Customer Lifetime Value As Your North Star
Customer Lifetime Value as Your North Star P e r s p e c t i v e s o n h o w t o g e t t h e r e .
Table of Contents CLV Overview 3 Why is CLV More Important Than Ever? 5 How Can CLV Help? 7 Finance 8 Marketing 9 Data Science 10 Customer Service 11 Sales 12 Product 13 Merchandising 14 Corporate Development 15 Supply Chain 16 How Can We Calculate CLV? 15 Should We Build This Capability In-House? 18 Should We Work With Theta? 19 About Our Founders 20
CLV Overview P A G E 3
P A G E 4 CLV Overview Your most loyal customers are worth up to 10x the value of their first purchase, yet 75% of customers only transact once . Customer Lifetime Value (CLV) is a metric that estimates the total value a customer brings to a company over their entire relationship. It considers factors such as purchasing behavior, frequency of purchases, average order value, and length of the customer relationship. CLV helps companies make strategic decisions about acquisition, retention, supply chain, product, merchandising, and more, that drive customer-level profitability.
Why is CLV More Important Than Ever? P A G E 5
P A G E 6 CLV is More Important Than Ever Because As acquisition, retention and other customer- related costs rise, CLV helps prioritize where funds will have the most impact. 1. Rising costs CLV can help power personalized digital interactions, recommendations, and offers, leading to improved customer satisfaction and loyalty. 2. Digital transformation CLV helps reveal potential changes in future customer behaviors to help companies recalibrate their marketing efforts. 3. Shifting consumer behavior CLV doesn't require the use of private personal information (PPI), so there's no intrusion on customers' data privacy or security. 4. Data security and privacy CLV helps uncover what makes high-value customers valuable, so companies can find more like them regardless of what their competition does. 5. Intense competition Calculated using the right models, CLV can take into account external factors, such as seasonality, that can affect customer behaviors. 6. Demand shocks
How Can CLV Help? Among the benefits of CLV is that, despite popular belief, its value isn't restricted to marketing. Insights can and should be used to inform and support initiatives across all departments. The charts on the following pages provide examples. P A G E 7
Pricing Strategies and Resource Allocation Forecasting and Financial Analysis Cost Savings and Efficiency Customer Value Assessment FINANCE Optimize pricing strategies based on CLV and allocate resources accordingly. Forecast residual lifetime value and profitability. Identify cost savings and efficiency improvements. Determine profitability of customer segments. Assess the financial impact of improving customer retention rates. Evaluate the financial impact of potential investments. Evaluate the impact of pricing changes and promotional activities Assess value of customer data assets. Calculate ROI of marketing campaigns and conduct scenario analysis. Conduct financial modeling and forecasting based on CLV. Assess profitability of loyalty programs. Forecast residual lifetime value of current customer base. P A G E 8 How Can CLV Help?
P A G E 9 Acquisition Retention Loyalty and Insights MARKETING Identify high-value customers and their characteristics to target the most valuable segments. Identify high-value or medium-at-risk customers with high CLV and enroll them in targeted retention campaigns, using personalized offers and surveys. Segment customers by expected number of future transactions to more accurately assess loyalty. Allocate resources to high CLV acquisition channels for strategic marketing efforts. Utilize CLV data for personalized experiences and enhanced customer satisfaction. Utilize different marketing levers (e.g., incentives, branding, customer service) based on loyalty tiers. Increase high-value conversions with CLV lookalike audiences and value-based bidding. Implement win-back strategies to re- engage lapsed high- value customers and leverage their potential CLV. Build stronger brand loyalty through customer-centric strategies. Focus on priority KPIs. Suppress low CLV audiences to prioritize higher CLV customers. Customize cancellation flows based on customer CLV, providing tailored offers or alternative solutions. Within low value product categories, find customers with a high “probability active” to cross-sell. Analyze and allocate campaign spend to high CLV campaigns. Enlist medium-value customers in loyalty programs to increase their CLV. Utilize referral-based marketing through high-value customers for word-of-mouth acquisition. How Can CLV Help?
P A G E 1 0 Insights and Efficiency Collaboration and Business Impact DATA AND ANALYTICS Collaborate with world-class customer value experts. Drive cross-departmental collaboration with CLV as an organization-wide KPI, maximizing customer value. Leverage highly accurate and validated CLV models for reliable and precise insights. Optimize efficiency by leveraging CLV insights, freeing up time for strategic tasks. Seamlessly integrate CLV scoring into any system through Theta’s near real-time API. Utilize CLV to boost business impact through informed decision-making and resource allocation. How Can CLV Help?
P A G E 1 1 Customer Satisfaction Opportunities and Insights Integration and Collaboration CUSTOMER SERVICES Prioritize customer service based on CLV. Identify cross-selling and upselling opportunities during customer service interactions. Incorporate CLV into customer service reporting and analytics. Identify potential advocates among high-CLV customers. Utilize CLV for personalized customer service experiences. Track customer feedback and sentiment analysis related to customer service. Collaborate with the product team for product enhancements based on customer feedback. Implement proactive strategies for at-risk high-value customers. Collaborate with marketing for targeted retention campaigns based on CLV. Customize cancellation flows based on customer CLV. Personalize customer service interactions based on CLV. Determine appropriate customer appeasement based on CLV. Provide training on value-based customer service. How Can CLV Help?
P A G E 1 2 Customer Engagement Collaboration and Business Impact SALES Utilize CLV insights to identify cross-selling and upselling opportunities during sales interactions. Use CLV data to forecast revenue potential and guide sales targeting and territory allocation decisions. Analyze the purchasing behaviors and preferences of high-CLV customers to optimize product recommendations and sales pitches. Track and measure the impact of sales initiatives on CLV metrics to identify areas for improvement and optimization. Tailor sales strategies and messaging based on CLV segments to maximize customer engagement and conversion rates. Provide sales training that emphasizes the value and long- term potential of high-CLV customers. Tailor sales strategies and messaging based on CLV segments to maximize customer engagement and conversion rates. Incorporate CLV metrics into sales reporting and analytics for performance evaluation and goal setting. Collaborate with marketing teams to align sales and marketing efforts based on CLV segments. How Can CLV Help?
P A G E 1 3 Features/ Products/ Categories Product Development and Customer Preferences Customer Journeys and Pricing PRODUCT Identify features, products, and categories that drive high CLV among customers. Develop new products or enhance existing ones based on customer preferences and behaviors observed in high-CLV segments. Identify valuable and least valuable customer journeys by mapping out the touchpoints and interactions that drive higher CLV. Analyze customer behavior and preferences to determine the key attributes that contribute to higher CLV. Utilize insights from CLV analysis to inform product development decisions and prioritize features that resonate with high-CLV customers. CDetermine price thresholds and strategies that appeal to different customer segments, maximizing revenue while considering CLV potential. Use data analysis and segmentation techniques to identify the characteristics and qualities that attract high-CLV customers. Incorporate customer feedback and market research to align product development with the needs and desires of high-CLV customers. Analyze customer behavior and preferences to optimize the customer journey and pricing strategies for high-CLV customers. How Can CLV Help?
Inventory Management and Seasonal Planning Visual Merchandising and Product Bundling MERCHANDISING Allocate inventory storage and availability based on CLV potential to ensure high-CLV customers have access to desired products. Optimize visual merchandising strategies to align with the preferences and purchasing behavior of high-CLV customers. Plan for seasonal fluctuations and adjust product assortment to meet the demand patterns of high-CLV customers. Analyze product bundling opportunities to increase average order value and encourage repeat purchases among high- CLV segments. Utilize CLV insights to prioritize inventory management efforts and allocate resources effectively. Use CLV insights to identify effective product combinations and packaging that resonate with high-CLV customers. How Can CLV Help? P A G E 1 4
P A G E 1 5 Evaluating Potential Investment Understanding the Health of the Company CORPORATE DEVELOPMENT Evaluate potential acquisitions based on customer base CLV to assess the potential value and profitability of the investment. Assess company value based on customer base CLV to gain insights into the overall financial strength and sustainability of the business. Identify partnership opportunities with complementary customer bases to leverage synergies and enhance the potential CLV of the investment. Evaluate the performance of business units and make strategic decisions based on higher CLV opportunities to optimize resource allocation and drive profitability. Evaluate the potential of entering new markets based on CLV to determine the growth prospects and market opportunities associated with the investment. Utilize customer base CLV as a key metric for raising funds or selling the company, showcasing the financial potential and value of the business to potential investors or acquirers. How Can CLV Help?
P A G E 1 6 Inventory Management and Fulfillment Distribution and Logistics Networks SUPPLY CHAIN Prioritize inventory management and fulfillment based on the demand patterns and purchasing behaviors of high- CLV customers. Optimize distribution and logistics networks to enhance the customer experience and meet the service expectations of high- CLV customers. Forecast demand and adjust production levels based on CLV insights to optimize inventory levels, improve lead times, reduce costs, reduce wastage, and enhance the overall customer experience. Analyze the impact of supply chain decisions on CLV metrics to identify areas for improvement and cost optimization. Collaborate with suppliers and logistics partners to ensure timely and efficient delivery of products to high-CLV customers. Leverage CLV insights to guide product assortment and assortment planning decisions, ensuring the availability of products that appeal to high-CLV customers. How Can CLV Help?
How Can We Calculate CLV? P A G E 1 7
P A G E 1 6 P R O S C O N S Control and ownership Highly sophisticated data science team required, which could take months and be expensive in terms of salaries First-hand knowledge of the business Customization required as publicly available resources do not provide access to cutting-edge techniques or industry best practices, making it difficult to achieve high accuracy Continuous improvement Model validation process can be very lengthy before gaining approval, leading to delays in driving business impact Strategic alignment Difficult to predict the CLV of early customers (often scored as low value due to the lack of transactional data) Difficult to translate the knowledge across departments with little prior implementation experience P A G E 1 8 Should We Build This Capability In- House? There are advantages to a company conducting its own CLV analysis, but the disadvantages often outweigh them — particularly if a company lacks in-house CLV modeling and implementation expertise. “Customer centricity is a strategy that aligns a company’s development and delivery of its products and services with the current and future needs of a select set of customers in order to maximize their long-term financial value to the firm.” P E T E R F A D E R T H E T A
P A G E 1 0 Cohort and individual-level scoring Historic and predictive scoring Multiple time horizons Accurate scoring of young customers with little transaction history Proprietary Predictive Models Best-in-class models in terms of accuracy and applicability, validated across 500+ engagements. We provide: Pace A project with Theta typically takes weeks instead of months, depending on scope, so you can drive immediate business Impact. Focus Our approach often goes beyond what internal teams can do – allowing them to focus on other priorities while we focus on your CLV vision. Change Management We can provide strategic or tactical workshops to help accelerate internal change and adoption of CLV as your North Star metric. Continuous Improvement Our team collaborates directly with internal teams and can provide the 'outside-in' thinking that helps the team learn and grow. Benchmarking Our experience with many other companies gives us benchmarking data for comparison. Scenario Simulations We account for seasonality and demand shocks across the analysis and provide a coded simulator for you to create and analyze what-if scenarios. Access to the Experts Access to world-renowned customer value experts that have supported CLV implementations in multiple industries Data Integration for Ongoing Analysis Theta will provide continuous actionable insight via our real-time API with built-in model revalidation. Presentation-ready Insights and Takeaways We will ensure you have presentation material ready for an executive-level audience, full of insights you can apply across your organization. Activation Additionally, the Theta team can create a CLV playbook with 25+ proven use cases to get the engines going Should We Work With Theta? Theta offers numerous advantages. Among them: P A G E 1 9
About Our Founders P A G E 2 0
Theta's founders are the go-to experts in CLV, customer-centricity, and customer- based corporate valuation (CBCV). PETER FADER CO-FOUNDER, DIRECTOR, THETA Pete is a professor of marketing at the Wharton School of the University of Pennsylvania. He is the author of three books and a recipient of many research and teaching awards. His expertise centers around the analysis of behavioral data to understand and forecast customer shopping/purchasing activities. Together with Dan McCarthy, he co-founded Zodiac, a predictive customer analytics firm, before it was acquired by Nike. DANIEL MCCARTHY CO-FOUNDER, DIRECTOR, THETA Dan is an assistant professor of marketing at Emory University’s Goizueta Business School. He is co-creator of the CBCV® methodology, along with Pete Fader, and has received numerous research awards for his work on the topic. He holds a PhD in statistics from the Wharton School of the University of Pennsylvania. Prior to his academic and entrepreneurial career, Dan worked for six years as lead research analyst at a value-oriented long/short hedge fund. P A G E 2 1
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