Learning the Importance of Customer Lifetime Value

We aim to delve into the final variable of the channel funnel formula (channel = traffic x conversion rate x average spending x repurchase rate), which is the “repurchase rate.” Repurchase rate signifies whether customers who bought from you once return for further purchases. Customers who repurchase become your most valuable assets.

Imagine you operate a fresh produce supermarket within a community. However, with the escalating competition, everyone engages in continuous discounting. You notice a spike in sales during discount periods, but once the promotions cease, foot traffic dwindles. Moreover, if a competitor introduces an outrageously priced promotion, your customers flock to them. What should you do?

To address this predicament, we must first comprehend its essence. While offering good value for money is pivotal, solely relying on discounts may attract a batch of bargain hunters who are sensitive to price fluctuations, coming and going like tides. The crux of the problem lies in not fostering a habit of repeat purchases among customers, failing to attain their “Customer Lifetime Value.”

What exactly is “Customer Lifetime Value” (CLV)? It represents the total value of purchases a customer makes from your business throughout their lifetime.

Of course, higher CLV is preferable. Statistics indicate that acquiring a new customer can cost 3 to 10 times more than retaining an existing one. This means that for the same sales revenue of 1 million, profits are significantly higher when derived from existing customers rather than new ones, ensuring more stability in performance.

So, how can you enhance “Customer Lifetime Value”? By “incentivizing repeat purchases.”

Consider this example: Telecom operators run intricate campaigns, each with its own commercial rationale. For instance, one operator initiated a “Top-Up 200, Get 200 with Monthly Rebates” campaign. By recharging 200 yuan, they gifted an additional 200 yuan, distributed in 10 monthly installments of 20 yuan each.

Receiving a monthly credit of 20 yuan towards your phone bill sounds appealing! Motivated by this offer, you opt-in. However, it also implies that for the next 10 months, you need to “repurchase” services from this operator. If you gradually get accustomed to their services, you might even remain their customer for a lifetime.

Through this campaign, the operator incentivized your repeat purchases, securing your “Customer Lifetime Value.”

Now, what should you do? Emulate the telecom operator and devise a “Top-Up 200, Get 200 with Weekly Rebates” campaign. Encourage customers to join your membership, top-up 200 yuan, and receive an additional 200 yuan, spread across 20 weeks, allowing them to purchase the best seasonal seafood.

From then on, your customers will consistently think, “I have 10 yuan left, I shouldn’t waste it. Let’s see what I can buy.”

By “incentivizing repeat purchases” and attaining “Customer Lifetime Value,” this logic can resolve various business conundrums in the commercial realm.

For instance, suppose you sell women’s clothing on Taobao, consistently pursuing new customers while losing existing ones quickly. How about trying to “incentivize time length”?

The departure of existing customers follows a pattern. For makeup customers, 50% of their second purchase occurs within 76 days; what about women’s shoes? 78 days. Men’s shoes? 108 days. Women’s clothing? 47 days. If your female clothing customers haven’t made a repeat purchase within 47 days, consider sending them substantial discount coupons to stimulate their time length and avert possible attrition.

As a chain supermarket owner, despite issuing membership cards, customers possess multiple cards without allegiance. How about trying to “incentivize product concentration”?

Frequent travelers collect membership cards from almost every airline. Issuing cards no longer fosters loyalty. What’s the solution? In 2016, an airline introduced the Platinum Card: unlimited upgrades to first class if seats were available. Sounds enticing, right? However, the condition to acquire the Platinum Card was flying 90 times with that airline within a year. For most people, flying 90 times leaves minimal opportunities for other airlines. This Platinum Card incentivized the concentration of their product within their category.

Chain supermarkets could consider altering membership services: providing special discounts for customers who shop for 20 days each month.

If you operate a food delivery service and customers prioritize affordability over the restaurant’s reputation, consider “incentivizing emotional depth.”

The order form for food delivery usually includes a remarks section; use it to build an emotional connection with customers. For instance, if a customer orders numerous Sichuan dishes, offer them a bottle of Wanglaoji. Write in the remarks: “Since you ordered so much spicy food, I’m sending you a bottle of Wanglaoji. Enjoy! Hope it helps you cool down.” Such a message instantly elevates your caring image, significantly increasing the likelihood of them choosing your service again.

In conclusion, what is “Customer Lifetime Value”? Simply put, it represents the total value of purchases a customer makes from your business throughout their lifetime. How can you enhance Customer Lifetime Value? By incentivizing repeat purchases. And how can you do this? By incentivizing time length, product concentration, and emotional depth.