Or the many ways that LTV will fail you
Allow me to start provocatively: Lifetime Value is not the all-powerful übermetric you’ve heard it is, and no such metric exists. There is simply no universal way to measure past and predicted successes generically.
Instead, it’s important for every business to investigate customer behavior along what I call the Loyalty Funnel — that part of the marketing funnel that angles toward the promised land: Customer Advocacy.
You are Now Entering the Customer Loyalty Funnel
When a customer makes their first purchase, they leave the sales funnel and enter the loyalty funnel. We can split where customers enter the loyalty funnel into two broad segments that themselves can break down further:
|Low-price first purchase||High-price point|
|Discount-buyers & gifters||Small basket of high price-point items|
|Small basket of low price-point items||Large basket of high price-point items|
|Large basket of low price-point items||Large basket of mixed price-points|
That might not look like a very tangible explanation, so I’ll use Casper’s business model as an example because it’s fairly straightforward.
Casper started with their mattress as the one thing. Every purchase was either a Small Basket or a Large Basket with a High Price-Point. But then they added pillows. And sheets and blankets. And nightlights and sleepwear and doggie beds and more.
The Loyalty Funnel strategy proposes that a customer who has “completed the set” is more valuable than the customer who spent the same amount of money (or even sometimes more) on a small grouping of the same products.
If you think about this concept in financial terms, LTV measures the size of an investment but not its diversification. Brands that don’t pay attention when their high-LTV customers over-allocate on one product will build a taller and taller pedestal to fall from when trends shift.
LTV is SKU-focused. Loyalty is relationship-focused.
Each business needs to define what customer loyalty uniquely looks like for them and strategize to encourage that behavior as soon as possible in the customer journey.
So if you’re a fitness club, you might have a goal of getting new members in the door eight or ten times in the first month. You might want them to set up a free personal training session in the first 30 or 60 days. Throughout the first year, you can identify the moments where you can celebrate victories with the customer and engage them to invest more and get the full value from your brand.
Two years ago, Everlane debuted The Uniform campaign where they built a coordinated outfit and played to a minimalist aesthetic and lifestyle. This is “complete the set” product diversification at its most straightforward. It’s not far off from Casper’s mission to be not a mattress company but a sleep brand.
One can imagine that Everlane simplified and amplified customer loyalty KPIs by focusing on drumming up interest in pieces of the uniform. If it lines up with the best possible business outcomes, this “complete the set” strategy provides a clear path to success.
Two years from now, maybe the buzz of The Uniform will have worn off, but a huge cohort of Everlane customers will have bought their t-shirts, jeans, jackets, shoes, and more in the meantime.
The likelihood of a customer switching between hip clothing brands is pretty near 100%. But if I’ve completed the set but then prefer another brand’s shirts, I might still be loyal to Everlane for pants or jackets for years to come.
How a CDP can power a loyalty strategy
Knowing your customers is the surest route to building strong brand affinity. Big flashy marketing campaigns might create buzz, but buzz can only get you so far. (And buzz can be quite expensive with difficult-to-quantify results.)
Just as enduring one-to-one relationships require small but regular touches rather than Big Annual Gestures, a customer relationship grows best with personalized upkeep. This is why loyalty benchmarks are so effective: When it’s working, there’s little guesswork on either side about the next step.
Let’s say we’re building our loyalty benchmarking strategy across three product categories. We’ve looked at the data and determined that customers who bought across all three of these categories go on to be the most loyal and among the most valuable.
We get three Mission: Loyalty cohorts. Those who came in on Category A, Category B, and Category C. If you’re a marketer, I’m sure you’re already getting blue-sky ideas about how to get these customers to the full buy-in point. (Could it be because the objective is so clear?)
Just because the end-point is clear doesn’t mean the path is. Your unique KPI requires a unique strategy, not some out-of-the-box marketing blast. Cookie-cutter strategies and tactics are for cookie-cutter KPIs, and as I hope we’ve established, the complex relationship between your brand and its customers cannot be quantified with purely generic success metrics.
The scary and exciting next step is to build the path, or paths.
Customer behavior is always shifting. That’s as uncontroversial a statement as one can make these days. So there really cannot be one long-term, consistent path to success, even if the metric for success never changes.
Picture building a road that leads to the peak of a mountain. We’ll call it KPI Mountain. You want to get as many people up that mountain as quickly and efficiently as possible. The adaptable marketer is the one who opts to build a network of one-lane roads over a single multi-lane highway. Just as Casper and Everlane’s product strategy involves a diverse-enough array of products at low- and high-price entry points, marketers need to meet customers where they are and guide them up the mountain.
If you’re going to be able to do this, you need to act fast. Something like COVID represents a monsoon that knocked out a lot of marketers’ well-trodden paths, but smaller shifts in customer behavior happen constantly.
This leads me to Readiness and Responsiveness as the two keys to great customer relationships.
Speed is not a virtue unto itself, but it does enable readiness (real-time data ingestion, dynamic content) and responsiveness (self-service segmentation, cross-channel orchestration, triggered messaging).
If you depend on a technical department to build segments, your customers will be too fast for you.
If you need deep support just to personalize messaging, your customers will be too fast for you.
If you’re unable to access the right data on your customers across all the places they’re interacting with your business, your customers will be too fast for you
Not everything that calls itself a CDP can do this, and with enough technical elbow grease, one might be able to pull it off with something that doesn’t call itself a CDP. The thing that matters is what are you empowered to do?
Every business is different, and every customer is unique. There will never be a generic all-powerful übermetric, but if you’re quick with the data and patient enough to find the value that your customers see in what you have to offer, you can uncover and influence the KPI that drives real growth for your brand.
If you want to know more about what a CDP is, what it does, and what outcomes a CDP could enable, click here for the Table of Contents page of our CDP Buyer’s Guide to see any area where you’d like to dig deeper.