Customer lifetime value—also known as LTV or by one of a dozen other buzzy acronyms—is a concept often thrown around, but rarely understood.
At its essence, shifting focus to LTV means prioritizing your business’s long-term profitability over short-term goals. This is a strategy most retailers can get behind, but the next steps are where things can start to get murky. Fortunately, we’re here to equip you with a bulletproof framework to get you on your way.
1. Get to know your ideal customer.
“If your brand is like most out there, your top 20% of customers drive 80% of the profit. Get to know them well—and stop worrying so much about the other 80%.”
The foundation of becoming an LTV-obsessed brand is understanding your customer. Ask yourself who is buying your products, which products they are buying, and what needs you are solving for them. Analyzing your existing customer data and supplementing it with additional third-party data points or customer surveys to answer simple questions like these will pay off in spades.
Your goal here is to distinguish your average customer from your best customer. It’s the Pareto principle at play; if your brand is like most out there, your top 20% of customers drive 80% of the profit. Get to know them well—and stop worrying so much about the other 80%.
2. Find them wherever they are.
Now that you’ve narrowed your focus to the customer segments driving profitability, it’s time to get in front of them. That means not only targeting these segments more aggressively within your existing channels, but also going beyond them into new areas.
For one retailer, we found as much as a 670% difference in LTV between the best and worst paid channel in their portfolio! That’s because each channel is driving a fundamentally different customer, demographically and psychographically. Only once you know your ideal customer will high-LTV channels reveal themselves to you; always prioritize testing these channels over cheap conversion opportunities that might offer you volume, but deliver minimal profit after churns and returns.
3. Deliver them the right message.
“Stop focusing on creative that caters to all; home in on the message that will resonate with your ideal customer.”
Personalization is another buzzy term in marketing circles right now, but how does it actually come to life in our campaigns? Leveraging an LTV-based KPI provides just the right guardrails as you design your creative strategy.
Stop focusing on creative that caters to all; home in on the message that will resonate with your ideal customer and iteratively test these hypotheses until you reach better penetration.
4. Be wary of promotions.
Hand in hand with your creative strategy, your promotional strategy heavily influences the customers you attract. One of our retail partners found that they were able to drive 8% more new customers by deepening their sale discount from 30% to 50%, but as a result, average LTV dropped by 15%. This isn’t a tradeoff worth making.
5. Invest in your experience.
“Getting your customers to try more products doesn’t just drive up immediate profits; it also leads to better brand loyalty.”
Ultimately, having a strong user experience is one of the most surefire ways to retain your customers—leveraging a buy-now, pay-later partner like Klarna has been shown to increase cart sizes by 41% and purchase frequency by 36%. Getting your customers to try more products doesn’t just drive up immediate profits; it also leads to better brand loyalty.
This article was contributed by WITHIN, the world’s first Performance Branding company. WITHIN designs precisely targeted campaigns by combining engaging original content with the functional efficiency of digital advertising. From media specialists to data scientists to full-service creative production teams, their in-house experts bridge the gaps and optimize every aspect of a brand’s marketing program. If you’d like to learn more about how WITHIN can drive profitable growth for your brand, reach out to the Klarna team or contact WITHIN directly.
Tyler Horner is an Integrated Media Director at WITHIN — a Klarna Agency Partner. Tyler’s passion is building bulletproof brands by leveraging his expertise in lifetime value optimization, digital media measurement, and performance branding. If you want to pique his attention, bring up the name Carl Jung, Alan Watts, or Hayao Miyazaki.