A study by Reichheld (Inventor of the Net Promoter Score) and his colleague Phil Schefter states that a 5% increase in customer retention can boost a company’s profit from 25% to 95%, depending on the type of company and the industry. This study set ablaze an interest amongst marketers to learn more about customer lifetime value, ultimately resulting in the development of various strategies surrounding the metric, along with acquisition cost and brand loyalty.
One such strategy that has gained renewed interest is the process of leveraging CLV (Customer Lifetime Value) and CAC (customer acquisition cost) along with behavioral targeting to enhance customer retention. This interlinking has not only proven to be financially advantageous but also essential for maintaining a competitive edge in the digital landscape.
By harnessing CLV in conjunction with behavioral marketing, companies can drive higher customer engagement, foster loyalty and ultimately achieve superior retention rates. To harness CLV as a key metric effectively, businesses need to adopt a stringent long-term approach. This approach can be customized for each company, but broadly, it is made up of four systematic steps:
- Data collection,
- Behavioral targeting for long term transformation,
- Determining the true customer value,
- Targeting investments towards valuable customers
Data Collection
Data collection throughout the customer journey is important to determine the CLV. To do so, neuromarketing techniques can be employed to get reliable, accurate, and actionable insights. This method helps determine which touchpoints, channels or experiences need attention, redesign or overhaul. Neuroscience tools allow businesses to get customer insights by tapping into customers’ emotions and attitudes. This process helps the companies understand the emotional journey of the customer at each touchpoint or channel; the emotions identified range from positive to alienating. By doing so, businesses can gain a competitive advantage.
Behavioral Targeting for Long Term Transformation
There are five ways in which companies can influence their customers' behavior:
- Reinforcing positive new beliefs
- Giving shape and form to emerging habits with new offerings
- Sustaining new habits with contextual cues
- Analyzing consumer mindset and aligning messages accordingly
- Looking into consumers' beliefs and behaviors at a deeper, more granular level
Identifying and optimizing peak moments throughout the consumer journey is crucial. Companies need to understand these peak moments, such as first-time experiences of a consumer with the product, intense customer reactions and many more.These instances are projected disproportionately in the consumer’s memory, changing their perception of the product and experience. Hence, adapting peak moments to the changing consumer journey allows companies to bring back positive links within the consumer’s mind and create memorable experiences and build optimal customer retention strategies.
Determining the True Customer Value
The next step after data collection involves the use of customer lifetime value analysis to measure a customer’s long-term value created for the company over their entire lifetime as a customer. This metric is comparable to the mix of customer acquisition and retention costs (CAC), which determines the investments required to acquire and retain customers. By connecting these two indicators, actionable recommendations and informed decision-making can be derived for the company. Understanding the true value of the consumer is essential to effectively allocate company resources.
Targeting Investments in High-value Customers
To target investments and allocate company resources efficiently, it is important to evaluate CLV and CAC metrics. The computation of these metrics helps derive strategic and operational recommendations that can boost the business in many ways. This evaluation can be conducted at different levels.
- At a broader level
The rate of customers who made purchases and how many others made the move towards new markets or channels can be identified. A general rule of thumb suggests that an expansion is advisable when the estimated CLV exceeds the CAC by at least a multiple, even if the business has not reached a profitable stage. Seasoned digital businesses typically display CLV-to-CAC ratios in the range of minimum 2:1 to maximum 8:1 or even more in some cases. On a broader level, the computation of the CLV metric can also be used to calculate and boost the performance of organizational units such as country-level or state-level branches or to gain a more customer-centric perspective on the business.
- At an analytical level
These metrics focus on cohorts of customers segmented based on their existing CLV and CAC values for improved operational efficiency. Demographic datasets, such as place of residence, gender or age, along with behavioral data such as brand loyalty, purchase frequency and returns, are mostly taken into consideration when segmenting customers. These datasets, along with metrics such as high CLV and low CAC, help marketers distinguish and tailor marketing campaigns according to individual customer cohorts.
- At the granular level
With maximum analytical depth, higher-granular insights are derived from the metrics with the help of behavioral targeting. These insights help marketers target individual customers. However, this level of evaluation only makes sense if the company is adopting advanced operational platforms for automated marketing. Otherwise, individual marketing efforts, even after making expensive investments, will not be viable.
- To summarize
The CLV metric provides companies, both established and new, with an opportunity to better understand, target and serve their customers. Especially when behavioral targeting is combined with CLV computations, businesses can create value for customers in an effective and efficient manner. When CLV and CAC are put to work together, they can also lead to new developments. An example of this is a popular donut shop. During the pandemic, the donut shop, which is a famous brick-and-mortar franchise, went digital to enhance its online customer retention quotient. To boost its online sales, the donut shop offered a discount sale on the day of graduation and offered free donuts to graduates. The campaign was a hit as it linked a special emotional event for its customers to donuts. Even though the thought of consuming a donut for a celebration is unlikely, the donut shop used behavioral marketing with a CLV approach to increase their online sales and create memorable experiences. The campaign was an omnichannel approach that focused on attaining the desired CLV-to-CAC ratio by making full use of offline channels. The strategy was to design a response to skillfully manage the increasing costs of customer acquisition during COVID-19.
In conclusion
By incorporating behavioral targeting and leveraging CTV, companies can optimize their marketing strategies, attract valuable customers and create a competitive edge in the market. The most important factor to consider here is who to partner with to leverage behavioral marketing research. One such digital market research company is Borderless Access.
Borderless Access offers strategic insights to enhance retention rates through advanced research and analytics capabilities. The suite of digital-first solutions, known as Insightz by Borderless Access, utilizes a wide array of consumer behavior and emotion data to deliver customized tactical information tailored to specific brands and use cases. By harnessing cutting-edge technologies such as Machine learning (ML), Artificial Intelligence (AI), and automation, Borderless Access Insightz enables organizations to analyze unbiased data about their target market, gain a comprehensive understanding of consumer attitudes, behaviors, and motivations, and identify key trends and patterns. With this deep understanding, businesses can effectively enhance customer relations, drive retention rates, and develop targeted marketing strategies that set them apart from competitors, ultimately driving revenue growth.
Discover how Borderless Access delivers actionable insights to organizations looking to elevate retention rates and maximize customer lifetime value here.
