Customer Lifetime Value (CLV) is a metric that indicates how much money a customer spends with your brand throughout their lifetime. Knowing the lifetime value of an individual customer helps companies optimally allocate personalized budgets as a part of their retention strategies. In the retina.ai blog, its CTO and Co-Founder, Brad Ito, explains how understanding a customer’s lifetime value at the individual level is beneficial to the business[1], both to maintain a careful budget and lasting customer retention strategy. Among several advantages of CLV applications, understanding and forecasting your customer’s lifetime value will help minimize wasting retention ad spend to highly valued customers who are already engaged on their own.

Customer Lifetime Value is an additional metric analyzed in LXRInsights, NetElixir’s proprietary customer analytics platform, that identifies your future profitable customers. LXRInsights segments your customers into high-value, mid-value, and low-value customers, tracking their purchase journeys from the first point of attribution to final purchase to help you better understand the nuances of their unique journey. Our CLV model built into LXRInsights projects which customers are likely to become high-value customers, who spend 3-5x more with your brand than average customers.

Our objective of calculating CLV at the individual level is to identify the value of each customer and anticipate the customers’ spend; from there, we help design a suitable retention strategy to help turn shoppers into loyal, repeat customers.

Background of Customer Lifetime Value Models

Fundamentally, CLV models are different for contractual (e.g. Subscription) and non-contractual (e.g. Retail) business models. Knowing customer churn is one of the most important factors in calculating CLV, but it is unknown in retail business models. Therefore, the BG/NBD method, a probability-based CLV model, proposed by Peter Fader[2] is used to tackle both the purchase and churn probability of each customer in retail transactional data. Each customer’s purchasing and churn behavior is unique in retail; thus, the model calculates CLV at the individual customer level to use the metric at its full potential.

LXRInsights Customer Lifetime Value model

In LXRInsights, we adopt the BG/NBD model proposed by Peter Fader, calculating CLV for the next twelve months. We specify twelve months because it makes more sense from a business model standpoint to know the value of customers in the near future to better adjust ad strategy so each campaign is impactful. Our predicted twelve months CLV, also called truncated CLV, represents the expected present value of the customers for the next twelve months, based on the customer’s past thirteen months of transactional data. The basic information required to calculate CLV is frequency, recency, age, and average order value (AOV) of the customers.

Diversity of Customer Behavior

The BG/NBD model handles the diversity of customer behavior in purchasing and churn at the customer level. Figure-1[3] below shows the diverse online shopping behavior of five different customers. Each bubble represents one order and the bubble size indicates the amount of money spent. The blue and red customers have regular intervals of purchases but do not purchase frequently. The orange customer made several small purchases in a short period and never returned. The green is a recent customer who hasn’t spent a significant amount until recently.

At the end of Month Four, predicting who will churn and who will be retained and turn into the most loyal customer is challenging. The model predicts the future worth of such customers with different behaviors and includes an estimate of which customers might churn; in this scenario, the orange customer is the most likely to churn. The model also predicts expected AOV on an individual level that would help you to wisely allocate your budgets for any marketing strategy. For example, spending a lesser amount to retain the green customer, and a higher amount to retain the blue, red, and yellow customers with respect to the predicted AOV would be an optimal retention strategy since the green customer is a recent customer who has spent less compared to the rest. Ensuring the whole shopping experience, from initial search to receiving their package, is a pleasant, seamless, and exciting experience that will help customers remember your brand.

Experimental Results

Our CLV model predicts the CLV, expected AOV, and expected number of orders for the next twelve months. Tables 1, 2, 3, and 4 below show some results of the CLV for different customers. The high age indicates an old customer whose first purchase was a long time ago, while the lower age shows a more recent customer.

Referring to table 1, “user_3” has a high age and recency, which indicates that the customer is an old customer and still recently bought from the business. Such customers have a high CLV, as they are loyal customers.

Referring to table 2 below, we see a group of recent customers who are active and thus are assigned a good CLV by the model.

Table 3 below shows customers with a mix of low and medium CLV. For “user_7” in table 3, there is a large gap between recency and age, indicating that the customer did not return after placing a few orders. Because of this gap, they are assigned a low CLV and predicted as churned by the model.

The customers in table 4 have similar behavior to each other in regards to frequency, age, and AOV, but they are assigned different CLVs. The difference lies in that “user_9” never returns after placing a few orders, but “user_8” returns every so often for similar purchases.

Conclusion

Customer Lifetime Value unveils hidden information about your customers. According to past data, customers who are in the high-value segment now need not necessarily be profitable in the future. A customer in the medium-value segment could have a higher CLV for whom you need to run special campaigns to help them become high-value customers. Realizing the expected value of the customers at the individual level will help business leaders better allocate budgets and strategically retarget the right customers at the right time to encourage them to become loyal customers.

Visit LXRInsights to request a demo of our customer analytics platform to understand your customers’ future profitability better.

Further Reading

• Using Data to Guide Your Content
• Insights Into the DTC E-Commerce Explosion
• Managing Your Paid Search Portfolio

References

[1] Why it is important to calculate CLV at an individual level? https://retina.ai/blog/why-calculate-clv-at-the-individual-level/

[2] Peter S. Fader et al., “Counting Your Customers” the Easy Way: An Alternative to the Pareto/NBD Model, 2004, Marketing Science Journal, Volume 2, Issue 2, 275-284

[3] Figure 1: https://antonsruberts.github.io/lifetimes-CLV/

The post Understanding Customer Lifetime Value for E-Commerce appeared first on NetElixir.

Today, shoppers want brands that help make the world a better place, not just improve their consumers’ lives. According to Edelman’s Brand Trust survey in 2020, 85% of respondents want brands to solve their problems, while a comparable 80% want brands to solve society’s problems.

As a result, brand trust has gotten more important. Edelman’s 2021 Trust Barometer Special Report found that brand trust is even more important than brand love when it comes to deciding which brand to use.

Brands can no longer rest on the laurels of being long-beloved or well-regarded. 

Consumers are asking for more: honesty and trustworthiness.

In 2021, trust is what drives growth. Per the same Edelman special report, shoppers who fully trust brands are more likely to advocate for and purchase from them. In fact, highly-trusted brands are seven times more likely to be purchased.

Brand trust is key for building a strong base of loyal customers. But how do brands build trust? By being authentic, transparent, and leading with their values.

Being Authentic As a Brand

The most important element to building trust is being authentic. “More than just large donations or empty platitudes, consumers want to see that brands actually care … And what’s more — consumers and prospective employees will hold them accountable like never before,” says Jason Mander, Chief Research Officer at GWI.

This is especially true during major social happenings, like the Black Lives Matter movement, or dedicated months, like Pride Month. Brands flock to show their support, but many don’t do anything to promote lasting change.

During the Black Lives Matter marches, brands showed their support for the movement with social media posts and advertising, but they were urged to do more. Sharon Chuter called out Nike in an Instagram post, saying, “We need to see those receipts. We love your campaigns but we need to know how many Black people you employ at a corporate level and executive level. Our culture has fed your brand. Show us how you feed us.”

Sharon, the founder of Uomo Beauty, also challenged fellow beauty brands to share the number of Black employees in corporate roles. A haircare brand, amika, not only shared their numbers but also announced a commitment to change with concrete go-forward actions. Consumers recognized the value of amika’s statement combined with action, as shown in this Instagram comment from @theblendedbeauty: “What I like here is that you were transparent but most importantly you’re willing to do the internal work. Which is more important than [sic] posting a black square.”

Leading With Brand Values

Being authentic and transparent naturally leads to being committed to positive causes and showcasing your brand values. 2021 is the year of “we,” and consumers want brands to use their power to bring results.

Shoppers will support brands that commit to change and give them the opportunity to believe in what they buy. According to Edelman, 86% of people expect brands to take one or more actions beyond their product and business, including giving money to good causes, addressing societal challenges, supporting local communities, and displaying representative images.

The CMO of Chipotle, Chris Brandt, has taken to emphasizing the brand’s purpose and values. Under his leadership, the brand launched its first tagline, “For Real,” to showcase its real ingredients that are farmed sustainably.

Brands should show that they not only understand social responsibility but also lead by example. Shoppers trust brands that live their values, from sustainability and fair trade to supporting relevant causes.

Building Brand Trust Through Content

Since authenticity and brand values are key to building trust, use branded content to showcase what you’re doing as a brand. Write blogs and thought pieces sharing your brand values. Make statements during world events — and be sure to stand by what you say. In advertising, highlight cornerstones of your brand, like “100% recyclable” or “cruelty-free” or “made in the USA,” that show consumers how you live your values.

As Katie Thomas at the Kearney Consumer Institute says, “Showcase core trust elements with thoughtful messaging. Build the foundation with consumers by identifying the right message, messenger, and platform. Invest in messaging and campaigns focused on honesty and consistency.”

By representing your brand and its values transparently in all messaging, you make yourself trustworthy. By acting responsibly within today’s world, you build this trust. “Trust grows from the foundation of honesty and credibility,” says Katie Thomas — so start there. Trust sells.

Further Reading

Contact NetElixir to see how we can help you structure your content strategy to authentically tell your brand’s story.

• Using Data to Guide Your Content
• Repeat Customer Prediction
• Insights Into the DTC E-Commerce Explosion

The post The Importance Of Authenticity & Values For Brand Trust appeared first on NetElixir.

Professor Wind taught us that there is no one driver of innovation; rather, innovation is a process each company has to learn about and experiment with to determine their own path forward. His eight principles of transformation guide our mindset and organizational structure so we can be prepared for whatever comes next. These principles are the foundation to help us cope with and survive current crises from the coronavirus pandemic to racial injustice, capture available opportunities, and be able to anticipate and navigate the next crisis.

Learn how Jerry Wind conceptualized his eight principles of transformation

Eight Principles of Transformation

1. Change Your Mental Model

In changing your mental model, you seek to adopt an insurgent mindset that challenges the reality we have accepted or become complacent to. Wind tells us that returning to a pre-coronavirus normal is the wrong mental model to have, as the world has drastically changed since March 2020. Between work-from-home, the e-commerce boom, zoom communications, e-learning, and the like, we would lose so much if we just went back to the way things were. We are facing a new reality and have to use our learnings to grow and expand.

Wind instructs us, “The most fundamental [task] that I’d like you to explore is what is your mental model? Is it still appropriate for today’s environment of the new reality and how can you change it? What will be the needed changes to the mental model, that how can you become not only a defensive player but actually a disrupter in your industry?” 

2. Reimagine and Reinvent Your Approach to the Customer and Stakeholder

Customer needs and expectations are constantly evolving and successful brands evolve with their customers. Wind notes that current crises, as well as significant advances in technology from apps to AI, are really “enriching and allowing the consumer to be much more empowered in the balance of the relationship between the consumer and the retailer.”

Wind encourages brands to design customer-centric strategies that respond to and anticipate customers’ needs and expectations — ideally, brands should co-create with their customers by offering real-time customizable and personalized experiences. Society is shifting from the traditional shareholder approach to a stakeholder approach, where stakeholders are predominantly the customer, but also partners and employees. A purpose-led organization that has a positive social impact will resonate with customers, new talent, and more.

3. Speed Up Digital Transformation and Design for Personalization at Scale

A rapid, agile system that can quickly respond to changes in the environment will thrive in this rapidly evolving world. As we learned last year, we don’t always have the luxury of time and deep analysis to figure out the best solution. A robust digital infrastructure and omnichannel approach will give organizations the foundation to be able to respond quickly, fully engage their audiences, market globally, and provide updates as needed. A digital infrastructure will also help with personalization at scale, as we move away from a one-size-fits-all approach to a personalized approach that directly addresses consumer needs.

4. Reinvent Your Talent Strategy and Embrace Open Innovation and Open Talent

The idea of open innovation and an open talent strategy means we search for solutions outside our traditional domain and knowledge. Many challenges that organizations face have been solved somewhere else in the world, so we should be finding solutions that already exist and not wasting time reinventing the wheel. More and more people, especially under the flexibility of remote working, are preferring the gig economy style, which means companies might not be attracting all the talent they need. An open innovation network curates specific results to a problem, benefits from an interdisciplinary point of view, and is a source of collaboration and communication that can keep innovations cutting-edge and modern.

5. Seize the Need for Speed and Design for Agility, Adjacencies, and Adaptability

Agility is an important facet of innovation and success. To be adeptly speedy and agile, organizations need to look at the adjacencies in terms of similar products and services, available markets, and shared partners and networks where they can pivot, learn from, and expand. Looking at these adjacencies creates opportunities for improvement, a new perspective, and increased efficiency.

6. Innovate, Then Experiment, Experiment, Experiment

“The key to everything we are doing, especially in today’s environment, is the need to continuously innovate and then experiment, experiment, experiment!” Wind shares. Everything from customer behavior to technology to competition is changing, so organizations need to change, too. And we change through innovations, both big and small.

Customers don’t think in terms of verticals, but rather their experience is shaped across industries, which influences their expectations of everything else. Therefore, brands need to innovate every facet of their business, from their product offering to business model to their market approach. We accomplish continuous innovation by creating a culture of continuous experimentation that allows us to come up with new ideas pulled from various industries and domains and test them.

7. Redraw Your Timeline and Build a Portfolio of Initiatives Across All Innovation Horizons

There are three horizons of innovation: one is a brand’s current offerings of products and solutions; two is the markets a brand operates within; third is that which is new to the world. Wind offers Tesla’s series of innovations as an example of operating within all three horizons. In horizon one, Tesla is developing new electric models and creating a lower-priced version for greater accessibility; in horizon two, Tesla is creating autonomous cars; and in horizon three, Tesla is working towards Hyperloop, a tube that makes fast travel between cities like San Francisco and Los Angeles possible.

It’s best to have a varied portfolio of innovation initiatives, dedicating 80-90% of your time and resources to horizon one, and 10-20% to horizons two and three. Your portfolio should seek to address how to improve your current offerings, explore what others are doing in other industries and how you can reach new customer segments, and create new solutions for the world in terms of products, markets, and business models.

8. Deploy an Idealized Design and Recreate Your Organizational Architecture and Network Orchestration

To create an idealized design, start with a compelling vision for your organization of what you want to accomplish and what your legacy will be. Select a date deadline for your objective, select a prize you wish to win (like the most innovative retailer or the best place to work), and then write a story for why you receive that award. That story is the foundation of an idealized design planning process that has you work backward to achieve your goal.

Having your story and design in place, then you look to recreate your organizational architecture — which includes your corporate culture, processes, structure, internal and external competencies, technologies, performance, and incentives — that positions you to accomplish your goal. The trick is moving away from just enacting minor tweaks to leveraging experiments and consistent daily tactics that will get you closer to accomplishing your goal by your set timeline. Through this, you will succeed in capturing opportunities and thriving, not just surviving, crises.

Your Innovation Strategy

Professor Jerry Wind inspires us to think differently, to challenge ourselves to innovate, and to continually learn to create opportunities and transform in times of crisis. 

While Wind inspires us to innovate, he shared a hefty challenge for marketers and businesses to find a place to start within their own organization. Learn where to start applying Wind’s eight principles below:

Learn how you can start innovating new opportunities for your business today.

Insights from the Experts

• Opportunities in Times of Crisis, a recap of Professor Wind’s previous discussion with NetElixir, from June 2020
• Connect the Dots with Natalie Zmuda, Head of Think With Google
• How Vigilant Organizations Gain an Edge
• Revisit the insights and perspectives shared during Connecting the Dots: Driving Change Through Innovation

The post Eight Principles of Transformation by Professor Jerry Wind appeared first on NetElixir.