Wednesday, April 13, 2016

Are You Using Lifetime Value's Full Marketing Power?

We work with many clients who use customer Lifetime Value (LTV) in planning acquisition budgets--tailoring the spending to acquire a customer to the revenue expected from an acquired customer's future "lifetime value" of purchases. But acquisition budgeting isn't the only way to leverage the power of this standard database marketing tool. Here are at least three other important ways LTV can help optimize marketing results, as pointed out in a recent Direct Marketing News magazine article by Jason Compton. First, LTV can guide channel selection. Cost per lead, cost per conversion and repeat purchase patterns can vary significantly by channel and impact customer value. So LTV becomes not just a guide to acquisition budget but to efficient spending by channel within that budget. Second, LTV can help with retention strategy by showing which customer segments have the highest long-term profitability. Compton uses the financial services industry as an example of how LTV helps balance retention focus between lower-asset younger customers who may be more profitable long-term and high-asset older customers who have already made most of their financial services purchases. Third, the LTV measure can help refine and redirect marketing assumptions--provided marketers go beyond a one-time snapshot and use data to continually reevaluate LTV. Compton cites the mobile carrier industry as an example of how an LTV shift forced strategic change. Mobile carriers started out subsidizing handsets to lure customers, assuming customer long-term value would more than cover the discount. But once regulatory changes allowed easy provider change and competitors engaged in aggressive switching tactics, the subsidy ploy was largely abandoned. For the complete article, read

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