Increasing the lifetime value of your customers through customised retail loyalty programs

For years retail strategy has been based on ‘right products, right place, right price’ and the focus for profit has been on increasing the average basket size. But increasingly, retail stores are realising that profitability is about more than the size of individual transactions:  it’s about each customer’s total spend over the entire life of their relationship with the brand, which is facilitated by retail loyalty programs. The metric that is moving its way towards the top of many retail stores’ agendas now is Customer Lifetime Value (CLV).

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Put simply, customer lifetime value is a calculation of the total amount that a customer spends with you over the lifetime of their relationship – essentially it’s the average transaction size X the number of transactions per year X number of years they engage with you..

The move towards CLV as a key metric is based on the fact that it is more expensive to acquire a new customer than to keep one. This is not a new revelation, and different research projects have put varying figures on this over the years. The European Business Review recently reported, for example, on research that put the cost of acquisition at five times higher than retention. When it comes to profitability, the gains are even more compelling: Bain & Co’s research shows that a 5% increase in customer retention can ramp up profits by anything from 25% to a massive 95%.

Interestingly, whilst many retailers believe that CLV is important, the implementation of strategies to maximise CLV lags behind this conviction. According to one study,  76% of respondents say that increasing loyalty is a priority for their companies, yet just 33% say that CLV is a reported and valued KPI.

So why is understanding and increasing customer lifetime value so important, and how can retail stores achieve it? It is important for three key reasons:

  • It helps to increase revenue over time – knowing who your most valuable customers are means you can focus your efforts on how to increase their satisfaction, increase their spend and extend the life of their relationship with you.

  • Understanding the way that your customers interact with you over a longer period, rather than just one transaction at a time, enables you to spot longer term trends and put in place actions to address them, for example to reduce churn.

  • It allows you to target the right customers – for example, a retail store may be sending out discount offers, for example, to every customer. But if these are shoppers who simply take a discount and move on, you could be damaging your profitability, rather than increasing it.

Three ways that retail technology helps retailers increase CLV

  • Retail Analytics – in order to improve Customer Lifetime Value, you must first be able to establish a baseline and a picture of your current CLV. Capturing and interrogating retail analytics data from across your ecosystem is essential to get this picture. This overall view will be useful, but it’s even more beneficial to then dig deeper into the data and segment your customers by transaction size, ‘recency’ (when was their last transaction) and frequency, so that you can see which types of shoppers are the most valuable to your business.  

  • Loyalty – a retail loyalty program solution will enable you to target your most valuable shoppers with personalised marketing and promotions. A well-designed loyalty program encourages them to purchase even more from you and to increase the length of their relationship. It allows you to understand more about their preferences, which in turn means you can serve them better and enhance their customer experience – increasing the CLV.

  • Engagement and experience in retail – customer experience is an essential element of increasing customer lifetime value. Research from Gartner finds that customer experience drives 66% of loyalty, which is more than brand and price put together. Stores can enhance customer experience with a range of retail technologies including:

    • Frictionless checkout – making the process smooth and simple for customers, using contactless payments, wearable payment technology, well designed online store, queue busting.
    • Mobile POS – for in-aisle service and orders
    • In-store events and promotion, driven by the customer loyalty solution, and through using geo-fencing to target customers when they are close to/in the store
    • Online/offline integration – a single loyalty program online and in-store, combined online/offline transactions such as BOPIS/Click and Collect, or BORIS (buy online return in store).
    • Single stock pool with full inventory visibility, so that customers can browse in store and collect from or have goods delivered from another location

It is no longer enough for retail stores to have the right selection at the right price; retailers must nurture mutually beneficial relationships with customers to ensure long-term loyalty. That’s why forward-thinking retailers are continuing to invest in retail analytics, customer engagement, retail loyalty programs, and customer service technology to ensure that the customers they attract return time and time again.

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