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Customer Lifetime Value: Why You Should Care (and 3 Ways to Get More)

Jul 21, 2020

“One and done” should be a phrase that online retailers avoid like the plague.

Unfortunately, far too many online retailers have settled with this approach when it comes to their marketing engine. They dump thousands of dollars in upfront costs to convince prospects to stop by their store, but as soon as shoppers click “buy,” you can hear the aforementioned marketing engine sputter to a halt. 

While getting first-time customers through the door is essential to grow your online business, it’s extremely expensive and cost-prohibitive. We’ve all seen the stats—it can cost anywhere between 5 and 25 times more to earn a new customer than retain an existing one. 

Instead of focusing on acquiring new customers, ecommerce retailers need to shift their attention to a different metric: Customer Lifetime Value (LTV). LTV is a sweet medley decided by how much money each customer is spending, how often they’re shopping, and the time between now and when they last shopped with you. Or, as we like to call it, customer loyalty. 

It’s high time to ditch the idea that “more customers is always better” and reframe your thinking to “more loyal customers is always better.” So, let’s get started and see what you can do about upping your own shop’s customer LTV.   

Why does LTV matter in ecommerce?

Let’s start with the elephant in the room – conversion rates. 

The average conversion rate in ecommerce hovers around 2.8%. 

That means that 97.2% of shoppers that see your ads or promotions, visit your site, take a gander and bail. That’s a lot of eyeballs that aren’t willing to pull out their wallet. 

There are TONS of resources on how to improve conversion rates. Tips like as simple as adding a layer of order protection to your checkout flow to more complex things like dynamic product recommendations and pricing. But when it comes to content about improving the customer experience… less. 

Taking advantage of each and every customer you get is becoming increasingly important, and brands that really want to win in the coming years will do well to focus on the 2.8% and not the 97.2% of lost sheep (go after them to… but you get the point).

What does a loyal customer look like?

In the most simple terms, a loyal customer is anyone who repeatedly purchases from the same company. According to Bluecore, 60% of second purchases occur within the first 100 days, and—here’s the exciting part—two-time purchasers are 95% more likely to make a third purchase than one-timers. 

That’s just five percent short of guaranteed revenue.

When we talk about crafting a strategy around LTV in ecommerce, it’s all about shifting your focus toward creating as many repeat purchasers as possible, and earning the second purchase is a huge win for loyalty.

LTV sweeps away all other metrics and focuses on long-term value. It ignores the highs and lows, seasonal spikes, and flash sales, and instead it offers a balanced view of your ecommerce world. It gives you a clear picture of how much each customer is actually worth to your bottom line, which empowers you to optimize your spend to build a truly profitable online business.

Now that we understand that LTV is awesome, let’s get into the good stuff.

3 ways to build loyalty and increase your customer LTV

1. Find your vibe & build your cult following

In Fearless Writing, author William Kenower says that readers care less about what happens in your book and more about how they feel when they’re reading it. In a similar vein, your customers do care about the product they’re buying (else, why would they be buying it?), but they also care about how the product makes them feel. 

A lot of brands embody particular lifestyles, aspirations, and ideas. And the more these brands can help consumers see themselves living these desired lifestyles, the more loyalty they’ll accrue. For example:

  • Apple users are often associated with innovative, ahead-of-the-curve tech enthusiasts who respect high-quality products. Not only that, but Apple customers (with an LTV averaged at $8,000 over a 20-year period) feel like the company understands and takes care of them. Apple’s customer retention is nearly perfect, and 90% of iPhone users plan on buying the next model of iPhone once it becomes available.
  • TOMS customers, meanwhile, feel like they’re making the world a better place; every pair of TOMS shoes they buy helps someone in need. The brand carries an authenticity to it that’s hard to fake. Its message resonates so much, in fact, that its annual “One Day without Shoes” initiative engaged with 3.5 million fans in a single day.
  • People who shop Patagonia not only love their products, but also their message of sustainability while preserving and celebrating the outdoors. When the brand took a public stand against the reduction of some Utah national parks, social engagement spiked by fivefold. By evoking a feel-good, one-with-the-earth vibe, Patagonia is clearly for people who love being in and caring for the great outdoors.
  • Chevy drivers feel a sense of patriotic pride that they’re driving an American-made vehicle. They expect reliable, homegrown cars and trucks to get them from point A to anywhere. And when some Chevrolet dealerships offered a prepaid maintenance plan with every vehicle purchase, 88% of their customers returned to buy additional services.

When working on strategies to improve your customer loyalty and increase LTV, you need to remember that you’re selling an emotion—a lifestyle—that’s just as important as your products. People want their brands to stand for something, represent their interests, and align with their own life. But to do this successfully, you need to do more than just blast a catchy hashtag on your social accounts. If you’re gonna talk the talk, you need to walk the walk:

  1. Identify your core values: According to Inc., core values should not only influence every internal process, but they should also shape the customer experience. So before you can get customer buy-in to your core values, they need to be clearly communicated to every member of your team, from the CEO to the summer intern.
  1. Develop buyer personas: Buyer personas extend beyond just creating customer segments by demographic information. A good buyer persona should outline a typical customer’s goals, challenges, and her desired customer experience. It should help you answer questions like “what inhibits customers from doing business with you?” and more importantly, “what keeps them coming back?”
  1. Gather feedback from loyal customers: Find out what’s important to your most loyal customers and what they love about your company or products. Ask them about their concerns. When customers feel like their feedback is heard, they’re more likely to remain customers.
  1. Craft your marketing communications around these personas: Remember, we’re trying to create more two-time purchasers here. So, now that you know what resonates with your people and you have the data to back it up, develop your marketing communications to reflect those values.
  1. Leverage social media to fortify your message: Highlight group success stories; consumer-driven content is a better endorsement than anything you can say about yourself. Nearly 90% of business owners agree that influencer marketing nets greater ROI that any other marketing channel.

2. Provide 5-star customer service

Customers will continue to do business with you until you give them a reason not to, whether that’s stonewalling them after a complaint or delivering shoddy products. Nearly half of customers will take their business to a competitor after just one negative customer service experience. Customer service needs to be better than average to build loyalty:

  • Custom messaging over form letters: Want to build a lifetime relationship with your customers? Use your customer-facing communications to provide immediate and individualized customer service like LEGO did when one of their young customers lost a piece. Not only did LEGO replace the piece for free, but they also sent a kind, personalized message that the boy’s father couldn’t help but share on social media.
  • Surprise customers (in a good way): Showing customers how much you appreciate their business is key to creating loyalty. For example, a few years ago, a friend of ours posted on Twitter a picture of his worn-out Bose headphones lauding how good they still sounded, despite their rough condition.

    Bose responded to his tweet, saying they’d be happy to replace the foam earpieces for free, which caught our friend off-guard, delighted him and secured his business all in one move. The costs of offering a free replacement or upgrade is minimal compared with your customer’s lifetime value.
  • Anticipate customer needs: Managing customer expectations is vital to improving LTV, and sometimes that involves a data-driven approach to anticipating customer needs. Through predictive analytics, for example, StitchFix is able to provide a personalized wardrobe, along with surprise recommendations, to each of its customers in a way that increases engagement, and promotes repeat purchases.

3. Take a personalized omnichannel approach to the customer experience

Creating an environment where your customers and target audience is consistently exposed to your message is critical to increasing LTV. Whether it’s posting helpful how-tos on your blog, sending thoughtful newsletters, or engaging with your customers post purchase, extending your brand experience across various channels can score you way more than brownie points.

  • Personalized loyalty programs: In ecommerce, personalization extends beyond just using algorithms to predict what other products they might be interested in (though, that is important). This includes personalized emails triggered by specific behaviors, or personalized rewards, as with The North Face’s VIPeak program.
  • Uniting in-store and online customer experiences: Ecommerce provides the unique opportunity to create a seamless customer experience at every step of the journey. When customers started making orders on the Starbucks mobile app, for example, it led to shorter lines, better service, more accurate orders, and the opportunity to earn rewards. It blended their in-store, digital, and social interaction into a consistent branded experience.
  • Keeping in touch post-purchase: Whether you’re garnering customer reviews and feedback, providing on-brand order confirmations, or even offering discounts to customers on the one-year anniversary of their first purchase, how you manage your customer relationships post-purchase will say a lot about how much you value LTV.
  • Complete the customer experience with Route: Too often, ecommerce marketing strategies focus on customer acquisition and personalizing the shopping experience. But once someone slips through the checkout, the merchant goes quiet—and customers notice. Providing a comprehensive customer experience instead of going dark between checkout and receiving that one vague or complicated tracking email could be the difference between a second purchase or bidding that buyer goodbye.

The post-purchase experience is the most memorable part of the brand experience for nearly 50% of consumers.

Route bridges the gap between the moment someone buys and the moment they receive their item. We offer a solution that empowers merchants to stay present while goods are in transit. With Visual Tracking™, easy claim filing, and simple problem resolution, customers are met with a new peace of mind about their products, their purchase, and your brand.

🔥 Visual Tracking™ provides an engaging post-purchase experience that reduces WISMO calls by 45% 

🔥 Proactive shipping notifications keep your customers up to date and boost branded impressions by 126%

🔥 26% of brand profile visitors convert back to your website

Create the post-purchase experience
of your customers’ dreams 

See Route in action

Treat customers the way you want to be treated

Developing customer loyalty isn’t easy, and sometimes it takes little more than one negative experience to shatter it. However, upping your repeat purchaser count doesn’t have to be an overwhelming battle. All it takes is spending a little less time acquiring new customers and spending a little more time nurturing the ones you already have.

While these are three rock-solid strategies to get started with, there are endless ways to surprise and delight your customers so that they keep coming back for more. From friendly notes to surprise coupons and relatable content, the key to keeping customers close is bringing humanity to everything you do. 

In the end, every customer can be a loyal customer if companies focus on delivering a personalized and authentic experience regardless of time, place, or medium. Treat your customers as you would old friends and watch their LTV climb.

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