and it’s drain on the company profits. No amount of customers can or will siphon real dollars from Jack and Jill’s future budget and planning. We must focus on what we can win from what people and businesses are spending now. If the current economic crisis taught us anything, it should have taught us that future values are at best a dream.
Keeping a current consumer is typically cheaper than acquiring new ones. Therefore, if you extrapolate the potential lifetime value of your current consumer and determine the cost of losing that person, you will quickly see the importance of doing everything reasonable to keep that shopper happy with your store.
This particular metric is important to understand, as well as the factors that potentially have an impact upon it. This is not the only metric to watch, and yes, merchants can be successful without measuring this value, however, I would recommend looking at this metric. And take a look at ways to improve the lifetime value, as those tactics often drive new shopper acquisition too.
The CLV is important and there are many obstacles and even more excuses for not deriving the individual CLV, many outline in this article. I don’t want to get overly focused on this one metric as the lack of being able to accurately calculate CLV is really only symptomatic of an organization that is not properly utilizing customer information to drive sales gains. Yes, lots of systems, vendors, lots of gathering techniques, lots of customers and this is challenging.
Having a marketing voice push for a better understanding of the customer is essential. Once complete a retailer has the ability to derive a much more accurate picture of the customer and the CLV. The individual CLV could then be utilized in order to segment, or in the future, personalize individualized programs and promotions that would retain the customer and possibly increase CLV. Enormous value to the retailer to have an accurate picture of the individual.
The question of importance can be answered this way: How happy would shareholders be if the cost of customer acquisition was not paying a dividend? Every profitable company keeps an eye on business results, and that should include customer management and lifetime value. Yet customer equity is rarely considered in corporate financial analyses, and there are no established accounting standards for customer management.
Companies routinely fund capital investments in technologies that are amortized over a number of years. It just makes sense that investments in the customer asset should be measured as well. This may change as loyalty and data-driven marketing become increasingly prevalent, but marketers have a way to go in this area of measurement.
I think retailers benefit from knowing everything they can about their customers, and customer lifetime value is a particularly important metric. There has been tons of research published about the profitability of repeat and loyal customers, most notably by Fred Reichheld and Bain and Company. And if loyal customers are your most profitable customers, tracking a metric that shows you how much value they are creating, and giving you a baseline to improve upon, seem pretty important to me.
How do you develop this understanding? As with most things, it starts with conviction and commitment from the top. From there, customer-focused tracking systems need to be implemented (which willl have the dual benefit of providing seamless omni-channel customer experience), executive incentive systems modified to factor in increasing CLV (which will be measured), and marketing systems and staff training geared toward increasing loyalty.
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Life time value is a great concept, but very tough to measure!
Conceptually life time value (LTV) makes a great deal of pragmatic and financial sense. It is the loyal consumers that purchase more and return for more services. It is not about the sale today, but the total value of the household.
Pragmatically there is a systemic problem for measuring LTV. And it is this: “multiple systems, data redundancies and silos obstruct the 360-degree view.”
Most retailers simply can not consolidate my purchases with my wife’s and kids’ to create a “household.” It is not just physical retailers who have this problem. There are at least five different, independent and unconnected Amazon accounts at my address.
Some retailers do a much better job of LTV. The cellular industry is perhaps the best at it due to the nature of their contracts and linking devices on one plan.
For the rest of retail, life time value is the “holy grail” and worth solving for. It will take innovation in CRM, systems—and most importantly in creating perceived value for consumers to share information for calculating LTV.
You need to understand CLV if you’re going to create effective strategies to build it. One important factor is customer retention. In my experience of the three million unique customers we had every year, about two million of them did not make a second purchase within the next 12 months. In effect we had to find new customers every year for two thirds of our customer base simply to maintain flat revenues. Thankfully the 80/20 rule applied to our business, however, increasing the retention rate and consequently the CLV would have had a significant impact on sales. Frequency is also another driver of CLV, as it exponentially drives spend along with creating additional opportunities for the brand and its people to build relationships and increase familiarity, driving affinity for the brand. So in my mind CLV is of major importance.
Knowing a customer’s lifetime value can help direct overall strategies and associated tactics. It is a barometer to help measure achievement. But that can be intimidating. Without hardcore metrics there is an opportunity to rationalize performance.
Retailers can assemble the data. It’s just a matter of wanting to do so and more importantly making good use of the information.
This survey suggests that there is much avoidance in the corporate universe, aka the ostrich syndrome.
Certain retailers get this and make the most of it. Others do not. OK, simple enough. Technology-wise the simple answer is a single view of the customer so all eyes of the retailer are focused on the same customer and customer type, and can team up to create the right CLV strategy (service and products) to support the customer sets.
A common view of merchandise, customers, locations, merchandise in transit and internal team members has been a challenge. Retail technology has advanced to the point where bringing all of this together into a common view is a must, and a differentiator for retailers.
Technology is like a hot fashion, but it encompasses a retail business—move today on it or you will miss the margins and shopper gains and the ability to change faster to meet shoppers demands.
As my colleague Ray Jones would say, when it comes to business success I think understanding CLV is more correlated than causal. The measure itself is at best a forecast or estimate of future value. Nothing wrong with that, most of the measures we use to develop strategy are projections of past behaviors on average.
The real value is in knowing how to retain a customer and maximize value. To the degree that measuring CLV focuses and motivates the organization to do that—bully!
Lifetime value is not important to all products and services. For this reason the projected use seems about right. If you are selling baby food the consumer is limited to one or maybe two years. Apparel is another group where what works for teen will not work for a senior. It might be a very risky approach to adjust the apparel as the customer ages. The key data are usage and repeat purchase patterns.
What Ben Ball said:
“The real value is in knowing how to retail to a customer and maximize value. To the degree that measuring CLV focuses and motivates the organization to do that—bully!”
Absolutely!
Further, do retailers measure the value of a customer entering their doors, website, following via social media, etc., and make every attempt to maximize that occurrence each and every time? If you are not doing so, lifetime value doesn’t matter.
These are the things that I’d be quite sure that retailers that are succeeding beyond the pack are talking about every day.
Know what it means if they come. Know what it means if they don’t come back. Know what it means if they aren’t satisfied and what that can mean to other customers.
My gut tells me that many couldn’t recite those facts off the top of their heads at any moment.
This story should be shocking, but sadly, it isn’t.
It’s hard to imagine who’s attempting to calculate CLV if IT and marketing aren’t included. Increasing competition in the retail space makes customer analysis a must.
I have been in the consumer products industry for over 40 years and this is the very first time I have ever heard of this metric. I therefore believe it is just another term that has been developed to sell services to incompetent executives. Any customer who is tethered to a retailer is usually tethered by convenience and convenience alone. When the retailer forces the consumer to break that tether by ignoring quality of experience, presentation or pricing the consumer is not likely to return. Why confuse the issue by introducing terms like CLV? It is meaningless! Get back to blocking and tackling and don’t get distracted by those who would sell you shortcuts to success. They don’t work, never have never will!
Perhaps I spend too much time in bars. But what we are really talking about here is the “Cheers phenomenon.” It does not take complex metrics to understand the lifelong value of a customer. I often notice that the crowd at the bar is largely dependent on the bartender. When the bartender knows your drink and your name, you tend to come back to him or her. Yes, I love it when I step up to the bar and am greeted by my drink without even asking. When that bartender leaves for another job, you notice a definite drop off in the number of people who stop by for a drink. This is not an isolated incident. I see it play out time and time again.
You can find it in a more businesslike example. Recently, I gave my students an assignment to analyze the leadership of companies that are no longer on the Dow Jones Industrial Average. One of the students wrote about Hewlett-Packard. It took me back about 10 or 12 years, when I used HP products. I had an HP laptop and had some problems with it. I called tech support to solve the problem and got nothing but the representative apparently reading solutions off of their computer and not understanding in any way what my problem was. I never bought a Hewlett-Packard computer again. I never will, even though their customer support may have improved dramatically. I will never find out.
I did however continue to use HP printers until I needed customer support. I found the same results. I felt like there was no interest in helping me solve my problem. I have never bought an HP printer since and I never will again.
A dollar saved today can be very costly in the future. Leaders have to ask the value of saving a dollar and losing a customer. If they are not asking that question without the metrics, metrics are totally irrelevant.
The importance of this metric is not the issue. Who wouldn’t say it’s important? The issue is corporate focus, which is pretty fuzzy these days. Without focus, it is tough to reinforce the discipline needed to measure any metric, let alone react to findings.
To properly establish and leverage CLV within a retail organization, other important fundamental layers are needed, starting with a good segmentation of customers. Most retailers still use RFM as their lens for chasing after behavioral pattern shifts at the customer level. When the perspective for what constitutes customer-centricity is RFM, why is it surprising that CLV is not more widely adopted? To make matters worse, nine out of 10 organizations would use CLV to mean value-to-date rather than predicting value-tomorrow.
I don’t disagree with the barriers of silos and legacy systems (or with the percentage of transactions that can reliably be tracked back to an individual, identifiable customer), but decision-makers also need to understand the value of bringing down those barriers and connecting their systems when they tend to be “pretty happy” with their RFM-view of the world. With the proper education through use cases that demonstrate (simulate) the value of improved choices, it’s easier for CMOs/COOs to pull the funding levers to make things happen.
Bottom line, age old problem in retail—disparate systems and tools! Whether you are calculating CLV or any other metric regarding the customer, alignment across the enterprise is the key!
Of course you are going to see better results when the CMO and CIO are included in the strategy! It’s past time to get a handle on all that data, the systems and tools, and find a single view of the customer.
… And that’s my two cents!
Knowing the customer’s lifetime value allows people to make good decisions on how they will take care of the “average” customer. But not only should the executives know it, so should all employees. If we know a customer spends $5,000 over their lifetime and they bring back a $10 item for exchange or refund, it makes obvious sense to take care of them. However, many employees don’t understand the concept because it isn’t part of their training and it hasn’t been measured.
This statistic is what is expanding customer service into never before seen expenses, at a time when margin continues to erode. Companies that do know how to calculate this value generally make other mistakes that allow for the importance of this information to continue to climb.
The biggest mistake is in placing returns and overrides in the shrink category instead of marketing and sales paying for the related business costs out of their budgets. This separation alone would shed some serious light on just how overrated this information can be and it’s drain on the company profits. No amount of customers can or will siphon real dollars from Jack and Jill’s future budget and planning. We must focus on what we can win from what people and businesses are spending now. If the current economic crisis taught us anything, it should have taught us that future values are at best a dream.
Keeping a current consumer is typically cheaper than acquiring new ones. Therefore, if you extrapolate the potential lifetime value of your current consumer and determine the cost of losing that person, you will quickly see the importance of doing everything reasonable to keep that shopper happy with your store.
This particular metric is important to understand, as well as the factors that potentially have an impact upon it. This is not the only metric to watch, and yes, merchants can be successful without measuring this value, however, I would recommend looking at this metric. And take a look at ways to improve the lifetime value, as those tactics often drive new shopper acquisition too.
The CLV is important and there are many obstacles and even more excuses for not deriving the individual CLV, many outline in this article. I don’t want to get overly focused on this one metric as the lack of being able to accurately calculate CLV is really only symptomatic of an organization that is not properly utilizing customer information to drive sales gains. Yes, lots of systems, vendors, lots of gathering techniques, lots of customers and this is challenging.
Having a marketing voice push for a better understanding of the customer is essential. Once complete a retailer has the ability to derive a much more accurate picture of the customer and the CLV. The individual CLV could then be utilized in order to segment, or in the future, personalize individualized programs and promotions that would retain the customer and possibly increase CLV. Enormous value to the retailer to have an accurate picture of the individual.
The question of importance can be answered this way: How happy would shareholders be if the cost of customer acquisition was not paying a dividend? Every profitable company keeps an eye on business results, and that should include customer management and lifetime value. Yet customer equity is rarely considered in corporate financial analyses, and there are no established accounting standards for customer management.
Companies routinely fund capital investments in technologies that are amortized over a number of years. It just makes sense that investments in the customer asset should be measured as well. This may change as loyalty and data-driven marketing become increasingly prevalent, but marketers have a way to go in this area of measurement.
I think retailers benefit from knowing everything they can about their customers, and customer lifetime value is a particularly important metric. There has been tons of research published about the profitability of repeat and loyal customers, most notably by Fred Reichheld and Bain and Company. And if loyal customers are your most profitable customers, tracking a metric that shows you how much value they are creating, and giving you a baseline to improve upon, seem pretty important to me.
How do you develop this understanding? As with most things, it starts with conviction and commitment from the top. From there, customer-focused tracking systems need to be implemented (which willl have the dual benefit of providing seamless omni-channel customer experience), executive incentive systems modified to factor in increasing CLV (which will be measured), and marketing systems and staff training geared toward increasing loyalty.