The Ultimate Guide to Boosting CLV With a Loyalty Program

Customer lifetime value. CLV. Lifetime customer value. People call this metric by many names, but they all mean the same thing: the predicted net profit of the entire relationship with a given customer. Buyers with a high lifetime value are desirable for any business, and understandably so, as it indicates strong brand love, as well as a long-standing commitment to spending money in your stores. 

This guide is meant to help you better understand how your customer retention strategy influences CLV, as well as show you a diverse list of loyalty program features that can improve this metric.

How Can You Calculate Customer Lifetime Value & Why Does Loyalty Influence It?

Finding the perfect formula for CLV is not as easy as it seems, because it can be calculated in a multitude of ways. Most concisely, lifetime value is found by multiplying a customer’s purchase frequency with average basket volume, then dividing it by their retention cost. 

So how do loyalty programs factor into all of this? As a study from Motista shows, customers with an emotional connection to brands have 306% higher lifetime value. This is most likely due to the fact that a comprehensive rewards program can simultaneously enhance all three elements of the lifetime value equation. 

Customer lifetime value ramps up when buyers reach their second or third purchase, but only a dedicated few are loyal enough to buy exclusively from you. 

Point expiration

Adding a ticking clock to the reward system is a well-known method to encourage people to increase their purchase frequency. Just set an expiration date for each member’s point balance, and reset the timer if they decide to buy something. 

Finding the sweet spot for your expiration window is the key to success. Customers are willing to make a low-value purchase just to avoid losing their points every now and then, but if they hear about expiration too often, they’ll lose interest. 

If you wish to run point expiration without causing frustration, you need to notify your loyalty members in time via email, which is a great opportunity to showcase your personalization capabilities. 

Starbucks shares a loophole with its customers to help them avoid point expiration: using the brand’s prepaid card shields them from losing their Stars. It’s a clever move, which helps to promote the company’s own service.

Rewards with a high perceived value 

If there’s something people love more than free shipping, it’s fancy rewards. Deep down in their hearts, everyone dreams about spending their points on something memorable, like a free weekend at a wellness spa. 

When it comes to loyalty rewards with perceived value, you have two options. One is to offer luxury benefits that are open to anyone who is willing to pay the price in points (luxury weekends, first line ticket to a fashion show, gourmet dinners etc). The other is to promote limited-edition items, or products designed by influencers or celebrities. 

Either way, people will need a large quantity of loyalty points to claim such rewards for themselves. And just like with tiers, the best way to earn points quickly is by increasing purchase volume.

Luxury fashion brand Saks Fifth Avenue brilliantly combines tiers and experiential rewards: by spending money on the SaksFirst Credit Card, they unlock better and better gift packages, featuring deluxe cosmetics.  

Members-only services 

Another way to save money with a loyalty program is by making services you’d offer anyway members-only. For instance, if free shipping is available by default, it makes sense to turn it into a baseline loyalty program feature.

Putting certain services behind enrollment won’t turn devoted customers away, since anyone who is interested in such benefits will be willing to take an extra step and register. 

And what does this strategy deliver? More information about your customers, such as contact data, credentials, or anything your personalization strategy requires, as well as plenty of additional eyes that will want to check out the other benefits your program has to offer.

Don’t want to make services like free shipping permanently available? Follow DSW’s example and add it as a members-only feature during Christmas to increase enrollment rates for the holiday season. 

This is just the beginning, though. Our full list features 12 strategies to improve customer lifetime value.