Customer Lifetime Value (CLV) is responsible for prioritizing how a company spends on marketing. Here, the company must consider who to cater to, when it comes to their marketing: their high-value customers vs. their low-value customers.
In turn, their CLV models – whichever they use – are supposed to help the company make this optimization for their marketing endeavors, in the hopes for turning a profit.
Unfortunately, CLV can go wrong in many ways than one. And, when that happens, the marketing optimization would be almost for nothing. In other words, a poor execution of CLV can result in the following ways:
- Destroy customer value, as a whole
- Deoptimizes how much companies spend on marketing, AND
- Marketing money is spent on the wrong things
Therefore, CLV is important in any marketing endeavor, which is something that all marketers must never forget. CLV is more than just doing the math; it’s also about looking at the customers. Don’t let the metrics fool you! Just one misuse of CLV can send you into a pitfall – financial, reputable, etc.
So, how can you change this?
The good news is, there are 6 critical things to know about CLV, and how you can get around them. Read on!
6 Things You Should Know About Customer Lifetime Value
1. CLV Identifying Wrong Segments
Many marketers will mistakenly use CLV to identify high-value customers, instead of looking at the future potential of low-value customers. The trick is, if you market to low-value customers, chances are, you can convert them into high-value ones.
2. Viewing CLV As A Fixed Number
The truth is, CLV is NOT a fixed number. In fact, CLV is meant to increase whenever one of the following happens:
- When retention increases
- When you lower acquisition costs (or, cost to serve), OR
- When you beef up cross-selling
These factors make it so that CLV is not a fixed number, and not simply something that marketers can punch into their databases.
3. Not Knowing The Potential Of Low-Value Customers
High-value and low-value customers may be the same, when it comes to their consumer habits, which can either make or break marketing teams.
However, low-value customers are actually more valuable than high-value ones, because they hold a potential that high-value consumers lack: the first impression.
This powerful consumer behavior is what either drives or kills sales; whereas, high-value consumers already know what to expect from a brand. Therefore, it’s important for marketing teams to know the special difference between the two, and take aim at the right prospect.
4. Paying Too Much Attention To High-Value Consumers
As mentioned before, focusing on only the high-value consumers is a big mistake, because you’ll be missing out on what low-value groups can bring to sales and brand exposure.
While high-value consumers might be the most “loyal” of customers, low-value consumers act as “swing voters” – as in to determine whether your brand is reliable or not – which can lead to either success or failure.
In addition, why try to sell to customers who have already taken advantage of your products or services? If you try to sell them persistently, you may lose those customers altogether.
5. Not Fully Understanding “Brand” With CLV
While brand and CLV are similar to each other, brand loyalty is what drives CLV, not the other way around.
In fact, brand is actually a concept for CRM, which connects it to CLV, since spending on it influences CLV models.
Unfortunately, most marketing and commercial teams don’t see this connection, thus creating an unnecessary divide between the two.
6. Under-Valuing Low-Value Customers With CLV
Finally, deliberately making your low-value customers small is the wrong way to go. The truth is, when you have many more low-value customers than high-value ones, chances are, you’ll get more conversions.
So, don’t let the many low-value customers discourage you. Eventually, those many low-value customers can add up over time.
So, there’s no doubt that CLV can be detrimental to your marketing, if done poorly. However, when done right, CLV can serve you well.
While there’s nothing wrong with targeting high-value customers, don’t neglect your low-value ones. The ultimate goal is to speak to ALL of your customers, not cherry-pick the “high payers.”
Therefore, be sure to keep in mind these 6 things that can suck your marketing down the drain. And, we hope that you take your CLV models to the next level!
- What is Customer Lifetime Value and How is it Calculated?
- 5 Ways To Improve Interaction With Customers
- 6 Actionable Tips to Improve Your Customer Retention Percentage