Look back, move forward – how you can win with lifetime value this year
Retail brands are missing big opportunities to turn yesterday’s Christmas shoppers into tomorrow’s long-term loyalists. Jessica Weaver on lifetime value.
For many, the start of the year is a fresh start. The holidays are behind and we’re kicking off 2019 campaigns. The holiday season is always a time of massive marketing investment, pursuing quick revenue growth as consumers ramp up their spending. So much of the holiday hustle is pure acquisition: find a consumer who has displayed interest in a product, target them with ads, and complete the sale.
While the goal of the last three months of the year is often to get consumers to make a purchase as quickly as possible, that doesn’t mean those consumers should be forgotten once the calendar turns over. Short-term campaigns are often associated with short-term analysis, ignoring the fact that within the pool of Christmas acquisitions, there are very likely customers with the potential to become repeat buyers and brand loyalists.
As marketers face increased pressure around the accountability of their ad dollars, they need to constantly look out for customers with the potential for high lifetime value (LTV), as these customers can spend up to 67% more on later purchases than they did on their first. There is perhaps no better time to look around and identify which might be the best long-term prospects, given the glut of new customers in the big holiday push.
Traditionally, Q4 ROI tracking focuses on the short bursts of campaigns that happen throughout the quarter. This can include analysing the number of people who visited a store on Black Friday, or the sales generated by a five-day discount campaign. Very few return to their Q4 sales data in April or the following September to assess how much revenue those consumers generated after the initial purchase.
Bias towards the audience is part of the reason. Many brands run promotions that put them into the red when it comes to profit, with the feeling that consumers looking for the lowest price will continue to do so year after year. They can provide short-term gains, but there’s little incentive to chase them in the long-term.
An outsized focus on sales and optimising towards conversions also means that cost-per-acquisition (CPA) remains stubbornly high. Focusing on LTV will help marketers see that acquisition is only half of their mission, and that driving user retention is equally as important. Creating deeper user engagement increases average LTV, which may show brands that they can actually increase their CPA threshold.
For example, if a marketer can cultivate relationships to increase the average LTV from $5 per customer to $20, their threshold for CPA can theoretically increase from $4.99 to $19.99.
By revisiting and reanalysing the customers who made holiday purchases, brands may find that a segment of repeat buyers actually created a net-positive ROI, proving that the heavy holiday spending was worthwhile. They can then retarget these customers not long after the initial purchase, offering post-holiday discounts to boost LTV and potentially entice a customer to become a repeat buyer. Measuring these retargeting campaigns will further help the marketer understand the incrementally of their ad spending.
They may find that attracting just 10% more of these high lifetime value customers will deliver far more revenue than chasing one-time purchasers in the future. By analysing the patterns of these high lifetime value buyers, marketers can learn about the customer journey and the brand or media interactions that influenced the strong affinity for the product. They can then adjust their media plan to optimise based on LTV, at least as a secondary KPI, to drive long-term success throughout the year.
Another reason some brands aren’t looking closely at lifetime value is that it’s difficult to measure lifetime value because of the disparate systems that house the data. It’s not as straightforward as looking at simple purchase data. However, it’s not impossible, either. For most marketers, these consumers are already sitting in the brands’ CRM systems. It’s really a matter of getting the data out of different silos (including online and offline sales) and tying it together.
The benefits far outweigh the difficulty. Transparency is one of the biggest trends in marketing, with 90% of marketers trying to master their ability to track ROI on marketing spend, and 80% tracing incremental revenue from marketing activity, according to the US Association of National Advertisers. Measuring lifetime value is one clear way for marketers to use data to drive and justify their media decisions.
One way of thinking about customers acquired in Q4 is like new TV shows. TV networks spend a great deal of money financing shows before they ever air. With that upfront investment, they’re hesitant to cancel something if it fails to attract an audience right out of the gate – sometimes, it takes a little time for a story to find its legs.
The same can be true for customers. Yes, a big burst of spending and a high CPA got them in the door to make a purchase, and they may not immediately turn around a buy a product again in the next four to six weeks. But brands shouldn’t be so quick to disregard these buyers. By reexamining the data and monitoring the customer behaviour, certain trends and audience sets may emerge, creating opportunities to grow deeper relationships for longer-term value. Some direct-to-consumer brands are already following this path by using subscription models to turn new customers into frequent buyers, often with a discount baked in.
Not every holiday buyer will turn into a lifelong brand-advocate, but many marketers will find that they have a small pool of customers with potential for high lifetime value. By analysing these customers’ behaviours, marketers can discover which journeys and touch points work best for bringing in high LTV customers. This is especially important for seasonal campaigns, when the media and partners that deliver high LTV customers may differ from what works throughout the rest of the year. Understanding how these customers make purchase decisions at different points in the year helps marketers better cultivate ongoing relationships in the months to come. By starting now, after the end of Q4, marketers can set themselves up to win well into the new year, and beyond.
Jessica Weaver is Altitude product manager at Impact.