Mar
21
2014

Customer Lifetime Value part 2 — seven steps from concept to reality

In my last post, I looked at how Lifetime Value (LTV) is spreading through the marketing mix, both as a more effective way of engaging customers over the long term AND a driver for fundamental cultural change — placing these customers at the heart of marketing strategies.

The reality of building and using LTV models
LTV models have the ability to transform marketing strategies, but care needs to be taken in the ways that they are implemented and run. Whilst the concept is relatively simple, the reality of building and using LTV models demands effective management and control.

Test and learn
It’s crucial that every LTV programme includes a managed test and learn process to evaluate the impact of changes in customer management or campaign tactics. Testing and learning also needs to extend beyond implementation, as the LTV model should be refreshed continually and recalibrated to ensure that it keeps pace with rapidly changing conditions — not least customer behaviours and preferences.

Seven steps
There are many factors to consider when building an LTV model capability and here are seven that I take many of my clients through as we work together towards successful implementation:

  1. First and foremost, we have to define value. Unless we understand what value is, we can’t set about generating it. Many LTV projects fall at this first hurdle, with no clear (or changing) definitions of what makes up customer value.
  2. In building a comprehensive set of requirements and rules that define value, ensure that all relevant parties across the business (such as Finance) are involved and have bought in to them.
  3. Data quality is critical. The more, and more accurate, data we can plug into the LTV model, the less we’re dependent on possibly flawed assumptions and guesswork.
  4. Start small and work your way up. By beginning at a simpler level, we speed the process up, reduce costs (and risks) and it allows us to extrapolate scale and potential variance for the bigger project.
  5. Another benefit of keeping it simple is that we can identify and realise quick wins, showing stakeholders the benefits and demonstrating ROI from the outset.
  6. It’s important to remember, however, that the leap from small and simple to large and complex demands deep understanding of your customers, including advanced analytical work that allows us to predict re-purchase, frequency of re-purchase, value and length of time a customer will stay.
  7. Once completed, the LTV model should be grouped together by customer type (customer segments, RFV segments, acquisition channel, etc).

It’s a journey, but one that every successful business will have to make. It’s a question of ‘when’, not ‘if’. And those businesses that are first to understand, attract, develop and retain their greatest assets — their customers — will be the first to achieve lasting competitive advantage.

Contact us to find out more about LTV models or marketing data analytics

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