CLV: Metric which matters the most!

In the last few years, anything related to shopping for me has always been on Amazon and it truly lives up to it's brand promise – “The Everything store” | “Apni Dukaan” . As I am completing my latest purchase on Amazon app, I started to wonder what would be my value as a customer for the purchases done in the last 5-6years??Does Amazon calculate the worth of its customers? According to reports, Amazon generates around $2500 per Prime customer vs $900 per non-prime customer. Amazon has definitely created an ecosystem for its customers under Prime membership which allows them to drive stickiness to the brand.

According to Adobe’s digital Index loyal shopper’s report in 2019, Top 10% of the customer base spends 3x more and top 1% spends 5x more than the average customer. This report also highlights that repeat customers generates 5-7x more revenues per visit.

Marketer’s focus has always been on acquiring new customer base to grow the business. Recent study by Criteo mentions around?81% of marketers?agreed- only monitoring CLV can increase sales, also 68% agreed that implementing CLV data boosts retention and 56% believed, doing so drives customer loyalty. In order to sustain a profitable business every organization has to change the mindset to focus on customer Lifetime Value (CLV).?Acquiring new customers for a digital first business is over INR 2K whereas driving repeat purchase comes at a much lower cost. Hence most of the Indian online brands like Swiggy (Online food ordering app) and Oyo (Online hospitality brand) have used repeat user metric aggressively to improve their CLVs.

According to Bain & Co research, around 5% customer satisfaction can help in increase revenues up to 25-95%. Starbucks’ focus is on creating experiences for the customers than just providing a cup of coffee which also includes giving free access to wi-fi, luxury looking furniture, etc. These experiences have helped the brand to capture more than 89% satisfaction score which is one of the best in the retail coffee chains. Due to high satisfaction scores their customer lifetime value is $14,000 per customer.

In any airline industry, customer loyalty is equivalent to customer experience. According to IATA, 7% passengers choose airlines based on the brand reputation. On an average, dissatisfied customer will talk about his/her experience approximately to 9-15 people. Imagine the kind of revenue opportunity loss the airline has from these set of people. Thus, word of mouth also plays a vital role apart from looking only at the acquisition in silos. As rightly said, "Customer is a King" and influencer too. CLV is best calculated through cohort analysis, which helps marketers in taking a informed decision on which channels to spend to acquire new customers.

BigBasket’s (leader in Indian online grocery) 80% revenues come from returning users. BigBasket's razor-sharp focus through personalized offerings has helped drive up & cross sell to improve their margins by launching private labels. According to industry metrics, the probability of selling to an existing customer is around 60–70%, while the probability of selling to new prospect is as low as 5%.

Let’s look at Insurance industry, as they are into a long-term association with customers. Persistency ratio is a key metrics to understand active premium paying customer base and normally calculated between 13th – 61st months. Using CLV data in insurance industry will not only help them in predicting customer’s willingness towards cross-sell or up-sell of products and but also identify high valued customers to segment them better.

Customer lifetime value is still new for most industries, best approach is to learn from them, so you can improve the value of all your customers. "CLV is more than a business transaction, it's an opportunity to begin a long-lasting relationship."

Note:

• Views expressed are of my own and do not reflect that of my employer.