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Customer Lifetime Value

Building loyalty and driving revenue in the digital age in association with Sitecore

Customer Lifetime Value Building loyalty and driving revenue in the digital age in association with Sitecore

Published April 2014

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Contents 1. Executive Summary and Highlights ................................ 5 2. Foreword by Sitecore ....................................................... 8 2.1. 2.2.

About Sitecore ............................................................................. 9 About Econsultancy .................................................................... 9

3. Methodology and Sample .............................................. 10 3.1.

Acknowledgements .................................................................... 11

4. Defining, Identifying and Measuring Lifetime Customers ...................................................................... 12 4.1. 4.2.

Measuring customer lifetime value ........................................... 12 When is value not a value? .........................................................14

5. What Tactics and Strategies Improve CLV? .................. 16 5.1. 5.2. 5.3. 5.4. 5.5.

The loyalty paradox ....................................................................19 Pricing strategy ...........................................................................19 Targeting the influencers ...........................................................19 Opportunities ............................................................................ 20 Challenges .................................................................................. 22 5.5.1. 5.5.2. 5.5.3. 5.5.4.

Breaking the silos ................................................................... 22 Measurement ......................................................................... 25 CLV grows from CX, whatever the product ........................... 25 Understanding the digital customer ...................................... 26

6. Digital Action Plan ......................................................... 28 6.1. 6.2. 6.3. 6.4. 6.5. 6.6.

Personalisation .......................................................................... 29 Content ...................................................................................... 29 Advertising ................................................................................ 30 Social ........................................................................................... 31 Customer service and taking customer experience offline ...... 32 Transactional ............................................................................. 33

7. Benchmarking CLV by Sector ........................................ 35 7.1. 7.2. 7.3.

Automotive ................................................................................ 39 Charities, Government and NGOs ............................................ 40 Consumer Goods ....................................................................... 40

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7.4. 7.5. 7.6. 7.7. 7.8. 7.9. 7.10. 7.11. 7.12. 7.13.

Education ....................................................................................41 Financial Services ...................................................................... 42 Healthcare & Pharma ................................................................ 42 Manufacturing ........................................................................... 43 Professional Services ................................................................. 44 Retail .......................................................................................... 44 Technology, Media & Telecoms ................................................ 45 Travel & Leisure ........................................................................ 46 Utilities ...................................................................................... 47 Section summary ....................................................................... 47

8. Appendix 1: B2C vs B2B ................................................ 48 9. Appendix 2: Respondent Profiles .................................. 56

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1.

Executive Summary and Highlights The Customer Lifetime Value: Building Loyalty and Driving Revenue in the Digital Age report, published by Econsultancy in partnership with Sitecore, is based on a survey of marketers and interviews with senior executives across a range of business sectors. Customer lifetime value (CLV) is the total worth of a customer to a business over the entirety of the relationship. Executives universally agree that growing CLV is essential to the health of their organisation and a key success metric, as something related to but distinct from customer loyalty which is not as tangibly linked to revenue growth. The report outlines a number of trends that are hindering the ability of companies to measure and increase CLV, as well as seeking to understand specific issues and opportunities relating to a range of business sectors and across the worlds of both B2B and B2C. The research has found that:  An overwhelming 89% of company respondents and 96% of agencies believed that a great customer experience (CX) is a key requirement for driving brand loyalty, a central pillar of sustainable CLV. More than three quarters of company respondents (76%) either somewhat agreed (25%) or strongly agreed (51%) that customer lifetime value was an important concept for their organisation. Yet only 11% strongly agreed that they were able to measure it. Furthermore, only 6% of agencies strongly agreed that their clients had a handle on measurement.  There is an overriding belief that organisations simply aren’t set up to manage lifetime value with 35% of respondents saying that the siloed nature of their organisations and lack of coherent marketing is a key factor hindering their ability to increase CLV. Enhanced lifetime value is dependent on the integration of activities that straddle the digital and physical worlds.  Around a third of organisations (34%) felt that poor systems or lack of integration hindering CX was one of the most significant factors negatively impacting their ability to build CLV.

Proportion of companies agreeing with CLV-related statements

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A number of sectors have blamed low customer lifetime value and poor loyalty in the past on sector conditions or commoditised products but the research has shown that marketing has the potential to bust these myths by engendering great loyalty. Companies in sectors such as retail and charity, where ease of switching is high, still enjoyed a customer base that overall was more loyal than not. The reasons why these sectors enjoy better customer lifetime value are explored in Section 7. As the chart below shows, a single customer view (i.e. unified data), customer experience management tools, dedicated retention staff and more interaction between online and offline channels were revealed in the survey as the most effective tools for enhancing customer lifetime value (see Section 5).

Four most effective tools for enhancing CLV today

There is clearly more that companies can do to understand the different touch points within the customer lifecycle, with only 57% saying they understand the key physical touch points, and 55% saying they understand the key digital touch points. Encouragingly, improved customer experience (ultimately a combination of different touch points) is high on the executive agenda going forward, with 64% of company respondents and 58% of agency respondents focused on this as a priority, making it the most important strategy for increasing CLV in the future.

Four areas most likely to increase CLV in the future

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The report also has a focus on understanding where digital engagement can have the most positive impact on the customer lifecycle. To date, the ability to interact on a one-to-one level with customers has proven the most effective tactic. Integrating a personalised culture across the ‘omnichannel’ universe has been revealed as the future path to resolving CLV issues. When questioned on the success of specific methods or tools to enhance CLV, overarching business strategies such as the single customer view (32%) take precedence over tactical digital levers (see Section 6).  Areas of focus such as the tablet experience (15%), using social media (19%) or self-service tools (17%), are lower priority. Companies are noting that siloed strategies are ineffective in building strong CLV; however, most feel the need to focus on core channel competencies before managing multiple device interactions in more detail.  When asked to look to the future, executives’ opinions remain largely the same. Improved customer experience (64%) and better use of data (52%) are of far greater importance than more focus on digital channels (23%) or more focus on mobile channels (20%). This is reinforced in the comments made by executives interviewed in-depth for this report who stated, almost universally, that “the customer is channel-agnostic”. That said, the flexibility, opportunities for engagement and enhanced customer service that originate in the digital sphere and then bleed out across the whole organisation must be the point of departure for companies looking to enhance customer lifetime value. Examples such as KFC in Section 6 demonstrate how the overarching strategies revealed in this report can become a holistic and successful approach to enhancing customer lifetime value. One area where digital can excel is in the ability to personalise the experience, something which half the sample (50%) regard as a top priority for improving CLV in the future. Furthermore, after improvements in customer service (42%), personalised interactions (34%) is the option most likely to be selected by respondents as a top-three tactic or strategy for boosting CLV. The opportunities for personalising the customer experience are abundant, based on both explicit and implicit data. Consumers are increasingly savvy about the fact that their data is used to enhance interactions with them, so companies need to maximise these opportunities, where appropriate, for the sake of both their bottom line and their reputation.

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2.

Foreword by Sitecore Customer Lifetime Value (CLV) is an engrained principle for marketers across all sectors, with marketers continually asking the key questions – how can we measure CLV and what as a brand can we do to increase CLV? Before digital’s rise to prominence, brands protected their CLV by making sure they addressed the reasons customers leave their brand, through customer services resolving issues and customer retention teams encouraging consumers to stay. Using data, brands introduced initiatives such as loyalty programmes, and segmented their customer base to identify opportunities to up-sell and cross-sell. Without a meaningful single view of the customer, and the ability to actually market to an individual customer using the insight you have about them, some of these initiatives have resulted in mixed results for both the brand and the impact on the customer. The majority of customer interaction with a brand going forward will be via digital channels, which presents brands with new opportunities and challenges. CLV will not start post-purchase any more. As soon as a consumer interacts with a brand, long before purchase, the journey begins. Brands need to be aware of this entry point and every interaction thereafter, and start to join the dots, using the insight the consumer provides and delivering the best, most appropriate interaction at every stage. Whether it is a consumer’s first visit to your website, or a consumer advocating your brand on social or a long-term customer searching your website for product support, marketers can make a huge difference to CLV by just recognising the stage each consumer is at with their brand and focusing on how to maximise the opportunity every time. Customer experience platforms can deliver this granularity to recognise each consumer and optimise every interaction. A single platform can be used that brings all channels together, with all the customer insight and detail that a brand possesses to give a unique single customer view. The same single platform can then use this single customer view to manage the channels, and ensure every interaction is honed to the individual customer. This report shows that brands recognise the importance of delivering a great customer experience, but what needs to change is for brands to re-define the meaning of customer experience, to embrace every interaction with their brand. Providing this holistic experience is not just about technology, but also being able to work across departments, with marketing joined with operations, customer service, support and retention teams, to define and deliver together this new approach. If a customer feels their individual needs are being addressed, future needs anticipated, issues are resolved quickly and the brand delivers on its promise (whatever that may be), this is a recipe for building solid customer lifetime value. And as always, it’s an exciting time for brands. Digital marketing technology offers the power to deliver a personalised experience for millions of consumers every single time, and if customers get the best of a brand every time, surely that is the best a brand can hope to achieve. Shawn Cabral Marketing Director Sitecore UK

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2.1.

About Sitecore Sitecore is the global leader in customer experience management software. The company delivers highly relevant content and personalised digital experiences that delight audiences, build loyalty and drive revenue. With Sitecore’s experience platform, marketers can own the experience of every customer that engages with their brand, across every channel. More than 3,500 of the world’s leading brands – including American Express, Carnival Cruise Lines, easyJet and Heineken – trust Sitecore to help them deliver the meaningful interactions that win customers for life. For more information about Sitecore, visit www.sitecore.com.

2.2.

About Econsultancy Econsultancy’s mission is to help its customers achieve excellence in digital business, marketing and ecommerce through research, training and events. Founded in 1999, Econsultancy has offices in New York, London and Singapore. Econsultancy is used by over 600,000 professionals every month. Subscribers get access to research, market data, best practice guides, case studies and elearning – all focused on helping individuals and enterprises get better at digital. The subscription is supported by digital transformation services including digital capability programmes, training courses, skills assessments and audits. We train and develop thousands of professionals each year as well as running events and networking that bring the Econsultancy community together around the world. Subscribe to Econsultancy today to accelerate your journey to digital excellence. Call us to find out more:  New York: +1 212 971 0630  London: +44 207 269 1450  Singapore: +65 6809 2088

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3.

Methodology and Sample This is Econsultancy’s first Customer Lifetime Value: Building Customer Loyalty and Engagement in the Digital Age report, carried out in association with Sitecore. There were almost 900 respondents to our research request, which took the form of an online survey in October and November 2013. Respondents included both client-side (in-house) organisations and agencies, vendors or consultancies (supply-side). The findings are shown for client-side (i.e. ‘company respondents’) and supply-side (‘agency respondents’) separately. Information about the survey, including the link, was emailed to Econsultancy’s user base and promoted online via Twitter and other channels. The incentive for taking part was access to a free copy of this report just before its publication on the Econsultancy website. If you have any questions about the research, please email Econsultancy’s Research Director, Linus Gregoriadis ([email protected]). More than half (53%) of survey respondents work for client-side organisations, whilst 46% work for agencies, vendors or specialist consultancies. For more detailed profiling of respondents, see Appendix 2.

Figure 1: Which of the following best describes the company you work for?

Respondents: 885

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3.1.

Acknowledgements Econsultancy would like to thank the following people for their contributions to this report:  Anne Kirk, Global Transformation Director, Aviva  Ian Romanis, Head of Loyalty, British Airways  Tim Hunt, Director of Marketing, Guardian News & Media  Bruce Simpson, Senior Product Marketing Manager, Claranet  Andy Forbes, Head of Product, First Direct  Spokesperson (unattributable), First Utility  Hugo de Almeida, Brand Manager (Portugal) , Holmes Place  Emma Woods, Group Marketing Director, Merlin Entertainment  James Frost, Marketing Director, Nectar  Richard Stoppard, Senior Director Strategy & Shopper Marketing, Retail, Nokia  Conrad Taggart, Director of CRM and Customer Insight, Santander

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4.

Defining, Identifying and Measuring Lifetime Customers Increasing a customer’s lifetime value should essentially be the goal of any company. While acquiring a large customer base is encouraging because it demonstrates a clear demand for product, it is also deceptive when it comes to the health of that organisation. Certainly the adage that it costs less to retain a customer than acquire a new one generally holds true across all sectors. Nurturing customers and increasing their lifetime value is critical to a company’s survival. In many cases, it can be months (sometimes years in the case of yearly or less frequent purchases) before a new customer begins to deliver profitability for a business. On top of this, high customer lifetime value is desirable because it offsets the costs of further customer acquisition, providing sustainable growth. It goes without saying that not all customers are profitable. Beyond the obvious segments of ‘difficult customers’ whose tendency to return items or require high levels of aftercare, for example, are those including ‘deal hunters’ who absorb costly advertising only to engage when significant, margin-busting discounts are made. The ideal would be a customer who comes to the company after minimal marketing investment and who is happy to make repeat purchases as well as buy into brand extensions with little further interaction. In a business environment where few companies operate in a monopoly, the opportunity for consumer choice and price competition means this is rarely possible. The best option open to companies is to identify its customer segments by value and target each of them in the most effective, cost-efficient way.

4.1.

Measuring customer lifetime value Measuring a customer’s lifetime value is a difficult task of any company, largely because it is more art than science. CLV essentially boils down to the following formula: customer revenue minus the cost to acquire and then serve the customer. Certainly there exist a wide variety of models and formulae that will help marketers arrive at a definitive figure, but these largely depend on variables that are not just specific to a sector, but an organisation. One formula very much does not fit all. Rather than prescribing a definitive form of measuring CLV, it is perhaps more helpful to examine some of the more common approaches. Firstly, it is helpful to take a theoretical view of measuring the customer’s actual CLV and then use it to forecast predicted CLV. Below we have summarised other approaches to measuring customer lifetime value. Measuring actual CLV1: 1. Identify moments where value is created. 2. Bring customer records together to create a view of their journey (in more detail, this is also a single customer view (SCV)). 3. Measure profit at each point.

SnowPlow Analytics Ltd, February 2013, via SlideShare (http://www.slideshare.net/yalisassoon/customer-lifetime-value-16598692) 1

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4. Add together over the lifetime. Measuring predicted CLV: 1. Identify moments where value is created. 2. What is that value a function of? (Does it vary from customer to segment? If so, identify why.) 3. Identify why the customer moved from one moment to the next. Within this rather oversimplified theory, there are a number of approaches a company can take to model its customers’ lifetimes. A simple model such as the one above is much more useful in the case of multiple, frequent purchases of a similar type of product (for example downloads or regular online grocery shopping) where an easily accessible reserve of past purchase data is available. Marketers could also examine typical customer journeys, patterns of behaviour, frequency of visits to a digital property and the engagement value of these visits – to begin to predict future customer lifetime value.

What the experts say “Using a single view of a customer, marketers can attribute the actual or predicted CLV of an individual customer to help with their segmentation and targeting. Switching to measuring customer engagement with your marketing channels – what your customer actually does on your website for example, such as downloading content, booking a test-drive, will also help you to understand the CLV of an individual customer. And if you know a customer has a high CLV, you will manage them differently to an early stage customer where the value is yet to be built. Knowing the CLV of an individual customer you can then take decisions on the marketing investment you want to make with the customer – which marketing initiatives you want to run.” Lars Petersen, Head of Business Optimization Services, Sitecore For more complex purchases or less frequent ones, models that incorporate the behaviours of whole segments or historical marketing successes can be integrated.

Cohort analysis2 After defining a segment of the customer base, queries are run to determine what this segment spends in its first month. This process is repeated over a number of months to get an idea of how the customer’s behaviour changes. This can then be modelled against other customers coming on board and adapted to differing segment behaviour. However, cohort analysis is using historical data to inform the future and doesn’t take into account any major shifts within the sector, the business or the economy. Equally, a new company or one in a period of significant change cannot rely on cohort analysis to give an accurate prediction of how customers will behave in the future.

Voice of the marketer “Our measurement is based on joining up all the data points that we have. How a customer transacts with us, their record of flights and purchases. Including more information such as engagement through social media, it becomes more complicated to join the data up but we need that total view of the customer.” Ian Romanis, Head of Loyalty, British Airways

http://blog.custora.com/2012/02/customer-lifetime-value-techniques-why-you-need-to-be-careful-withcohort-analysis/ 2

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Affinity models3 Also known as lookalike models, these can create predictive algorithms that target customer profiles similar to ones you already know are profitable. One of Facebook’s latest customer acquisition tools for advertisers, Custom Audiences 4, builds on this premise.

Voice of the marketer “We know their sector and whether or not they are a retailer or manufacturer. It’s crude but relevant and an indicator of value. We take that and add in other factors so we know the ones with high performance and can spend time on them. Having a partnership with sales is very important from a marketing perspective.” Bruce Simpson, Senior Product Marketing Manager, Claranet Thus far, these models are largely based on mathematical modelling and formulae and yet it has already been stated that CLV measurement is as much an art as a science. To remove the margin of error that these two sample approaches bring, art is what is required.

Focus on the individual The methods above form the basis of further investigation to deliver more realistic CLV measurement. To find a truer model, the marketer needs to observe individual buying patterns rather than segments. By building a pattern of behaviour at an individual level, it will become clear what actions the company has taken that have influenced a purchase – or the lack of.

Voice of the marketer “Measurement accuracy is one that a lot of organisations get stuck in treacle on. Getting to an ‘accurate’ measure that everyone in the organisation buys into is massively difficult and can become a costly sticking point. You should be striving to get a metric that shows value but sometimes not having financial measures can let you focus on the profitability of transactions.” Anne Kirk, Global Transformation Director, Aviva

4.2.

When is value not a value? Frustratingly for brands, there is an increasingly powerful customer segment that is potentially of very low CLV but invaluable to the success of the company. Known as the Influencer, this customer may purchase very few times or purchase at the lower end of the product spectrum. They may be a heavy user of after-sales service, resulting in an overall net loss for the company in revenue terms. However, this customer is also a prolific advocate. Despite all of the above, they have been delighted by the brand (perhaps through their extensive use of aftersales) and belong to a small but significant group of people whose ability to spread the word and encourage their circle and beyond to purchase. Vocal customers aren’t typically measured as part of CLV despite the fact that more advocates will lower acquisition costs for new customers and thereby impact their CLV. It’s also important to have an advocate measure. The ability to put a monetary value on the impact of influencers has always been contentious. Most recently marketers have attempted to reconcile this through the Net Promoter Score.

3 4

http://www.nanigans.com/predictive-lifetime-value/ https://www.facebook.com/help/459892990722543/

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Launched by Bain & Company and Satmetrix in 2003 5, its simplicity has been the key to its popularity. However, critics also cite this as being its biggest failing, stating that rating a company on a scale from 0 to 10 is too basic to be an accurate predictor of company growth.

Voice of the marketer “Our definition of ‘value’ is broader than that. A reader who interacts with us, who provides information or perspective and embraces our ‘open’ approach to journalism is hugely valuable, even if we don’t have a transactional relationship with the person. We’re also very aware of the non-financial value of brand advocates, those people who love the Guardian and want to tell the world. We have done a lot of work understanding these brand advocates and how to maximise their impact and we have adopted an advocacy measure (NPS) as one of our core organisational KPIs.” Tim Hunt, Director of Marketing, Guardian News & Media With many advocates also heavy social media users, social media monitoring may be the next step in quantifying their impact on CLV. While customer lifetime value is unique not just to sector but to company, it is possible to identify a number of significant influencing factors possessed by each sector that must be addressed to maximise CLV. While some sectors display an above average customer inertia and therefore have to actively drive customers away, others have little impediment to brand switching, yet enjoy high levels of loyalty.

Voice of the marketer “Ideally, customer lifetime value has to be measured over multiple years. The benefit of being 11 years old is that we can look right back across that period to create profiles.” James Frost, Marketing Director, Nectar Using the results from Econsultancy’s exclusive industry survey across almost 900 companies and agencies, Section 7 will examine the characteristics of each sector and reveal the areas where strategies should be deployed to increase CLV.

5

http://www.1to1media.com/weblog/2013/11/qa_looking_beyond_net_promoter.html

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5.

What Tactics and Strategies Improve CLV? Brands recognise the importance of treating customers well. Survey respondents were asked to indicate what tactics and strategies they have found most effective for increasing CLV to date.

Company respondents Figure 2: What tactics and strategies has your organisation found most effective for increasing customer lifetime value (CLV) to date?

Respondents: 316 Note: Respondents could select up to three options.

Improvements in customer services followed by personalised interactions were the most important options at 42% and 34% respectively [Figure 2]. Agencies gave equal importance to both at 34% [Figure 3]. This is an important finding to digest because investing in customer services may prove to be the easier investment for brands, stopping customers leaving, therefore increasing retention and reducing acquisition costs.

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Agency respondents Figure 3: What tactics and strategies have your clients found most effective for increasing customer lifetime value (CLV) to date?

Respondents: 247 Note: Respondents could select up to three options.

That data is increasingly playing a central role in most companies’ CRM strategies is clear, both anecdotally and in the results of the survey. More than a quarter (26%) of company respondents attributed their success to date to a more effective use of data while customer segmentation came in at 24%. Agencies viewed these elements as slightly more important at 30% and 32% respectively. Analysis revealed some interesting differences between responses from B2B- and B2C-focused marketers. A breakdown of these responses is provided in Appendix 1, however we will highlight some of the key differences here. ‘Cross-selling / up-selling’ emerged as the second most effective tactic for increasing CLV for B2B respondents (after ‘improvements to customer services’). Two in five B2B respondents indicated that it’s one of the most effective tactics, compared to only a quarter of those in the B2C camp who rated it the sixth most effective tactic. Given the focus on customer service and personalisation, it is unsurprising that companies rate the single customer view as the most effective tool for enhanced customer lifetime value (32%) [Figure 4]. B2B respondents are significantly more likely to call out ‘ongoing customer dialogue’ as one of the most effective tools to enhance CLV (32% for B2B compared to 20% for B2C).

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Company respondents Figure 4: What are the most effective tools to enhance CLV today?

Respondents: 314 Note: Respondents could select up to three options.

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5.1.

The loyalty paradox One interesting disparity between agencies and brands was their views on loyalty programmes. Nearly a third of agency respondents stated that loyalty programmes were the most effective in increasing customer lifetime value, while only 18% of brand respondents felt similarly. With the majority of agencies completing the survey coming from digital, integrated or management consulting backgrounds, it is tempting to hypothesise that their view of loyalty programmes is mainly from a data mining perspective, while brands’ perceptions are more multifaceted. Interviews with brands heavily involved in loyalty schemes are more revelatory.

Voice of the marketer “A good example of non short-term ROI is making redemptions. In the short term that’s a cost to the company. But we clearly see correlations between redemptions and CLV. Redeeming points for the first time is critical in keeping consumers engaged. Until you get in the cycle of earn and spend you won’t try harder to go round that loop. In loyalty schemes, the first year or two of the programme is important to long-term value.” James Frost, Marketing Director, Nectar

5.2.

Pricing strategy With measurement of such concern to companies (see Figure 6) it would appear to be something of a contradiction that survey respondents were not more enamoured of pricing and subscription models as a way of increasing customer lifetime value. Though a stalwart strategy of the leisure industry (gym contracts) and telecommunications (fixed-term mobile and data contracts), only 15% and 12% of company respondents respectively looked to these tactics. Sage accountancy software is one company that realised the worth of pricing to increase customer lifetime value. Despite being a long established global company, it had no unified pricing structure or strategy in place for increases. In a December 2013 interview with Marketing Week 6, the company’s CMO, Amanda Jobbins, revealed that critical to securing strong year-on-year customer value was moving customers from one-off purchases to subscriptions: “The move to subscription is a huge opportunity because it changes the nature of our relationship with the customer and increases their lifetime value to us three-, four- or five-fold.” While fixed price may be appreciated in the B2B market, subscriptions have fallen out of favour in the consumer market with increased wariness around long smartphone contracts or year-long gym memberships. Much of the negative feeling is due to punitive charges many receive on breaking these contracts mid-term. Recent moves by regulators such as Ofcom support this by allowing users to break contracts if their terms and conditions change. It would seem that brands and their agencies are paying heed.

5.3.

Targeting the influencers According to The Influencer Marketing Revolution, between 7% and 15% of any company’s customer base is made up of ‘Everyday Influencers’. Calculating this group’s CLV may well deliver an unattractive sales figure (as investment in communications outweighs financial return to the 6

http://www.marketingweek.co.uk/strategies-and-tactics/first-impressions-how-to-introducemarketing/4008658.article Customer Lifetime Value: Building loyalty and driving revenue in the digital age

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brand). However, in terms of cost of influence, their lifetime value to the company may be far greater in what they generate through others. This paves the way for the introduction of engagement value as part of the predominantly sales-based CLV figure. Not only does this present another measurement challenge to marketers, but also a tactical one. Bearing in mind that this segment will generate a CPA like any other customer, how can it be measured, managed and translated into CLV? 7 Only a small segment of respondents to the Econsultancy survey noted that the use of product by influencers had enhanced customer lifetime value (13%). As it has clearly been seen to deliver value, albeit to a relatively small number of brands, the learning is that strategies that focus on word of mouth or Net Promoter Scores are still valuable but should only see proportionate investment in terms of time and money. This is particularly important with the continued emphasis placed on social media (itself identified as a useful tool to increase CLV by 19% of respondents), outweighing its actual returns in revenue terms. With only 14% strongly believing that social media extends customer lifetime value (see Figure 9 in Section 5.5.4), brands require more definitive evidence as to its contribution, such as the proposed engagement value mentioned above.

5.4.

Opportunities The emerging concept of ‘customer experience’ remains high on companies’ agendas as the biggest contributing factor to improved customer lifetime value in the future. However, within that concept, there are many strategies and tools that can deliver a ‘good experience’. Beyond experience, marketers identified the following as the tactics that will increase CLV in future:  Better use of data (52%)  Better customer insight (50%)  Increased personalisation (50%) These are interdependent with an improvement in one begetting a commensurate improvement in the other two. The reverse of course, also being true.

Voice of the marketer “We have a sophisticated customer profiling system, an extensive data-mining capability and propensity models for all our main products and services running alongside an extensive customer research programme.” Conrad Taggart, Director of CRM and Customer Insight, Santander Interestingly, one of the more traditional ways to increase customer lifetime value – through brand extensions – receives almost the least attention (11%, see Figure 5) indicating that companies feel that value in the future will be increased through wider engagement. That there is a clear shift in priorities is shown by results from Figure 2 where 29% of respondents attributed their current customer lifetime value success to cross-selling or up-selling. The limits of cross- and upselling were amusingly summed up in an internet meme that projected the logical conclusion of the three, four and eventually five-bladed razor. Eventually, the shaving company would have to offer something more than just another blade on the razor. 8

7 8

http://www.marketingweek.co.uk/customer-lifetime-value-goes-social/3013481.article http://russell.heistuman.com/2010/06/10/random-razor-rant-i-need-more-blades-in-my-razor/

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The migration from multichannel to omnichannel is reflected in the 34% of respondents who believe enhanced value will come from a better integration of the online and offline worlds but it is to be noted that 23% and 20% of respondents respectively say that they need to focus specifically on digital or mobile channels. B2B respondents are significantly more likely to say that ‘increased communication’ will increase lifetime value in the future (29% of B2B respondents compared to 17% of B2C). This may owe something to the rise of content marketing, which has been embraced as a discipline by many B2B organisations. Targeted sales campaigns are still regarded as important by 29% of respondents. However, it may be that those selecting increased personalisation also view this as targeting. It can be deduced from the results of the survey that much of this personalisation or targeting will be passive as only 20% of respondents felt that increasing communications would increase customer lifetime value in the future.

Company respondents Figure 5: What will increase customer lifetime value in the future?

Respondents: 291 Note: Respondents could select multiple options.

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5.5.

Challenges

5.5.1.

Breaking the silos Bringing together the research for this report happened in two distinct phases. While waiting for respondents to complete the survey, a number of company interviews were conducted (see methodology for details). Interestingly, a good deal more companies were contacted than responded to requests for interview. The single biggest reason for brands denying a request for interview was because the company couldn’t define who within the company should own customer lifetime value. When the survey results came in, the reason behind some major, FTSE 100 brands’ inability to comment on customer lifetime value became abundantly clear. When asked to indicate what is hampering their ability to increase CLV (Figure 6), the largest group of company respondents (35%) attributed it to a siloed organisation lacking a coherent approach to marketing.

Voice of the marketer “There are organisational issues. It can be very difficult if your role is to deliver direct mail or email campaigns around a certain ROI in this financial year. If those are your KPIs you’re going to be very focused on that campaign. For companies to embrace CLV they also have to have organisational maturity. There are people who can balance long and short term. There will be times you need to steer to the short term but it’s worrying when functions in different parts of the organisation can’t see long term.” James Frost, Marketing Director, Nectar While companies recognise the wide variety of on- and offline tools that will help them maximise customer lifetime value, there remains a significant organisational piece of work to be done to allow brands to achieve their potential. If it is asking too much to institute wholesale organisational change, there is a clear and pressing need inside each company for a customer lifetime value champion. Closely related to this is the lack of systems integration, with 41% of respondents noting that poor systems integration is hindering customer experience. B2C respondents are significantly more likely to say that poor systems or integration hindering customer experience are hampering their ability to increase CLV (41% of B2C compared to 26% of B2B). It is tempting to suggest that B2B organisations have simpler needs and easier systems to integrate, such as a plug-in CRM. However, this does not alter the fact that more than a quarter of B2B respondents feel their systems are not up to the task.

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Company respondents Figure 6: What is hampering your ability to increase CLV?

Respondents: 291 Note: Respondents could select up to three options.

Voice of the marketer “Where it tends to go wrong is where it’s not joined up on- and offline. Brands should be thinking about the experience as a whole across the channel. Customers don’t see the channels as separate.” Anne Kirk, Global Transformation Director, Aviva To deliver personalised content online through to informed interactions at customer contact centres and further through mobile marketing and transactional opportunities, data systems must be up to the task.

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Agency respondents Figure 7: What is typically hampering your clients’ ability to increase CLV?

Respondents: 221 Note: Respondents could select up to three options.

Voice of the marketer “The most effective tool for us is the Cloud Marketing Platform that allows us to connect CRM, social and content platforms with all the campaigns, allowing us to track and measure in real time how the consumers are responding. Online tools allow us to track what customers do online (content, apps/gadgets trackers...) and match with that with the offline activity in the clubs or events (geo reference).” Hugo de Almeida, Brand Manager (Portugal), Holmes Place Much has been written in the marketing press about the desire for the single customer view. Again, like wholesale organisational change, a true single customer view in many large, complex companies may be a pipe dream. However, there is a clear imperative to bring together customer data in as useful a way as possible to deliver the strategies outlined in Section 4.

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5.5.2.

Measurement The company’s inability to measure customer lifetime value was third in the top three concerns companies have about increasing CLV. As has been discussed in Section 4, there are a number of ways to use historical data to create projections of future customer behaviour. This can be added to the increasingly large volume of case studies on the tools and techniques other companies have used in the pursuit of enhanced CLV. Frustratingly for the metrics men, however, there is no single big, red button that will deliver a neat and scientific projection for the potential future worth of every customer. This does not mean that companies should abandon trying to measure value or indeed attempts to predict it. Instead, they must accept the potential for variation, manage their risk comfort level and pursue their CLV strategy with a test-and-learn philosophy. One of the most significant benefits of using digital triggers to enhance CLV is their scalability and flexibility. It is up to each organisation to move with equal agility.

5.5.3.

CLV grows from CX, whatever the product In Section 7 we postulate that CLV might be sector dependent as customers have differing levels of loyalty or switching inertia depending on the product. In the charity sector outright disloyalty was very rare even though more than three-quarters of respondents said their customers found it easy to switch brands. Equally, in consumer goods nearly 40% of companies said that their customers were averagely loyal and unlikely to switch even though most products in this sector are commodities and can be subject to strong price sensitivity. This resonates with the results from Figure 6, which shows that only 8% of companies feel enhanced CLV is hampered by their products being commodities. This is perhaps because, despite commoditisation, these products still have a customer experience that resonates, whether through product functionality or communications.

Voice of the marketer “Competitive pressure is our main concern. We all have our hands in the pockets of the same customers. We have to do it better and more effectively than our peers to succeed, hence why we are concentrating on our 123 current and credit cards, which both have considerably higher engagement and satisfaction scores than those available in the general market.” Conrad Taggart, Director of CRM and Customer Insight, Santander

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5.5.4.

Understanding the digital customer Critically, nearly a quarter of respondents (23%) identified a poor digital strategy as standing in the way of enhanced CLV. Furthermore, only 15% of company respondents strongly agreed that they understood the key digital touch points within the customer lifecycle, while 3% strongly agreed that they understood their customers’ ‘digital body language’. Indeed, 40% of those surveyed felt this was something they did not understand. To be able to engage meaningfully and personally with consumers online, companies are clearly going to have to work harder to understand how consumers interact in the digital space. In Section 6 we examine the digital triggers that are central to increasing customer lifetime value and how they are best used in relation to this digital body language.

Company respondents Figure 8: Please indicate the extent to which you agree or disagree with the following statements.

Respondents: 160

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Company respondents Figure 9: Please indicate the extent to which you agree or disagree with the following statements.

Respondents: 132

Brands’ attitudes to tackling customer lifetime value demonstrate the evolving nature of marketing as a whole. Survey responses echo wider findings across the industry that companies are moving towards a more omnichannel approach with the customer at the heart. As a result, data has become the central pillar around which all campaigns are built. Understanding the consumer, not just in terms of their product needs but also their online and offline behaviour is critical to establishing the relationships that brands see as critical to creating customer lifetime value. In Section 6 we will look at some of the major digital triggers that brands can deploy to capitalise on the survey’s findings. It shows how personalisation and targeting can enhance CLV through deepening customer relationships rather than trying to sell an even bigger razor.

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6.

Digital Action Plan Across Section 4 and Section 5, our research revealed the core strategies that brands need to deploy to enhance customer lifetime value. Having identified each sector’s major challenges for increasing CLV, the trends have been analysed to show what strategies are most appropriate to grow that value. These strategies fall loosely into three interacting channels (see Figure 10 below):  Communication  Engagement  Intelligence The survey determined that there are four major strategies to act upon:  Improved customer experience  Better use of data  Better customer insight  Increased personalisation Delivering these four strategies through the three channels outlined above will ultimately lead to enhanced customer lifetime value.

Figure 10: Managing customer engagement to enhance customer lifetime value

Source: Sitecore Customer Experience Platform9

http://www.sitecore.net/unitedkingdom/Resources/brochures/Sitecore-Customer-EngagementPlatform.aspx 9

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6.1.

Personalisation Customers with high CLV or potentially high CLV can be targeted through both implicit and explicit personalisation of the web experience. Consumers are no longer naive. They understand to a degree that their data is used to enhance companies’ interactions with them. They also notice when their data is not being used to maximise the potential in that interaction. A survey by YouGov of charitable donors in January 2013 noted that 17% of British consumers would donate up to £15 more per month if the charity provided a more personal approach via website or email. Specifically, this included remembering what content had been seen, the customer’s viewing preferences and charity campaigns of interest. However, Eduserv, which commissioned the survey, also noted that 72% of respondents were undecided about whether online engagement would encourage them to give long-term support to a charity – in other words, extended customer lifetimes. Eduserv’s explanation for this was “because nobody has got it right yet”10, but this is a rather wide generalisation with little evidence to support it. However, the 17% figure quoted above does put a strong case for personalisation’s role in increasing lifetime value so logic would dictate that a positive and personalised online experience would be a significant factor in converting at least a portion of the 72% of undecided respondents.

Voice of the marketer “The important thing is people have needs and desires rather than the way they want to be treated. We’ve confused the two. I want someone to understand my issue as an individual, I don’t want to be singled out and told I’m special.” Richard Stoppard, Senior Director Strategy & Shopper Marketing, Retail, Nokia

6.2.

Content Personalised content falls into many categories. Is it a question of personalised emails, co-created web content or automated engagement that uses customer data to adapt content specifically to the customer’s needs? Ultimately, to be successful, personalisation is a single conversation that builds over time, regardless of channel or marketing tactic and that brings all of the above strategies together, building CLV.

Voice of the marketer “When it comes to things like websites, we need to strike a good balance between tailoring and discovery. We can’t personalise at the expense of customer choice. We can make suggestions, but must allow people to discover.” James Frost, Marketing Director, Nectar However a brand decides to deliver personalised content, it must feel natural to the end consumer. The ability to integrate location and browsing history data into a responsive web content management system delivers relevancy and recency, two attributes more valued than hackneyed personal greetings.

10

http://www.eduserv.org.uk/insight/news/2013/01/Charities-must-improve-online-engagement

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Voice of the marketer “We’re doing a lot of thinking about behavioural economics in the world of life insurance. It’s not a category consumers love and want to engage with. How do we bring people in and take them on a journey? How do you present it in a way that looks different? We treat the segments differently with relevant offers, structured on the front page with relevant pieces and even different use of language on the site. This all flows right through to personal interactions in the call centre. That’s how we should be using the data.” Anne Kirk, Global Transformation Director, Aviva The growing use of ‘implicit personalisation’ where brands are able to use browsing activity and customer data to deliver relevant content improves upon what is often termed ‘the Amazon model’. This has proven very successful for Amazon and me-too retailers, however the system has revealed noted weaknesses. Not least the fact that many customers visit brands wearing many hats. A travel executive noted that serving product suggestions based on purchase history was naive as the customer may well have been booking for business, not reflecting their actual leisure travel desires at all. Dynamic personalisation changes personas based on the current site visit, recognising that consumers wear different hats per shopping occasion.

Voice of the marketer “It’s about relevance and personalisation. Take it outside the British Airways space in broader trends in society. Relevance of the information that brands send to customers and the ability to personalise and recognise those customers when they come back is really an important part of companies today.” Ian Romanis, Head of Loyalty, British Airways “Personalisation will be increasingly important. Nectar is working on trying to deliver more personal content through all marketing channels. The debate over the point of personalisation is not to show that you’ve remembered their name, it’s about saying all the things we could talk to customers about. We can put things in front of them that they’re interested in. That makes their life easier and that will make them respond more strongly.” James Frost, Marketing Director, Nectar

6.3.

Advertising Technology firms such as video production company Impossible Software and cloud video platform Eyeview allow brands such as Volvo and KFC to personalise web ad content on a one-toone level. The Volvo ad requires the customer to input their name into the pre-made generic ad on a microsite for the V40. This interaction sets off a chain of personalised mailings to the potential customer. The company believed the campaign was directly responsible for exceeding the company’s 700 unit sales target by the end of 2012 by 90%. 11 The campaign, created by Goldbach Interactive and Leo Burnett Switzerland, generated 15,000 clicks, driving 13,000 visitors to the landing page. A social media campaign saw 3,200 videos created and shared virally.

11

http://www.volvo-v40.ch/case/orbit.html

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Fast food chain KFC is also using personalisation in its ads, but these will be passive interactions as far as the consumer is concerned. Where the potential customer already had to demonstrate enough engagement with the Volvo brand to actively personalise their ad, KFC’s ads deliver personalised content automatically. Through a partnership between Specific Media and Eyeview 12, the company targeted customers by creating multiple real-time iterations. These include pricing, location, offers and additional messages based on customer behaviour and location. The ad also contains a map showing each viewer’s nearest KFC branch and messaging can be personalised even down to changes in the weather. One is a campaign using personalisation as a tool to draw in interested customers while the other ties personalisation to real-time targeting and increasing brand consideration. However, both are operating in an area of communications that has suffered from over-exposure. Online marketers struggle to stand out as most consumers ignore the ads that are served every time they surf the web. However personalisation has proven that ads still have a place alongside content and social.

Voice of the marketer “Personalisation in emails can be very effective, but you have to gain permission to call customers by their first name. At Pizza Express we had conversations with customers around their birthdays. Our creative put their name in pizza dough so it was charmingly done. But customers have to give us that information and permission.” Emma Woods, Group Marketing Director, Merlin Entertainment

6.4.

Social Engaging and communicating on a personal level has been the core learning of this report into enhancing customer lifetime value. Of the many marketing tools available to achieve this, none is perhaps more personal or engaging than social media. Brands have quickly risen to the challenge, instituting social media teams – many on 24-hour watch – to meet consumers head on. But a range of social media triumphs and disasters has led to healthy debate around the concept that, just because brands can communicate frequently, in real time and one to one, does this mean they should?

http://www.marketingweek.co.uk/sectors/food-and-drink/news/kfc-to-serve-personalised-onlinevideo-ads/4008957.article 12

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Voice of the marketer “All the listening tools are very important. Customers are recording how they feel on social media and that’s important in measuring guest satisfaction. You need to have the right complaint-answering services and KPIs built around how quickly you get back to customers.” Emma Woods, Group Marketing Director, Merlin Entertainment Companies have long since realised that spamming customers, in however friendly or personalised a fashion, wins few fans. This is magnified in the social media universe where its alternative moniker – earned media – gives a clue as to who is in charge of the conversation. Brands must earn their slice of the customer’s attention on social. Many brands will continue to interact in the wider social space, increasingly successfully as they become native speakers of the social vernacular – Oreo’s PR coup during the Super Bowl power outage was a serendipitous marketing moment but one wholly founded on savvy, strategic and skilled social marketers. Increasingly however, the concept of the branded community is gaining traction. It’s the same collaborative social environment, but one that acknowledges the brand’s influence and right to engage in dialogue. Again, this is a personal experience for consumers and there must be something in it for them. Whether it is entertaining lifestyle content, solution provision (DIY how-to guides for example or financial health checks) or a forum to find like-minded people, branded communities must continue to engage and deliver value for customers to return time and again.

6.5.

Customer service and taking customer experience offline Customer experience, both online and offline, is a critical component to supporting the brand’s communications activity. That the experience should meet the promise is a maxim that is immune to advances in technology.

Voice of the marketer “We have conversations with our annual pass holders. As a family the pass is a high investment and so our strategy is to give them news. Our research showed that the most important thing is to feel that they have inside knowledge. I will be leading a campaign that makes sure they have relevant news before everyone else does.” Emma Woods, Group Marketing Director, Merlin Entertainment Yet customer experience is often the piece that erodes any positives steps towards enhanced CLV. Whether it is a live chat agent that seems less well informed about the individual than the personalised ads or the human interaction that doesn’t deliver on brand values in the same way as the online avatar, to succeed good digital CLV tools must be matched by commensurate customer experience.

Voice of the marketer “Offline can certainly contribute to value and experience. We look at it in a total view as opposed to just in a digital space, making sure that front-line customer service from check-in to cabin crew have the data to provide a service. The ability to access information about customers that are on a flight, recognise and differentiate them is important.” Ian Romanis, Head of Loyalty, British Airways

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KFC uses digital ads to prompt desire alongside triggers such as location, speed, weather and personalised offers, so the impression of convenience and speed have to permeate through the rest of the brand’s customer interactions. To this end, the company tested a mobile click-and-collect app in the UK with a view to roll it out across 820 UK outlets in 2014. Noting the importance of marrying experience with digital’s communication potential, the company was reported as “working on improving the in-store execution so that customers do not have to wait when they arrive”.13 The mobile trial was reported as being part of the brand’s habitual 10% fund – the proportion of marketing budget the company allocates to experimenting with new channels.

Voice of the marketer “We’ve found that it’s important to embrace traditional channels as well as new ones. We’ve got a very broad customer base. Some like to engage online and use the app that gives many new triggers, but also our traditional customer base works best in an in-store environment. We still have a high proportion of our customer base who would prefer to be reached through direct mail.” James Frost, Marketing Director, Nectar

6.6.

Transactional While brands state that customer experience and improved customer service are of paramount importance in enhancing customer lifetime value, it is shocking to see the degree to which this philosophy is not carried through at the point of transacting. According to retargeting company Magiq, 60-70% is the industry average for basket abandonment. This may be due to a number of factors including product price, comparative offers or time constraints and there are many tactics such as personalised emails, web ads and even phone calls that can recover the basket. However the ideal would be not to have the customer drop the basket in the first place. The transaction has the ability to serve two purposes in enhancing customer lifetime value. As a hygiene factor, any brand that is able to streamline the process as much as possible while retaining a good sense of security will enhance the customer experience. Innovations in customer experience also transcend sectors. If a mobile banking app can deliver a swift, secure and simple transactional experience on the move, customers will inevitably exhibit rapidly diminishing satisfaction with low ticket retailers who insist on four pages of form-filling before completion. These experiences are also bleeding into the offline world as consumers expect a similar save-and-retrieve process for transaction details to be available in store and at counters.

Voice of the marketer “Transactional efficiency and digital plays in this space a lot and that’s how customers want to interact. That’s a baseline but that’s the stuff that causes them to be dissatisfied, so it has to be efficient. But that won’t make people loyal and attracted to the brand. We need to do much more that. We need to give them propositional benefits to show there’s an advantage staying with this brand, demonstrating brand affinity. John Lewis is the ultimate when playing in the brand affinity space.” Anne Kirk, Global Transformation Director, Aviva Consumers are aware that brands harvest their data to sell them more. In many cases, consumers see this as a reasonable quid pro quo for more efficient service, preferential treatment and an enjoyable experience. This tacit understanding has given the consumer high standards. 13

http://www.marketingweek.co.uk/news/kfc-trials-mobile-click-and-collect-service/4005803.article

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Voice of the marketer “Single customer view will help, but fundamentally if the company is not customer centric, the technology won’t replace the sensation that customer is important.” Emma Woods, Group Marketing Director, Merlin Entertainment Before long, the strategies and tools we have outlined above will no longer be part of the discussion about enhancing customer lifetime value. They will be brand hygiene factors, the bare minimum required to prevent switching.

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7.

Benchmarking CLV by Sector Customer lifetime value is not a universal truth. The ability to enhance it varies by sector, product type and purchase occasion. In some cases the only way to increase CLV is through upselling, in others encouraging advocacy rather than repeat purchase is the priority. In Section 5 we discussed the strategies and tools central to CLV success and what tools will become more prevalent in the future. In this section however, we have taken a deep dive into the brand results, analysing by sector to see whether sector type has any influence on customer lifetime value and whether their innate characteristics (for example, regulation or distress purchase) can be circumvented using CLV strategies to increase future value. This analysis has been based on three specific questions within the survey: 1. On a scale of 1 to 5, where 1 is ‘very disloyal’ and 5 is ‘very loyal’, how would you rate customer loyalty to your/your clients’ brands? 2. On a scale of 1 to 5, where 1 is ‘very easy to switch’ and 5 is ‘very difficult to switch’, how easy do your/your clients’ customers find it to move to a competitor? 3. On a scale of 1 to 5, where 1 is ‘very likely to switch’ and 5 is ‘very unlikely to switch’, how would you rate your/your clients’ average level of customer inertia? The charts below come with the caveat that sample sizes are relatively small. However, we do believe that there is good enough representation for us to be confident that they are indicative of the nuances in each particular vertical, and consistent with qualitative input we have received. Overall, respondents suggested that their customers were averagely loyal, with 42% of companies and 45% of agencies feeling that customers were neither particularly loyal nor disloyal [Figure 11]. However, customers were viewed as being significantly more likely to be more loyal than not, as 36% of companies and 32% of agencies viewed their customers as loyal compared to 11% of companies and 16% of agencies viewing consumers as disloyal. Comparing this response to question two (above) where companies were asked how easy customers found it to switch brands, the majority felt that their customers felt relatively free to move around the marketplace [Figure 12].

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Figure 11: Perceived customer loyalty

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Nearly three-quarters of companies and a similar proportion of agencies felt it was average to very easy to switch to competitors. However, 20% of companies noted that it was slightly difficult to switch to a competitor. As might be expected, these respondents came primarily from financial services, telecoms and professional services sectors where contracts and long-term relationships do indeed make it harder to switch.

Figure 12: Ease of switching

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Translating these results across to question three regarding the customer’s likelihood to switch, there was a relatively even spread across all categories and sectors with only a slight tendency towards inertia in manufacturing, technology and financial services [Figure 13]. Interestingly, retail is often classed as a highly price sensitive, disloyal and commoditised sector yet most respondents in this sector stated that their customers were neither likely nor unlikely to switch. With such a large ‘vanilla’ response in the middle, there is a clear opportunity to use CLV tools to move these customers into the unlikely to switch/very loyal bracket.

Figure 13: Propensity to switch

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7.1.

Automotive The automotive sector has to be one of the most challenging sectors in which to grow CLV. Customer demand is driven by technological advancements, public opinion, cost, life stage and fashion. Continued loyalty can be affected by a wide variety of factors, including quality of aftersales, perceived quality of vehicle, influence of friends and family and competitive pressure. Until recently, it was difficult for automotive brands (otherwise known as original equipment manufacturers or OEMs) to maintain a relationship with the customer once the vehicle had rolled off the forecourt. While many of the major manufacturers have extensive dealer networks, the impression remains that these are more expensive than local garages and all but the most dedicated of resellers (i.e. those who determine to buy new and then sell on before the warranty expires) seek other agents for ongoing servicing. The results of Econsultancy’s survey show that automotive brands are twice as likely to say that their customers find it very difficult (22%) than very easy to switch (11%), with only 11% believing it is neither particularly easy nor difficult. Additionally, only 11% felt automotive customers had the potential to be disloyal with most remaining neutral or slightly loyal (44% each). Interestingly, in the breakdown of respondents to this research, the OEM brands stated that their loyalty and switching propensity was largely neutral while reseller brands felt they enjoyed greater loyalty.

Switching triggers Financial incentives seem to be the key to inducing switching in consumers with many brands offering deals on fuel, insurance and warranties. For others, such as GM in the US, partnerships with retailers have helped seal the deal. A promotion through Costco14, the wholesale company, saw members receive a £500 credit and trade prices from October 2013 to 2 January 2014. As of the beginning of December 2013, the promotion saw 19,426 registrations and 51% had gone on to buy a GM vehicle. Forty-five percent of registrants had planned to buy non-GM brands including Ford (32%), Toyota (22%) and Honda (7%). The CPA to either Costco or GM of this project would be pure speculation. However, the survey the former conducted alongside the promotion revealed that 49% of buyers were newcomers to the GM brand. For Costco, the exercise is to gather data about members’ purchases and intentions. Reports suggest GM participated due to its recently declining share of the pickup market.

The CLV opportunity While automotive customers are open to a change of brand, it would seem that related brands with whom they have more regular contact enjoy the greater loyalty. Customers in the automotive sector are not volatile as a whole, nor are they given to extremes of behaviour. However, as they have an above average tendency towards switching, brands have noted that there is little in the way of roadblocks to prevent them doing so. To increase CLV, OEM brands should look to deepen engagement with customers and own the relationship both during vehicle ownership and at the point of resale. In the Costco example, the retailer’s challenge will be to use the data acquired to increase its knowledge of existing shopper behaviour while the OEM needs to capitalise on its sizeable new customer base. http://www.autonews.com/article/20131207/RETAIL/312099932/gm-wins-conquests-throughcostco#axzz2mv4fMeWj 14

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7.2.

Charities, Government and NGOs With seemingly endless demands for funds, the business of acquiring donors to charitable or administrative enterprises is costly. However, with dedicated fundraising teams largely focusing on either the subscription or legacy models, although the CPA is high, lifetime value is more easily assured. Unsurprisingly, this sector sees almost no activity in the area of disloyalty or propensity to switch, although 16% of respondents stated that it was easy to switch. Companies felt switching was very difficult in 25% of responses, perhaps due to the subscription or one-off payments mentioned above and a similar proportion felt consumers were very unlikely to switch, while a further 29% stated that their customers were quite unlikely to switch. Loyalty was highest at the neutral point. However, 36% and 21% of brands stated that customers were quite loyal and very loyal respectively.

Switching triggers While there are few triggers that will cause donors to abandon a charity, they may reduce their donations or fail to progress beyond a nominal monthly commitment. However, there are a number of tactics that charities should deploy in order to increase their CLV share (see Section 6).

The CLV opportunity With such a large number of customers situated at the neutral point of loyalty while the brands felt that half of their customers would be considered loyal or very loyal, there is ample opportunity to migrate the neutrals to much deeper engagement. However, even more brands felt that their customers had a neutral view of switching at this point so the threat from competitors has the potential to turn this opportunity into a negative. Affinity analysis would suggest that there is a pool of customers here that it is worth investing in to convert them to loyal customers before their revenue is diverted altogether.

7.3.

Consumer Goods Of all the sectors examined in this report, consumer goods and in particular fast-moving consumer goods (FMCG) have the most work to do to extend CLV. Operating in a market where there is an abundance of choice, innovation and price promotion both from brands themselves and retailers, retaining customer loyalty can pose a significant challenge. Added to this, the fact that many of these goods do not find a natural transactional home in the digital environment makes tracking purchase history and the acquisition of a single customer view difficult. That said, there are opportunities to create brand affinity and advocacy within such easilyswitched goods (36% of respondents stated that switching was very easy, while only 7% believed it to be very difficult). The research showed that despite market conditions creating the ultimate opportunity for fickle consumers, again the majority were seen to be neutral about consumer goods choice and 39% were deemed quite loyal although this also plummeted to 6% at the ‘very loyal’ point. In comparison, customers in this sector were more ‘loyal’ than those for charities (although the former fail to show any degree of passion in the ‘very loyal’ category).

Switching triggers As seen earlier in this report (Section 5), there are a number of tactics targeting consumer behaviour that can increase CLV, even in the highly commoditised consumer goods market. However, one of these tactics also poses a significant threat to lifetime value, in the form of ‘zombie’ or ‘cannibal’ products – too similar versions that do not add to the sum of the consumer’s

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total spend, simply diverting it into new product buckets. The outcome is that the company invests more in product development for negligible uptick in consumer spend. Tapping into the consumer’s desire to experiment with new products, the temptation to ‘keep it in the family’ leads to companies creating brand extensions that hopefully answer this need. Unless these extensions are planned to add value to the existing product line, at best they switch the customer away from the original product, simply displacing revenue elsewhere – at considerable R&D and CPA cost. At worst, the customer has a negative experience of the second product and switches away from the parent brand altogether. A study released by TNS in November 2013 15 noted that such zombies or cannibals wasted around £600m a year in research and development of 3,600 new products alone, before considering addon marketing costs. In particular, TNS noted two contrasting product launches from 2012: Pringles Xtreme which generated strong sales, but most of it diverted away from the core Pringles range, while McCain’s Jackets – quoted as one of the most successful launches of 2012 – delivered significant sales that were highly incremental to the existing franchise.

The CLV opportunity Brands see little in the way of impediment to customers switching and acknowledge that there is a strong likelihood that they could switch. That said, the large number of consumers that brands believe have neutral loyalty gives a great deal of scope to move them into the loyal category and to migrate loyal customers towards becoming very loyal. Doing so would inevitably increase lifetime value for the majority of consumer goods customers. That consumer goods do not have a natural transactional home online should not preclude their ability to generate CLV there. Many of these goods play an essential, but background role in daily lives. From bleach to cooking oil, they are central to comfortable lifestyles. There is an opportunity to deliver content that is lifestyle enhancing while also building consumer goods brands.

7.4.

Education It is unsurprising that education shows zero extremes of disloyalty or propensity to switch. Many courses are chosen based on the aptitude of the consumer rather than the brand of the provider, although there are clear brand leaders that many would aspire to use. However, education tends to be a single-use product, albeit over a period of time, so the CLV opportunity is less clear than in consumer or even B2B goods and services.

Switching triggers Despite the strong loyalty indicators coming out of the survey, education brands believe that it is relatively easy for consumers to switch (33%) despite the impression that few are likely to do so (13%). This may be because the lost opportunity cost from switching away from an education brand is less quantifiable in financial terms and more emotional insofar as a switch risks the loss of a skill or qualification.

The CLV opportunity High loyalty notwithstanding, there is far greater competition than ever before for education brands. Freely available information on the internet is one threat, while increased fees for university places is turning students into consumers who compare and contrast benefits and service provision. In education it is difficult to convince the existing consumer to acquire more of the product or purchase for longer. Advocacy is critical to brand strength and future customer 15

http://www.tnsglobal.com/press-release/zombie-and-cannibal-products-killing-consumer-brands

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acquisition, but there must be a strong case for digital personalisation. Identifying a student’s needs early on through the digital channel would increase conversion, while the ability to deliver a strong customer experience as well as develop an emotional bond with consumers is essential to increasing customer lifetime value.

7.5.

Financial Services Switching triggers According to data from Beehive Research, published by Marketing Week 16, 40% of insurance customers prefer to choose a provider with a loyalty offer, while 26% would go for a new customer deal and 34% have no preference. The same research found that a large proportion (45%) of car insurance customers have switched provider five or more times with only 15% having only ever had one provider.

Voice of the marketer “We judge value through engagement with the brand. That means high balances, transactions, crossholdings, recent purchases and breadth and depth of channel usage. We have found that this corresponds with loyalty and future purchases, including share of wallet and closures. The more the customer is engaged with the brand, the more they buy and the less likely they are to close their accounts. We do have a degree of switching inertia, but the new current account switching service should help address this for current accounts.” Conrad Taggart, Director of CRM and Customer Insight, Santander

The CLV opportunity Despite acknowledging that it is relatively difficult to switch to a new provider in financial services, customers (particularly in the insurance markets) are still keen to move on. Many financial products are in some way a distress purchase and the consumer’s first instinct is to acquire coverage for as little outlay as possible. To prevent switching and increase lifetime value, financial services brands must find ways to add value to consumers’ lives as well as generate trust. Often annual purchases or less, CLV can only be increased by finding ways to increase the customer interaction rate.

7.6.

Healthcare & Pharma High healthcare costs in the UK, government initiatives to encourage individuals to take control of their own health issues as far as is reasonable and a degree of personal vanity have led to a booming consumer healthcare industry. From health clubs and gyms to quasi-medical home technology such as laser therapy machines, supplements and ‘neutraceuticals’, and DIY health monitoring – consumers are increasingly reliant on brands to be not just the arbiters of taste but critical care consultants. Digital is feeding this demand as consumers can quickly research and find new products or treatments online.

Switching triggers In our survey, the majority of respondents were from the healthcare services arena rather than the medication segment. However, both segments enjoy several similarities and opportunities when it comes to brand switching and customer lifetime value. Healthcare is viewed by the consumer as either a distress purchase (curing a negative pathology) or a lifestyle opportunity (wellness, fitness and aesthetics). However, in neither case does the

16

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consumer appear to be particularly price sensitive, despite products in both segments available at a range of price points. The survey demonstrates that healthcare brands have a uniform spread of very loyal to very disloyal customers (although the sample size in this segment of respondents is low). Despite the specificity of some providers’ healthcare solutions, overall the industry seems to feel that it is both moderately easy to switch and that consumers are neither particularly likely nor unlikely to switch brands. In her white paper Emotional Branding in the Pharmaceutical Industry17, Brandchannel’s Preeti Suchanti notes that the switch in many drugs from prescription to over the counter is making them similar to consumer goods. Brands also suffer from competitive disadvantage when their product or service is no longer in patent, or when generic brands are able to compete at much lower prices (for example, Nurofen Ibuprofen is available at between £2 and £3, while generic tablets at the same concentration and effectiveness can be bought in the chemist much more cheaply).

The CLV opportunity Healthcare brands have the opportunity to generate significant lifetime value not only with a single customer but their extended family and friend network. The core element is trust. Once a brand is trusted to deliver results the ‘patient’ has a close emotional bond with that brand. Other, cheaper products may be available, but the trust the consumer puts in the brand is paramount. Suchanti noted in her Benadryl case study that the company’s advertising focuses on the elements of fast acting and constant protection (‘special forces’ characters continued to monitor the sufferer even when symptoms had dispersed as a result of taking the medicine, appealing to a strong need for protection and reassurance from pharma brands). This enhances loyalty between seasons as well as removing reliance on functionality which can be replicated and even surpassed by competitors. As seen in Section 5, ensuring emotional resonance and brand trust is viewed as a central component for enhancing customer lifetime value.

7.7.

Manufacturing Economic recovery means the manufacturing sector is enjoying a healthier outlook than it has for some time. But the industry is also evolving, with concepts such as mass customisation gaining traction.

Switching triggers The survey results showed that only 6% of respondents felt that loyalty was quite low, the majority claiming to enjoy a reasonable degree of loyalty along with a general reluctance to switch providers. This may partially be due to the 44% of respondents who felt that it was difficult for customers to change manufacturers. However, a fifth (19%) felt their customers were very unlikely to want to switch.

The CLV opportunity A McKinsey Global Institute report on manufacturing noted that established markets would be expected to fragment as consumers ask for greater product variety. 18 This means manufacturers will have to engage more with data and analytics to understand customer needs and maintain a

17 18

http://www.brandchannel.com/papers_review.asp?sp_id=1217 http://spotfire.tibco.com/blog/?p=17593

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sufficient level of R&D to meet those needs. The report noted that the influence of so-called ‘social technologies’ (web and social media) could provide “margin improvements of 2-6.5 percentage points in CPG, semiconductors, automotive and aerospace”.19

7.8.

Professional Services One of the few sectors to move outside the wide middle bracket, professional services shows a distinct leaning towards customer loyalty and not much propensity to switch. That said, respondents admitted that it wasn’t particularly easy for customers to switch brands either, although only 4% suggested it was very difficult.

Switching triggers The reason for the increased loyalty and lack of switching in professional services is largely due to the fact that it is a highly personal industry overall. The level of human one-to-one interaction, often in person, is high. Close relationships are formed between provider and client. Beyond the often long-term contractual obligation (year-long accountancy service for example), the relationship is hard to break. Even if there is a slight level of dissatisfaction, the uncertainty surrounding the relative compatibility of another provider is enough to prevent switching.

The CLV opportunity The learnings from the professional services sector can be applied across all sectors when considering enhancing CLV. The one-to-one, personal relationships are what generate loyalty, inertia and advocacy. If other brands are able to create a personal bond with their customers, switching will decrease and CLV will grow.

Voice of the marketer “The difference between B2C and B2B is the feeling of long-term partnership, working strategically together. It’s a more personal relationship. The question for us is how we use online to complement one-to-one experience in person.” Bruce Simpson, Senior Product Marketing Manager, Claranet

7.9.

Retail As has been alluded to at the start of this section, retail largely occupies a rather ‘middle of the road’ position with customers neither especially loyal or disloyal or incredibly mobile despite the relative ease with which they can move to a competitor.

Switching triggers So-called loyalty schemes are common across the retail sector, but their usefulness in generating feelings of loyalty to a particular brand is debatable. A survey from Plastic Card Services 20 in August 2013 suggested that two-thirds of consumers feel ‘a greater sense of loyalty’ to those brands they hold cards for. However, the research did not indicate how this had translated into increased revenues for the store owners. In 2012, £220m loyalty points went unredeemed (down from £351m in 2011) and 5% of holders (2.24m customers) never redeem any points. Ninety percent of UK adults own at least one store card while the average number held is four.

19 20

http://spotfire.tibco.com/blog/?p=17593 http://www.thewisemarketer.com/news/read.asp?lc=o66605nx4045zi

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For those that use their cards, discounts or cashback are the two most popular benefits, indicating that retail consumers are still price/promotion sensitive. This would suggest that price can still be a switching trigger for retailers and something they need to combat to increase overall value.

The CLV opportunity Such a middle of the road response to the survey would indicate that consumers have little emotional connection with retail brands. This is something that can be targeted to enhance CLV using the strategies and tools outlined in Section 5. There is no specific negative challenge to overcome; rather it is a question of turning users into advocates and deepening emotional engagement. The importance of personalisation in retail was highlighted at the start of 2014, when Morrisons CEO Dalton Philips, blamed poor 2013 Christmas sales figures on the retailer’s “lack of capability to tailor offers”21. He said this was one of the reasons it did not see the seasonal uplift in footfall that usually occurs. He said: “We have 12 million customers and we need to be able to communicate with them more effectively. Consumers today expect that they can talk to you more directly and that you can personalise specific offers to them and that’s what we are working on and will be trialling in the coming weeks and months.” Meanwhile Tesco CEO Philip Clarke told Marketing Week that the Clubcard loyalty scheme helped the supermarket “work a bit harder” than its rivals by being “absolutely targeted to consumers”. Sainsbury’s also praised its own Nectar loyalty programme as a “key part” of its success over Christmas, with customers redeeming £120m worth of points at the supermarket over the festive period, up 9% on the previous year.

7.10.

Technology, Media & Telecoms The technology market is exceptionally fast-moving and while brands such as Apple can command passionate loyalty, the constant evolution is both a significant temptation for consumers as well as an opportunity to enhance CLV for companies.

Switching triggers A little over 10% of technology consumers were felt to be disloyal, which is surprising given the high turnover of devices and frequent innovation in the sector. However, the largest number of respondents also believed their consumers to be ambivalent towards brands, with 44% finding consumers neither loyal nor disloyal. Around a quarter (26%) believed their customers would find it difficult or very difficult to switch, indicating that loyalty may not be due to a lack of consumer will.

The CLV opportunity Alongside it not being very easy to switch, brands felt their customers were not emotionally engaged, indicating that consumers are with technology brands not through specific brand preference but through either a lack of viable alternative or are tied into the brand in some way (such as through contracts or compatibility issues). That said, across sectors, technology is increasingly viewed as one of the most loyalty-inspiring. This is, according to the New York Times22, not because of the emotional engagement the http://www.marketingweek.co.uk/brands/morrisons/morrisons-to-introduce-new-loyaltyscheme/4009056.article 21

http://mediadecoder.blogs.nytimes.com/2012/10/23/technology-turns-brand-loyalty-list-topsyturvy/?_r=0 22

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consumer has with the brands per se, but their ability to facilitate a sense of connection. Enhancing customer lifetime value in this sector is not about product loyalty but the holistic customer experience.

Voice of the marketer “In our industry it is essential that the conversations we have with customers help them to explore the devices to the best of their capability and get as much out of it as possible. Specific individual needs cannot be addressed en masse.” Richard Stoppard, Senior Director Strategy & Shopper Marketing, Retail, Nokia

7.11.

Travel & Leisure That travel and leisure customers are viewed as more disloyal than loyal is not necessarily a commentary on the brand-building abilities of the companies in this sector. Indeed, the research shows that customers once again are neither likely nor unlikely to switch brands, revealing a CLV growth opportunity. What the loyalty index reveals is that customers are largely focused on the output of the travel brand, rather than the brand itself. In this case, they are destination-focused, with the travel company being the commodity that gets them there.

Switching triggers While presumed to be largely disloyal, travel customers are not considered prone to switching even though the industry believes it is neither easy nor difficult to do so. Price is a significant driver of switching however, as potentially the largest purchase consumers make all year there is a drive for value for money23.

The CLV opportunity Travel and leisure brands are ideally placed to collect and deploy a wide range of consumer data in order to increase loyalty and brand consideration. However, this is one area where purchase history is not necessarily indicative of intent. A good relationship with a travel brand may encourage the consumer to buy travel for different purposes, but there is a risk in following an Amazon-type approach. Enhancing CLV in travel and leisure comes from addressing the customer’s broader lifestyle dreams and aspirations rather than focusing on price sensitivity and purchase history. Being seen as a brand that can be dynamic and accommodate needs quickly goes a long way.

23

http://www.marketingweek.co.uk/analysis/data-strategy/the-future-of-loyalty/4007510.article

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Voice of the marketer “All the normal competitive challenges that you would expect in the airline industry are challenges to longerterm loyalty. You must make sure you deepen your relationships with customers and have that relationship with the brand. We need to look at the emotional brand and how to grow and reinforce that.” Ian Romanis, Head of Loyalty, British Airways

7.12.

Utilities Industry studies suggest that customers are very unlikely to switch, even if their feelings of loyalty are not that strong (note recent consternation regarding fuel price rises across the board). According to Beehive24, the majority of electricity and gas customers have never switched or have only switched once, while dual fuel customers switch on average every five years.

Voice of the marketer “Utilities in general are in trouble. People are struggling to understand what the value to them is against the amount they pay. The lack of transparency and confused internal business modelling – all the consumer sees is an increasing price. There needs to be clarity about what they’re getting in return. If I were in that space I would look at transparent pricing models.” Richard Stoppard, Senior Director Strategy & Shopper Marketing, Retail, Nokia A spokesman for First Utility insisted that the company positively promotes the idea of switching as well as competitors’ tariffs in the hope that the customer will firstly notice that First Utility remains the most attractive option and secondly, build trust in the brand thanks to its openness and clarity in an industry notorious for its consumer-unfriendly obfuscation.

7.13.

Section summary Some sectors examined in this report have CLV challenges that are very specific to them such as education’s need to turn clients into advocates and adapt to changing consumer attitudes to institutions. Others, while niche or B2B sectors themselves, have clear learnings for marketers as a whole. That professional services enjoys high loyalty and low switching is largely due to the personal, one-to-one nature of client/company interaction. As seen from further report findings in Section 5, personalisation is at the core of enhancing customer lifetime value and Section 6 went further on to demonstrate some of the digital triggers that companies can use to grow it.

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8.

Appendix 1: B2C vs B2B Figure 14: How long, on average, does a customer stay with your brand?

B2C respondents: 157 B2B respondents: 65

Figure 15: On a scale of 1 to 5, where 1 is ‘very likely to switch’ and 5 is ‘very unlikely to switch’, how would you rate your average level of customer inertia?

B2C respondents: 157 B2B respondents: 65

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Figure 16: On a scale of 1 to 5, where 1 is ‘very easy to switch’ and 5 is ‘very difficult to switch’, how easy do your customers find it to move to a competitor?

B2C respondents: 157 B2B respondents: 65

Figure 17: On a scale of 1 to 5, where 1 is ‘very disloyal’ and 5 is ‘very loyal’, how would you rate customer loyalty to your brand?

B2C respondents: 157 B2B respondents: 65

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Figure 18: What tactics and strategies has your organisation found most effective for increasing customer lifetime value (CLV) to date?

B2C respondents: 157 B2B respondents: 65 Note: Respondents could select up to three options.

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Figure 19: What are the most effective tools to enhance CLV today?

B2C respondents: 157 B2B respondents: 65 Note: Respondents could select up to three options.

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Figure 20: What is most positively influencing your CLV today?

B2C respondents: 157 B2B respondents: 65 Note: Respondents could select up to three options.

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Figure 21: What will increase customer lifetime value in the future?

B2C respondents: 157 B2B respondents: 65 Note: Respondents could select multiple options.

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Figure 22: What is hampering your ability to increase CLV?

B2C respondents: 157 B2B respondents: 65 Note: Respondents could select up to three options.

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Figure 23: How do you rate your organisation’s ability to measure customer lifetime value?

B2C respondents: 157 B2B respondents: 65

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9.

Appendix 2: Respondent Profiles Figure 24: In which country / region are you based?

Respondents: 509

Figure 25: What is your annual company turnover?

Respondents: 502

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Company respondents Figure 26: In which business sector is your organisation?

Respondents: 469

Company respondents Figure 27: In what function of the business do you work?

Respondents: 290

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Company respondents Figure 28: What best describes your position within your organisation?

Respondents: 289

Agency respondents Figure 29: What type of company do you work for?

Respondents: 217

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