5 Key Challenges to Unlocking Improved Customer Lifetime Value

By: Karli Quesinberry
5 puzzle pieces symbolizing challenges
Do you want more returning customers? The kind of customers who spend more money and visit more often?
Then a loyalty program could be the perfect tool to add to your customer retention arsenal.
Why? You may ask. Let’s start with the most reasonable fact: It makes you more money. Well—if it’s done the right way, of course.
The main goal of a loyalty program is to retain existing customers. The loyalty program allows the customer and the company to understand each other better. Customers need to feel that they are valued and important.
Identifying the path of how you get to your goals is the first step in the process. Will your loyalty program be a stand-alone offering or part of an overarching marketing initiative? While the latter would be the ideal scenario (I would argue), there are instances where stand-alone initiatives are fitting—like for companies with long sales cycles, product launches, changes in services, etc.
Take a step back and think about your overarching enterprise goals and marketing goals. How is the loyalty program going to complement and contribute to those?

For companies who set it up correctly, the loyalty strategy becomes the center of the wheel the rest of the business revolves around. Once you create goal alignment between the business and your loyalty initiative, you’re off to the races.

While going through the goal identification process, it is important to remember that loyalty programs are not a silver bullet. Challenges such as product value, quality issues and employee experience concerns simply cannot be fixed with a loyalty program.
For ITA Group and our clients, we believe the loyalty strategy’s overarching goal is to increase the lifetime value for as many customers as possible.
If the overarching goal is to increase customer lifetime value (CLV), a holistic loyalty strategy can help achieve goals that typically align with five key challenge areas.

1. Data Collection

Arguably one of the most powerful aspects of a loyalty program is the data collected. If you are leveraging the data from your loyalty strategy to the fullest it can help you:
  • Better know your customers so you can identify and track them at the individual level.
  • Identify ways to segment your customer base.
  • Target individuals within customer segments. 
Data makes the personalization wheel go around, and through clean data, all insights are possible. The best loyalty strategies use market research up front to identify and target, then apply an iterative process and continually leverage market data and program data to make course correction and improve the customer value proposition.

2. Brand Differentiation

Too often, companies take a check-the-box approach to loyalty programs. They get it in their heads that everyone else has one so they need one, too. This will not do your business any favors and can actually end up hindering the customer experience. If done right, your loyalty program should help you stand out in the market. Ask yourself:
  • What value prop can you offer that is exclusive to your brand?
  • What additional value can your customers benefit from over time?
  • How can you infuse surprise and delight tactics to strengthen the emotional connection with your brand?

3. Acquisition

Acquisition and retention are so implicitly tied together we listed them back-to-back. The main reason they are closely tied is that failing to address both of them together results in low growth. Consider the following:
  • If you acquire customers at the same rate you lose them, you are—at best—flat year over year.
  • If you lose customers faster than you acquire, you are in trouble.
Thinking about these two pieces together is important. You want to acquire new customers and keep them longer. Sounds easy—but it doesn’t always work. That’s where a great loyalty strategy can help ensure you’re able to both retain and acquire more customers if you incorporate the following tactics:
  • Harness referrals to increase hot leads, while giving existing customers another way to interact with your brand (think making referrals). Elon Musk has famously said, "One customer should generate three." Referral programs are the tool to make this a reality.
  • Put more meaningful touchpoints in front of consumers to help them make a decision about your brand faster. You can do this through personalization, integrating AI and machine learning tools, and using data science to predict what will motivate based on upfront research.
  • Reimagine the cost of acquisition by thinking about the journey holistically. Spend more on the right segments and less on the wrong ones.

If your new strategy is to spend a little more to get the right customer in the door, but their lifetime value is twice that of an average customer, understanding the business case of this new strategy can be the difference between shareholder glory and shareholders, gory.

4. Retention

A tenet of any loyalty strategy needs to be increasing retention. Your sales cycle is going to play a big role in this. If you are losing customers, implement ways to:
  • Increase RFM (recency of purchase, frequency of purchase, monetary value of purchase)—essentially, get them through the customer journey faster and more frequently.
  • Segment customers at the end of their lifecycle to understand who to invest in and who to let go.
  • Allow customers to interact with your brand outside the purchase cycle. This takes some creativity and investment because customers will see through things that aren’t valuable, and if the investment is long term—you might not see the benefit of these unique ways to interact with the brand for several years.
A 5% increase in customer retention correlates with at least a 25% increase in profit.

5. Growing Customer Value

In order to create better customer experiences, businesses must identify and improve the range of touchpoints, pathways and channels involved. This starts with considering the entire customer experience journey, holistically. A holistic loyalty strategy can increase customer lifetime value by bringing focus to one (or more) of the following tactics:
  • Upselling: Persuade the customer to purchase a higher value product or service.
  • Cross-selling: Influence the customer to purchase an additional product or service.
  • Premium Services: Offer a higher-value benefit for customers who choose to pay for premium service (think Amazon Prime).
  • Ancillary Services: Offer ancillary services or products, which can provide better convenience, differentiate your brand and increase sales.
  • Bundling: Offer bundle pricing/benefits to expand the products or services your customer is using with your brand.
  • Experiential: Offer different ways to interact with your brand, and infuse value add surprises along the way that amplify engagement. 
Now that you’ve identified some overarching goals and where you want to ultimately go, you’re ready for the next step—designing your loyalty program, and deciding the tactics to consider and metrics to measure. But you’ll have to wait a couple weeks for that.
Karli Quesinberry
Karli Quesinberry

Karli oversees the overall program design and strategic recommendations, in support of client business objectives, for new, cross-sell and renewal presale opportunities. In her role at ITA Group, she collaborates across multiple business units, including Sales, Account Management, Analytics, Communications and Client Technology to bring our solutions to life.