Conversion Rate Is Dead. Long Live The CLTV

Matthew Kelleher | Chief Commercial Officer
One of the biggest quandaries in marketing is how to develop campaigns that keep up with the changing attitudes of clients and customers. Our classic behaviour as marketers is to build campaigns to convert on the first ask, focussing on call to actions (CTAs) and ‘the hard sell’. But this does not work for everyone, indeed it won’t work for the vast majority.
 
We are often driven to this way of working by the short term demands of businesses. The Monday morning commercial meeting is a typical example of this, where decisions are made to send comms to the entire customer base because weekend performance was down, irrespective of what the data and the analytics might be saying.
 
As I mentioned in a previous post, loyalty is not dead – but there is a need to make sure that the customers you retain add value over your entire relationship with them. For example, a supermarket may have two very different types of loyal customer who deliver different levels of value over time. The first is a student who buys a sandwich and crisps for their lunch and picks up a microwavable meal on their way home, spending around £7.50 five days a week. The other is a family who do a £300 ‘big shop’ every month to stock up on essentials.
 
Now, this is where it gets interesting. While the £300 is a bigger chunk of money right now (the student is actually spending £163-ish a month), is the family likely to be delivering better value to the supermarket over the total lifetime of the relationship? Arguably no because, as well as looking at your customers now, you need to think about how they will behave as they move through their own life. The family is fairly static, with a likelihood of their spending dropping off 18 years down the line as the kids leave home. But, if the student has £7.50 a day to splash out now, then they have massive potential value over time. As they move through their life, their future selves becoming employed high earners with initial high disposable income before also becoming part of a family, they could be big spenders, if the relationship established now leads to continued loyalty.
 
Therefore, when it comes to designing campaigns that encourage loyalty, customer lifetime value (or CLTV for short) is becoming one of the most important metrics to measure success.
 
By using CLTV as a key performance indicator (KPI), brands will naturally focus their campaigns on longer term activities that deepen relationships with, and revenue from, existing customers. Delivering improvements in CLTV involves delivering improvements in loyalty and customer experience, the three should, in my view, be inextricably linked. Maybe this is a way to ‘sell’ the longer term view to brands?
 
However, marketers have been slow on the uptake of CLTV. We recently found out in some research we conducted with Econsultancy that, even though 70% marketers agree that CLTV is a great KPI to use, only 1% are set up to use it in a mature way.
 
You can download and read the full report here.
 
This absolutely needs to change – or organisations risk being left behind by customers taking advantage of one off deals and never returning and thereby losing out to brands who do focus on the individual customer and CLTV. What is worse, we are potentially guilty of educating our customers to behave in this way.
 
If I haven’t managed to convince you on the benefits of CLTV,  by now, here are 5 reasons it’s top in my books:
 
  1. Relevance: CLTV is a KPI that resonates throughout a business, from marketing execs to the boardroom, it qualifies the impact of marketing on the bottom line.
  2. Builds meaningful relationships: CLTV forces a business to look beyond a single conversion or purchase and shift focus to a more customer-centric strategy that leads to a higher quality customer base
  3. Future-proofing: Rather than a narrow minded hard sell on a product, the focus moves to maximising the value of the customer in the long-term
  4. Focuses the campaign: By creating a better understanding about what constitutes a “good customer”, the target audience becomes more clear, making it easier to undertake activities that target more profitable future customers
  5. Long-term results: A CLTV focussed strategy will focus more on ‘nurturing’ activities, which in turn should lead to improvements in customer experience and loyalty.
I hope that piqued your interest. If you’d like to know more, I’ve even gone on camera to talk about the Econsultancy report and why you should make CLTV a core KPI. Just ignore my ugly mug!
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