Maximize Customer Lifetime Value

SUMMARY

FROM SURVIVING TO THRIVING:
TOOLS TO MAXIMIZE CUSTOMER LIFETIME VALUE

By Fernando Salido, Sridhar Pankanti and Swarnim Shekhar

Businesses are investing billions of dollars into customer lifetime value, whether through loyalty programs, subscriptions, free shipping or even entertainment to encourage customers to return, as well as through technology systems that help improve customer relationships. In fact, customer relationship management software is now the largest and fastest-growing enterprise software market and expected to double in size to $80 billion over the next five years.

As CPG manufacturers and retailers continue to fight for every dollar, understanding and maximizing customer lifetime value by each customer has become an important way to boost business profit. While there are many ways to measure customer lifetime value, integrating the key metrics – purchase recency, purchase frequency, the customer’s average sales and profit contribution per trip, and now binge buying – with other business data can help firms improve customer retention and purchase frequency, grow basket sizes and persuade customers to move up the loyalty ladder.

This report reviews established customer lifetime value principles, adding observations and statistical testing using real-world data, to provide a framework and guidance for how CPGs and retailers can improve their strategies and measurement of these programs.

Highlights:

• Promoting products or services with shorter purchase cycles, high repeat rates and relatively higher margins improve customer lifetime value.

• Cross-promoting products to high-potential customers will maximize success. IRI research has shown that a 10% improvement in share of wallet among high-value customers can increase a firm’s market capitalization by an average of 12%.

• Reducing the distance to the customer and barriers to buying, as well as using trends to increase sales and upping the “wow” factors of the customer experience rewards businesses.

With an integrated approach to customer lifetime value, CPG retailers and manufacturers will improve loyalty among their most important customers in the short term as well as drive greater economic value and growth in the longer term.

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