We have established in our previous blog that businesses should treat their best customers, their prized possessions like royalty. Not all customers can be kings for a business in the current economic scenario. In this blog, we will explore how to effectively differentiate the best from the rest using CLTV (Customer Life Time Value) and why it is important for brands.
Being a camel to survive the harsh realities of the global economy is now essential for all businesses. The key to crossing the COVID-19 chasm would involve persevering through the tough times by modulating growth and creating sustainable business processes.
Although short term planning is essential with businesses slowly going back to normal with lockdown restrictions being gradually eased, thinking long term now is more important than ever. Like camels, businesses are forced to steel themselves for tough times, so that they may grow exponentially when the time is right. The key to their success would be timing their growth and balancing it against costs and risks.
This can happen by implementing VRM (Velvet Rope Marketing) using CDP (Customer Data Platform), CLTV and BCG (Best Customer Genome). Coupled with Artificial Intelligence & Machine Learning (AI-ML) stacks to create continuously evolving and adapting processes for analyzing customer data at scale will help create ‘antifragile’ business models for the future.
Why is CLTV important for any marketer?
CLTV is the metric that indicates the total revenue a business can reasonably expect from a single customer account. It considers a customer’s revenue value, and compares that number to the company’s predicted customer lifespan. It helps identify best, next best & risky customers.
The four most important jobs for marketers today are:
- Identify the best customers
- Give them the velvet rope experience
- Acquire more customers like them
- Nudge next best customers to transition into best customers faster
Businesses can use CLTV to identify customers that are the most valuable to them. Ideally VRM should be done only to the top 20% of customers using CLTV. There are three themes around which marketing can be reorganized to drive profits based on the customer segments:
- VRM for the top 20% (Best Customers)
- Median customer marketing for the middle 30% (Next Best Customers)
- Long tail marketing for the bottom 50% (Test Customers)
Doing the math using CLTV data
Customer data is indeed the oil to a brand’s marketing engines powered by AI:
- Brands should collect customer data at every touchpoint and store it in a CDP
- Transaction data can be used to determine CLTV
- CLTV can then be used to segment customers and identify the best customers
- All the other data (behavioral, demographic) about customers can be used to build the BCG
BCG provides a distinctive digitally encoded representation of a customer. Using data from all customer touch points can help shape the BCG. It allows marketers to compare different customers, predict what a specific customer is likely to do next and create personalized experiences.
Transactional data coupled with recency frequency monetary value for customer segments can help derive CLTV. This helps determine the best customers for a business.
Not all customers are created equal. Hence the most profitable ones must be provided with an elevated experience during these unprecedented times.
Hard times call for hard choices. Weathering these unprecedented times can be simplified using a VRM approach. It’s simple to get started:
- Calculate CLTV based on transaction data for each of your customers
- Segment your customers into Best (top 20%), Next Best (next 30%) & Test (remaining 50%)
- Create your own VRM program to provide a differentiated experience to your best customers – using a combination of martech and adtech solutions
VRM needs to be centered around NBAM (Next Best Action Marketing) for best effect. NBAM is a customer-centric approach towards marketing addressing each customer with the marketing treatment most likely to generate the desired result i.e., better revenues. However, NBAM differs from other marketing approaches in two key respects:
- It is customer-oriented instead of being product-oriented
- It aims to approach each customer within the context of their unique behaviors, needs and preferences instead of assuming all customers (or large subsets of a customer base) to respond similarly
An effective way to implement VRM is through customer experience with your brand. Improving user experience on digital platforms is key to winning the hearts of your top customers. The latest Google search engine algorithm update also focuses on on-page user experience as a yardstick to rank websites.
With VRM, every brand gets to choose who among its loyal customers deserve the velvet rope treatment. It is also necessary to try to convert those good customers on the fence (next best) to become loyalists too.
Ready to learn more? Stay tuned for some industry-specific insights in our next blog. You can also reach out to us to discuss VRM for your brand.