When you optimize around product or channel metrics without regard to the customers who are behind the metrics, you act as if all customers are the same. When you recognize the customers who think you’re a special brand, you can focus on making them feel special too.
In our previous post ("Acknowledging the Unequal Distribution of Customer Awesomeness") we outlined what customer lifetime value (CLV) is and why it’s so important.
To jump right into today’s topic, we’ll briefly summarize those previous points really quickly for you:
The basis of what makes CLV your most important metric is the simple fact that there are some customers in your customer base who spend a lot more money with your business than the majority of your customers.
In the broadest terms, CLV is a measure of an individual’s total spending over their entire relationship with a brand. Almost inevitably, some of your customers will make large-basket-size purchases at regular intervals while others will make just a single small-ticket purchase. The first group of customers is far more valuable; for the average retailer, the top 10% of its customer base generates roughly 50% of its revenue.
With acquisition costs rising and loyalty plummeting, refocusing your organization around CLV as the Northstar metric allows you to optimize for the value-per-customer. And if you systematically increase the value of each customer, you can grow your business (and get that promotion) incredibly efficiently.
Back to Today’s Topic
You’re probably thinking: if it was so easy to pull off a CLV-oriented retail strategy, then everyone would already be doing it.
And to that we say, they should be! But alas, there are a number of common hurdles along the straight and narrow path to customer-centricity.
(NB: Don’t worry. In the book, we go in deep on how to address each of these issues.)
The first hurdle to jump is a resistance to change, which can come in the form of an abiding loyalty to siloed, product- or channel-centric metrics. This resistance is totally rational. The old way of doing things worked very well in the past.
As a result, not everyone might recognize the need to do things differently. Ten years ago, it made sense to organize a retail team around products and channels. But what worked then has now become a liability that’s given rise to the other hurdles to CLV-first adoption.
While a retailer may technically have all the data it needs within reach, this information is often siloed away with the teams to whom it seems most relevant. For example, many retailers house their in-store purchasing data in a point-of-sale (POS) system and their online purchasing data in an e-commerce system. This divide is exacerbated by the fact that the typical retail marketing team is divided into numerous subspecialties, each of which is tasked with managing a specific channel or data source.
Too Much Data
The silos proliferate (more channels, more channel managers, more product categories, more retail locations, etc.) and the data gets bigger and messier, making it difficult to mine for information across data sources.
Another challenge often comes after a retailer has come to terms with the importance of de-siloing data, they just don’t have the tools in place to put it all together, clean it up, and make sense of it. For most retailers, sifting through these datasets requires a huge amount of computational heavy lifting
To build and maintain a meaningful relationship with a customer, retailers must have access to a holistic view of that individual’s relationship with the brand. Just as important, leaders must recognize the importance of this mission, making a concerted effort to break down silos to build a way to view customers holistically.
Without this unified vision, it becomes next to impossible to deliver a consistent, compelling brand experience that will guarantee loyalty—and consistent spending—well into the future.
Which brings us to…
Before you do anything, you’ve got to...
Prime your organization for change
Convene a cross-functional leadership team
Driving adoption of the CLV philosophy requires a CLV Power Squad—a leadership team who are invested in the mission and possess a clear-eyed vision of its benefits. The goal of the Power Squad is to align the organization on CLV, but this culture shift requires buy-in, training, and new processes.
When you look at your existing reports, you'll now also be looking at CLV and having conversations about how to balance things when they differ.
For instance, sometimes your CLV reporting and your existing reporting will conflict. That can be confusing for an organization, but it will ultimately be informative. For example, your ROAS reports might say that it’s a good idea to invest more in Groupon. But your predictive CLV reporting can see farther down the road than ROAS reports and will warn you off of Groupon, maybe pointing to another channel that draws in higher-ticket shoppers.
You're not throwing away your ROAS reports or same-store sales YoY reports or your product SKU YoY reports. Those are fundamental retail metrics. But you have this additional lens that needs attention and puts everything else into a customer-focused context.
The reality is that no single lens of reporting—customer-, product-, or channel-centric—on its own will suffice. You shouldn't follow any single metric while blind to the rest. You should look at everything and make informed choices.
This article is a lightly edited excerpt from our soon-to-be-launched new magnum opus: The Chance of a Lifetime: How to Use Customer Lifetime Value Reporting to Grow Your Retail Business.