Published:
October 31, 2024
Reading time:
4 minute read
Written by:
Doriel Abrahams
Brands care about customer lifetime value (CLTV) because it means business growth and stability for the future and the present.
Customers who trust and are attached to the brand spend more and for longer. There is a clear dollar value attached: the 2024 Trust Premium Survey found that customers are willing to spend an average of 51% more with a retailer they trust.
Where the focus on CLTV goes wrong is that many merchants emphasize increasing value in blanket ways across their entire customer base. That’s problematic because that approach can:
- Cost the company painfully, cutting into revenues
- Be counter-productive for CLTV
- Negatively impact good customers
How can you ensure that CLTV benefits your company, customers, and long-term relationships?
Gain Clarity on Categories of Customers
Customers aren’t made with a cookie cutter. You need to adapt your CLTV tactics during the shopping journey depending on the kind of customer involved.
You know a lot about your customers. If you put that knowledge to work, customers get the experience they really desire. At the same time, your business can maximize value, not sheer numbers of orders, in a way that ultimately comes with a price tag that is too high for the company.
Example: Smooth Checkout Experience
The 2024 Trust Premium Report discovered that over 78% of US and UK consumers will likely abandon their online shopping carts if the process is too difficult or time-consuming. So, you want to make the checkout experience as hassle-free as possible. On the other hand, you also have to protect customer accounts and your business from risk or threat actors.
It’s a tricky problem that becomes easier when you look at it through a CLTV lens.
Example: Shipping and Returns Policies
Roughly 95% of consumers in the 2024 Trust Premium Report said that shipping policies are important in deciding where to shop. 53% of consumers had abandoned a cart in the last three months due to restrictive shipping policies.
Some customers care a lot about returns policies. In fact, the 2024 Trust Premium Report found that 89% of consumers said that return policies are essential in deciding where to shop, while 22% of consumers had abandoned a cart in the last three months due to restrictive return policies.
Does that mean you must offer generous shipping terms and permissive returns policies for all customers? No, because that leaves your business open to costly abuse, which doesn’t maximize CLTV for your business. You might get more customers, but you’ll also lose money to more customers.
To get it right, you need to cut out the confusion from CLTV by asking critical questions about your customers, such as:
- Does this customer have a history of checking the shipping or returns policy details, indicating they care about them?
- Does this customer have a history of very high return or refund rates, indicating they might be an abuser?
- Is this customer one that you value? Do they spend frequently or refer friends who also become active users?
Depending on the answers to these questions, you can tailor the flexibility you are willing to offer with your shipping and returns policy for that customer.
Spotlight on Resellers
Resellers are also customers, but you must look at them entirely differently if you don’t want them to mess up your CLTV metrics. Depending on your company policy, you might be happy to encourage resellers — but you know you don’t want to spend money to attract them.
Resellers will always zero in on what’s best for their margins. They have no brand loyalty. There’s no point in giving them discounts or generous policies. It’s just throwing money away. That comes into focus when you realize that 10-18% of gifts or free samples are typically given to resellers.
Don’t underestimate the importance of this challenge: in retail, resellers generally represent 8-10% of traffic in terms of dollar value. If you happen to be selling gift cards, the average is even higher, at 10%. If you’re a luxury goods merchant, then it’s even more important to know when you’re dealing with a reseller because you’re likely seeing about 15% of the dollar value of your sales coming from resellers.
You have the data internally to tell which customers are resellers rather than regular consumers. Ensure you’re using it, and adapt your offering accordingly for those users.
Optimizing for CLTV is Also Better for Customers
Retailers put a lot of effort into drawing a customer over the finish line of checkout. Still, the cost of new acquisitions is far higher than the cost of retaining existing customers. CLTV is the practical expression of that fact.
When you drill down into CLTV and start emphasizing customer lifetime value rather than just customer lifetime, your business wins. You stop wasting money on customer categories such as resellers and abusers. What’s even more interesting is that this approach is also better for customers.
Customers benefit because:
- They can start to receive the kinds of benefits that matter most to them
- The company has more money and focus to spend on great customers, which can find expression in loyalty points and programs, special offers, and more
- The strength of the business increases, meaning their favorite brand is going to flourish and continue to innovate for them
- Money saved through avoiding non-optimal customers can be passed on to ideal customers as savings
- The business will gain greater clarity on the products and services their target customers want most, and can provide more of those
It’s time to end CLTV confusion and start delivering maximum value for your business and your customers.
Doriel Abrahams is the Principal Technologist at Forter, where he monitors emerging trends in the fight against fraudsters, including new fraud rings, attacker MOs, rising technologies, etc. His mission is to provide digital commerce leaders with the latest risk intel so they can adapt and get ahead of what’s to come.
