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).
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:
Three ways that retail technology helps retailers increase CLV
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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