Savvy e-Newsletter

Using Lifetime Value To Keep Your Customers Happy

This Summer, we've been thinking alot about customer retention. Are you doing everything you can to keep your customers happy?

Be Savvy,
Deborah

Lifetime Value of Customers (LTV) is a concept often discussed as a strategic issue in marketing. By understanding the revenue a customer brings in over time, companies can calculate the appropriate acquisition costs they should spend to attract new customers.

Given a recent customer service experience, we suggest companies ought to use this metric to look at their existing customers and understand how much they should spend on retaining them. Acquiring a new customer can cost five times as much as it does to retain a current customer. Companies spend on average up to one-third the Lifetime Value of a Customer to acquire a new one - shouldn’t they spend even a small percentage of that amount to retain their current base? And shouldn’t the front-line be trained and encouraged to retain customers by being given some flexibility in investing in customer satisfaction?

Recently, Deborah walked into her wireless phone store and asked for her yearly discount on a new cell phone, one month early. She had not known about the discount for eight years and had only used this discount once. Unfortunately, the fact that she had been a customer for eight years with two phone lines didn’t matter. Although the store manager recognized her lifetime customer value and explained that she could call the phone company’s customer service line from the store and they’d offer an exemption and move up the discount date, upon calling in to the customer service line, that was not the case. Deborah was told not only that she couldn’t get a discount but that the store, the company’s own channel of distribution was lying to her and she should leave. After an hour of talking, she eventually got the discount. Should it have been so difficult? Of course not. Needless to say, it did not create a positive customer experience.

The conversation highlighted a typical issue with the Lifetime Value of Customers concept. Companies may determine LTV, but do they put the concept into use for retention of customers as well as acquisition use? Does the LTV remain in headquarters or are their customer-facing staff trained and given permission to translate it into actions?

Corporate marketing or sales may calculate a Lifetime Value metric, but do they translate that into guidelines for the people who actually touch the customer? To keep their customer relationships secure and happy, customer-facing employees need to be trained on LTV and have discretion to use the budget they have to retain current customers.

To Do Now:

Ask yourselves these questions:

1. Determine the Lifetime Value of Your Customers (Average sale x average returning visits x profit)
2. Determine a guideline for your customer-facing employees to use - what kind of discounts, freebies, or other incentives can be used and up to what dollar amount can they use?
3. Train customer-facing employees on LTV, costs to acquire vs. retain customers and the discretion they have within the guidelines to keep current customers happy.

Contact Tager Group/Highland Team to help evaluate your situation and recommend the best marketing strategies for you.

Written by Deborah Henken, Highland Team and Tager Group