Customer lifetime value. CLV. Lifetime customer value. People call this metric by many names, but they all mean the same thing: the predicted net profit of the entire relationship with a given customer. Buyers with a high lifetime value are desirable for any business, and understandably so, as it indicates strong brand love, as well as a long-standing commitment to spending money in your stores.
This guide is meant to help you better understand how your customer retention strategy influences CLV, as well as show you a diverse list of loyalty program features that can improve this metric.
How Can You Calculate Customer Lifetime Value & Why Does Loyalty Influence It?
Finding the perfect formula for CLV is not as easy as it seems, because it can be calculated in a multitude of ways. Most concisely, lifetime value is found by multiplying a customer’s purchase frequency with average basket volume, then dividing it by their retention cost.
So how do loyalty programs factor into all of this? As a study from Motista shows, customers with an emotional connection to brands have 306% higher lifetime value. This is most likely due to the fact that a comprehensive rewards program can simultaneously enhance all three elements of the lifetime value equation.
Increasing Purchase Frequency
There’s nothing more heartbreaking than seeing a promising customer come into the shop, buy something, then never come back. Enticing people to stick to your brand and continuously choose you over the competition is one of the main strengths of a loyalty program. Gifts, incentives and free services all give customers a reason to keep returning. And unlike a standard discount, a loyalty reward feels much more personal, yielding an emotional high.
A surefire way to appeal to your customers’ interests is to show them relevant information. In this sense, loyalty programs help you collect a wide range of customer data which can be used to fuel your marketing automation.
By offering a small token of appreciation, customers are more likely to fill out quizzes and surveys, sharing their product preferences, clothing or shoe size, favorite colors, lifestyle, spending habits, etc.
Incentivizing customer profiling is a one-time investment, yet you’ll learn valuable information that can be used to give personalized product recommendations in emails or on site for years to come.
2. Point expiration
Adding a ticking clock to the reward system is a well-known method to encourage people to increase their purchase frequency. Just set an expiration date for each member’s point balance, and reset the timer if they decide to buy something.
Finding the sweet spot for your expiration window is the key to success. Customers are willing to make a low-value purchase just to avoid losing their points every now and then, but if they hear about expiration too often, they’ll lose interest.
If you wish to run point expiration without causing frustration, you need to notify your loyalty members in time via email, which is a great opportunity to showcase your personalization capabilities.
3. Badges & challenges
Gamifying the loyalty experience is an intuitive way to get customers more invested in your brand. These are small, but meaningful achievements that reward members for their continuous engagement.
For instance, after reaching the milestone, like making five purchases in a year, give customers a unique badge, alongside a handful of points or a small gift, which appears on their membership page. Challenges work much like badges, but they require the customer to complete a series of tasks.
The motive behind badges and challenges is to cultivate repeated behavior, which is why it’s recommended to create multiple levels for each badge or challenge. The level-one badge, for example, may be granted for making just one purchase. This would instantly give members a sense of accomplishment. However, to reach the level-two badge, they should make three purchases.
4. Birthday rewards
Emotional attachment is the bedrock of high customer lifetime value. If you’re looking to generate true brand love, consider giving customers a reward when they least expect it, such as special occasions like birthdays or membership anniversaries.
The formula is simple: send a highly personalized email to a customer on their birthday, letting them know they received a small gift for their big day. This reward can be a points bonus, or a small gift that will be shipped with their next purchase.
Upon seeing the pleasant surprise, people feel appreciated and are compelled to go to your website immediately and buy something, just to make good use of the free gift, inspiring a purchase that would not have been made otherwise.
Increasing Basket Value
Back in the day, traditional point collection schemes were only good for increasing purchase frequency. People received points for their purchase, which eventually lead to a discount or a freebie; nothing to be overly excited about. But modern loyalty programs now have exciting incentives that encourage customers to go out of their way and put as many products into their basket as they can.
Customers love tiered programs. They are easy to understand, easier to manage, and the concept of climbing a ladder to unlock permanent benefits is very exciting for most shoppers.
In order to increase customer lifetime value with tiers, each rank should be associated with outstanding rewards: something people desire having. Instead of doubling the value of the discount coupon at the Gold tier, add a new benefit, such as an invitation to brand events, VIP customer service, or spectacular birthday rewards.
Once your tantalizing goals are set, customers will work hard to reach them as quickly as possible. This may mean putting more products into their cart, because getting more points with a single purchase will help them progress faster.
Find out more on how to run a successful loyalty program from this episode of Customer Loyalty Minutes, starring Zsuzsa Kecsmar, CCO & Co-founder at Antavo, and Jörn Roegler, VP of Strategy & Insight at Antavo.
6. Rewards with a high perceived value
If there’s something people love more than free shipping, it’s fancy rewards. Deep down in their hearts, everyone dreams about spending their points on something memorable, like a free weekend at a wellness spa.
When it comes to loyalty rewards with perceived value, you have two options. One is to offer luxury benefits that are open to anyone who is willing to pay the price in points (luxury weekends, first line ticket to a fashion show, gourmet dinners etc). The other is to promote limited-edition items, or products designed by influencers or celebrities.
Either way, people will need a large quantity of loyalty points to claim such rewards for themselves. And just like with tiers, the best way to earn points quickly is by increasing purchase volume.
7. VIP Clubs
Also called limited access groups, VIP Clubs are small, thematic communities within your loyalty program. Just like in a real-life VIP Club, members have to buy their way in by paying an entry fee with points. In exchange, they’re offered a series of exclusive privileges, such as early access to up-and-coming products.
Customers will gladly spend a sizable amount of points for entry. And the best thing is, benefits like early access are purchase-related, indicating that they plan to keep buying from you in the future.
VIP Clubs allows you to set up an inclusive loyalty program that anyone can join, but at the same time reserves some of the most desirable benefits for your most dedicated spenders.
8. Offer management
Linked offers are a tried-and-tested marketing method that convinces customers to buy multiple products. These can be bundled offers, where buying a toothbrush and a toothpaste together is 10% less expensive, or the popular ‘Buy 3 burgers for the price of 2’ deal.
Offer management is the system that helps you organize such promotions, because deals come in all shapes and sizes. With the right tools and creativity, you can set up offers that apply exclusively to your latest shop to open, to a certain region, or even to a specific customer segment.
Reduce the Cost of Customer Retention
Last but not least, loyalty programs boost the efficacy of your customer retention campaigns by giving you more bang for your buck. This can be done either by running the loyalty program in a cost-effective manner, avoiding unnecessary discounts, or driving other business KPIs that affect your bottom line.
9. Partner rewards
Having a loyalty program unlocks countless possibilities to network and branch out to partners from other industries. In the past, companies banded together to form coalition programs in an attempt to reach new audiences and new platforms.
Still, your brand can manage on its own with a loyalty program where you offer partner rewards. This can be a mutually beneficial relationship: these kinds of incentives will cost you very little, since your company isn’t responsible for manufacturing or distributing them. On the other hand, your partner receives exposure from your customers.
10. Members-only services
Another way to save money with a loyalty program is by making services you’d offer anyway members-only. For instance, if free shipping is available by default, it makes sense to turn it into a baseline loyalty program feature.
Putting certain services behind enrollment won’t turn devoted customers away, since anyone who is interested in such benefits will be willing to take an extra step and register.
And what does this strategy deliver? More information about your customers, such as contact data, credentials, or anything your personalization strategy requires, as well as plenty of additional eyes that will want to check out the other benefits your program has to offer.
Organizing a social media contest is a proven tactic to establish brand presence and encourage the submission of user-generated content. The rules are simple: ask people to enter by submitting their content to your forums or your social media platform. Then pick a winner either by vote or a jury.
Contests come in a variety of forms. You can set up a hashtag contest, asking members to post stories about their experience and tag your brand at the end. Instagram contests work in nearly the same way, but customers should upload an image of themselves wearing or using the product they bought from you.
The reason contests help customer lifetime value is because you only need to give one reward, despite having a large group of participants who all eagerly compete. Plus, competing in a contest is a thrilling experience for most.
12. Churn prediction
One last way to increase the efficiency of your loyalty program – and directly boost customer lifetime value – is to prevent buyers from churning. For this, Antavo offers an enterprise-grade machine learning framework that helps you predict which customers are in risk of leaving in the next three months.
Once you managed to pinpoint customers who are at the verge of churning, you can create a special segment and proactively convince this segment to stay by offering higher discounts, personalized emails, or even special gifts that are unavailable to other members.
Using churn prediction helps you save money in two ways. First of all, you’re only using the expensive rewards on customers who are churning. Secondly, winning those customers back increases their CLV.
Increasing Customer Lifetime Value With a Successful Loyalty Program
As you can see, customer lifetime value is influenced by a variety of factors. This gives you a level of freedom, because you can mix-and-match features in your loyalty program and really serve your business KPIs – as long the program itself is built proficiently. If you’re ready for the next step, Antavo has a similarly in-depth guide about designing a successful customer loyalty program guide from top to bottom.