Marketers work hard to build their customer database. But do they know its value? Do they recognize it as a business asset? Most important, can they measure its future value and maximize the potential incremental revenue?
One proven fix is to think of the customer database as a portfolio, similar to a portfolio of investments such as stocks, mutual funds, and bonds. Each investment varies in current value, annual return, and growth potential. When marketers think of their customer database as a portfolio of customers, it’s easier to see their objective as maximizing the value of each customer over the long term.
Marketers probably know the lifetime value of their customers to date — but they also need to know their potential future value so they can determine the best way to reach it. The primary way to realize future value is, of course, encouraging customers to come back and make additional purchases, creating a virtuous cycle of repurchases.
Each time a first-time buyer returns a second time to buy, for example, two great things happen: first, it adds to current cash flows and, second, it increases the probability of additional future purchases. The more likely it is for a customer to purchase again, the higher their potential future value. This seems relatively simple. By growing the strength of customer relationships, we are filling our database with loyal customers that produce incremental revenue now, while banking greater future value, as well.
Typically, by the third or fourth purchase, marketers can measure that these customers have reached the ‘loyalty tipping point,’ where the probability of additional purchases is greater than 50%. Simply stated, loyal customers are more likely to buy again than not. More loyal customers mean more predictable revenue to count on in the years to come.
So, the best way to grow business is by creating more repeat business, and by recognizing and protecting loyal customers.
Looking ahead – one retailer’s story
One retailer that truly understands the importance of growing, recognizing, and protecting its loyal customers has gone to great lengths to do just that. The retailer committed to analyzing customer behavior across all touchpoints, determining the desired behavior, and creating campaigns to encourage that behavior and maximize future customer value.
In doing so, the retailer saw an opportunity to create a Best Customers program to recognize and reward high-value spenders with a ‘surprise and delight’ $50 gift card. The goal of the program was to encourage these customers to come back sooner, as well as to test whether they would increase their spending levels with “free money.”
The program was successful in shortening the lag time between purchases and led to a slight increase in spending. The Best Customers weren’t the only ones getting a “surprise and delight;” the brand also received one: a significant increase in cross-category purchases. Best Customers were trying new product categories with their “free money,” expanding their purchases to new, different items than their previous behavior had indicated. The brand benefited from a whopping 71% lift in cross-category purchases, a 51% increase in overall customer purchasing, and a 25% boost in incremental spending on a per-order basis.
Finding future value in the customer lifecycle
In addition to this Best Customer campaign, the retailer implemented a comprehensive suite of dynamic lifecycle marketing campaigns — delivering relevant communications and dynamic offers that targeted each customer, moving them forward in the economic relationship with the brand. The goal is to create an engaging customer experience to drive repeat purchases and to increase active loyal customers.
At the beginning of these efforts, only 35% of the retailer’s database was repeat buyers. Today, 65% of its revenue comes from repeat purchases.
This retailer understood that their customer database is a significant, high-potential business asset. All marketers need to reimagine the potential their marketing can have in not only driving short-term sales, but also increasing the future value of their database; value they can deliver in the next year or more.
It’s time to further differentiate the optimal treatment that prospects, one-time customers, and high-value, loyal customers receive. This will enable marketers and the brands they represent to deliver a better customer experience consisting of relevant well-timed communications and targeted next-best offers and actions, which will drive repeat purchase behavior while increasing loyalty.
By looking forward, marketers can boost long-term ROI by generating measurable customer loyalty and predictable future revenue — and in the process, gain more control over their brand’s future.
Augie MacCurrach is chief executive officer of Customer Portfolios