How to get over what is keeping you up at night
And, I don’t just mean those crazy neighbors next door. In your competitive market, how can you keep pace with customer needs? How can you be certain that you are investing in the right channels to acquire more customers? What if you were told you had to decrease your budget – where would you first look to cut?
All of these are big questions that we face constantly and can lead to internal strife across departments:
- Are Sales and Marketing doing what they can?
- Are our dealers servicing our customers the best way they can?
- Are our customers getting the education they need from our online properties or call center?
How does your brand ensure that it is investing correctly in every individual customer it has today? Whoa… the answer to that last question, though your boss likely won’t want to hear it, is – you can’t! What you can do is understand whether the value that you expect to receive in the future from each customer is more than what you are currently spending to acquire or retain them.
Whether you are trying to determine who should get the richer offers in your sales events, who to include in the higher level of your service plan, who deserves call resolution escalation rather than being routed to your online community FAQ, etc., it has to be done within a finite budget where not all customers can be treated the same. The experience they receive should match to or exceed the value they are providing, or really their potential value. Through customer lifetime value (CLV) based segmentation, investment can be prioritized to balance delivering a meaningful experience to your customers (i.e. so that they are likely to return), while generating the greatest ROI back to the organization.
Transforming to a Customer-Centric Landscape
In an October 2014 Forbes Insights Study which surveyed 312 senior executives across North America in a broad range of industries, 77% of respondents say CLV is a highly or extremely valuable indicator, but only 58% regularly calculate average CLV*.
There are many ways to calculate lifetime value that can be effective in informing how an organization invests in its customers. The approach is dictated by the data that you have and the understanding of what metrics are foundational to an organization’s success. There must be a vision of continuous improvement that can lead to a more robust solution in later phases. But, there is no reason to wait for the “perfect data” to become available to get started. So let’s get to work!
How to Get Started
- Data Assessment: What data is readily available today and what is its quality? Are you confident in the results you have seen in the existing reporting and KPIs you are tracking? At this point, you can make assumptions if necessary. For example, if retailers are not sharing specific cost-of-sale data you can estimate a value.
- Resources: Each data point relates to a customer experience that can aid in predicting for future value. Gathering the data points across your organization, if not already centralized, is a time investment and will likely conflict with the day-to-day priorities your team has already. You may opt to bring on an analytics partner that can receive multiple data files and has expertise in blending that data together.
- Project Objectives: Since customer lifetime value can and should influence customer experiences across the organization, you will want buy-in from senior management before getting started. What use cases are needed to justify the integration of using this solution? Who will you need to collaborate with early to develop internal partnership that will justify your needs (hint: get to know your Finance person REALLY well)?
Applications of Customer Lifetime Value in Automotive
It is not uncommon to forget that CLV has applications across all areas of your organization.
Build a Loyalty Program that works. In a research study conducted by the International Institute for Analytics and SAS, it was found that companies that had self-rated highly effective programs place a greater value on analytics as a core component of that program. In fact, they are more than twice as likely to view analytics as “very important” (65% vs. 30%)**. Take a moment to be sure your loyalty program is set up in a way that it is generating higher value from your retained customer base. Achieving a higher NPS is good news, but is it leading to a more profitable relationship with your customers? With a CLV foundation, programs and sales or service plan levels can be established that will accelerate your retention rates.
Identify the right channels to invest in. Let’s assume that you are acquiring a significant volume of leads, even qualified leads that have asked for a quote, but your conversion rates are 20% lower than your competitors. Should volume be your sole metric for success? CLV allows you to validate that your acquisition channels are attracting the right customer, with the right conversion rates, which can lead to more efficient acquisition and more loyal customers than your competitors. Cultivating growth in customer value over time starts by acquiring the right customer and then investing in them based on their likelihood to become and remain loyal to your brand.
Remember, CLV goes beyond attributing response or purchase to your collective channel network accurately, but rather it uses that logic to help predict customer value in the future. At the end of the day, don’t worry so much about whom your competitors are converting and you’re not… you have more to be concerned about what you are spending today to acquire the customers you do have.
Harte Hanks has a team of Analysts, Data Scientists and Strategists to help you begin to develop this framework and plan and effectively execute your marketing programs. Is your company fully utilizing Analytic driven insights to better inform customer retention and profitability? Tweet us at @HarteHanks and share your experience.
* “Customers for Life: Technology Strategies for Attracting and Keeping Customers” a Forbes Insights study in association with Sitecore.
** “Successful Loyalty Through Analytics” commissioned by SAS and performed by the International Institute for Analytics.