To Optimize Revenue Growth, Tune in to Customer Lifetime Value

John Nash | March 4, 2020

A Harvard Business Review study found that personalization lifts revenues by 10 percent or more, and delivers between five and eight times the return on marketing spend (ROI). Because a personalized customer experience is now recognized as a key revenue driver, there is an accompanying shift in how marketers measure the effectiveness of customer engagement channels.

Channel-specific performance metrics should be relegated to a secondary role as they fail to accurately measure the ROI of customer experience (CX) investments, in large part because the type of personalized CX that today’s consumer demands transcends channels.

For instance, a brand may introduce personalization in a display ad campaign. With open rates as a KPI, the brand may equate an increase as proof that personalization in the specific channel was successful. But this is a narrow view that overlooks how personalization influences behaviors and actions throughout an omnichannel journey.

Furthermore, brands must ensure that personalization is seamless across multiple channels, which is in line with customer expectations for consistent omnichannel personalization. In the Harris Poll survey commissioned by Redpoint, 43 percent of consumers claim that it’s important brands know they’re the same person across all touchpoints. And 38 percent say that offers or recommendations based on products recently purchased or viewed is a type of personalization they expect.

A personalized programmatic ad, in other words, must not be a one-off – designed to influence a specific behavior in a specific channel, but is otherwise detached from a broader view for how the content and behaviors relate to a wider customer journey.

Customer-Centric Measurement Approaches

To achieve that broader view, brands now have a couple of holistic measurements that have become practical to implement. One is to measure ROI at a segment level e.g. [(Segment Revenue Growth – Marketing Costs) / (Marketing Costs)] or at a brand/business unit level. Another option is to take the future potential into account, by using customer lifetime value (CLV) as a gauge to measure the revenue impact of customer experience investments and initiatives and, ultimately, ROI. Technology now makes it possible to influence and measure the impact at the individual customer level, in effect creating segments of one with a single customer view. These approaches move away from channel-specific goals that devalue the importance of the customer journey across channels. When CLV is the arbiter of the success of a CX initiative, brands become increasingly customer-centric. And by reorganizing around the customer through omnichannel personalization, brands can better focus on the behaviors that increase lifetime value rather than focus on the channels themselves.

A recent Forrester report explains why CLV is now a “unifying metric” and plays a strategic role in helping firms “pivot toward becoming customer-obsessed”. Acknowledging that there are many ways to calculate CLV depending on business goals, industry, and analytical maturity, the report states that a CLV calculation allows a firm to focus on higher-cost acquisition efforts that include personalization. In this context, the report describes CLV as the “common currency” that will unite multiple lines of business in always delivering a “next-best experience” around the potential value of a customer rather than immediate (read: transactional) value.

A Personalized CX Raises the CLV Profile

CLV is gaining traction because a single customer view enables marketers to view the success of personalization in the context of an omnichannel journey, with campaign data then used to enhance future personalization tactics with a focus on increasing CLV for every customer. This frees marketers from having to think about lifetime value in the context of a large segment – which aligns more with a channel-centric mentality.

Describing what it deems a “personalization imperative,” Marketing Insider Group research found that 78 percent of consumers reported  that a personally relevant customer experience ups their purchase intent. Furthermore, in a new report from SmarterHQ, 72 percent of consumers said that they will only engage with marketing messages that are personalized and tailored to their interests. Taken in consideration with the Harris Poll statistic showing that 43 percent of consumers expect a brand to know they’re the same person across all touchpoints, the evidence is overwhelming that marketers no longer having the luxury of relying on channel-centric metrics to gauge campaign success.

By turning attention to CLV, marketers have a truer ROI benchmark for their CX investments in terms of how they’re driving revenue via omnichannel personalization.

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John Nash
John Nash

John Nash has spent his career helping businesses grow revenue through the application of advanced technologies, analytics, and business model innovations. As Chief Marketing and Strategy Officer at Redpoint Global, John is responsible for developing new markets, launching new solutions, building brand awareness, generating pipeline growth, and advancing thought leadership. Connect with John on LinkedIn.