3 Ways to Put Customer Lifetime Value into Action
By Leonie Brown, Experience Management (XM) Scientist, Qualtrics
Calculating your Customer Lifetime Value (CLV) is a landmark moment. You’ve gained access to a metric that connects your customer experience (CX) efforts directly to the company’s bottom line. You’ve also armed company leaders with data that demonstrates the value of long-term investment in customer engagement and satisfaction, instead of a blinkered focus on quarterly sales targets.
But that initial calculation is just the first step. The next one—the step most Experience Management (XM) programs fail to take, according to McKinsey & Co.—is learning to use CLV data to guide programmatic investments and informs strategic efforts.
There are three primary ways that top XM teams use CLV to get next-level insights that help them take action: benchmarking, segmentation and experimentation.
Benchmarking. To maximize the utility of CLV within your company, you need to measure it often. You should be able to track the impact of your various experience management (XM) programs and product releases over time—overall, as well as across individual product lines, customer segments and departments. Even if there are no big initiatives in the pipeline, it’s critical to start building a baseline against which you can measure the changes that are bound to pop up down the road.
Segmentation. It’s nice to show that treating customers well drives retention and loyalty. But imagine if there was more—imagine if you could use CLV analysis to identify the particular clusters in your customer base that would provide the best return on your long-term CX investment, as well as those who are likely to churn regardless of your efforts. Then you’d be opening the door to next-level strategic decision-making.
Well, good news: it’s absolutely possible, as this study from the Journal of Service Science and Management shows. Smart CLV segmentation allows you to see which customers are most likely to respond positively to your ongoing XM efforts, including those who are the promising candidates for cross-selling. You can also use comparative CLV segmentation to predict how much money and energy it will take to continually engage various segments within your base—some of whom may not be worth the effort.
These segmentation processes can also be a smart place to layer in non-financial measures of value such as customer satisfaction (CSAT) or Net Promoter Score (NPS). These metrics aren’t generally part of a CLV score because they represent experience data (X-data) rather than bottom-line operational data (O-data)—and part of the purpose of CLV is to connect experience management to the bottom-line. But a genuine reckoning of comparative customer value should absolutely include consideration for loyalty and enthusiasm and brand-evangelism, as this Harvard Business Review article makes clear. This is a great way to bring that X-data into decisions that are traditionally based on O-data alone.
Experimentation. Once you’ve identified the areas where you’d like to apply more (or less) effort, you can monitor your CLV performance across those segments to see whether your hypotheses are proving out. The same goes for any sort of new program: if you added a loyalty benefit, CLV analysis will show whether the added cost-to-serve is paying off in terms of increased customer value. By monitoring how your CLV responds to those changes, you’ll be able to make the tweaks necessary to maximize their effectiveness.
If you’ve just calculated your company’s CLV for the first time, take a moment to celebrate. Then get back to work, because the real impact from your new metric is just around the corner.