Building Customer Lifetime Value

With competition for the hearts, minds, and wallets of today’s fickle shoppers at an all-time high, retailers must make the most of their current customers, while continuing to attract new shoppers to the brand. Savvy retailers are taking a long hard look at their customer lifetime value efforts and are investing heavily to ensure they have the right technology in place to ensure no customer gets lost in the shuffle. Read on to discover the high-level investments in customer engagement, loyalty, marketing, and more your peers are making, and how you can keep pace. The benefits of increasing customer lifetime value cannot be overstated. Depending on which study you reference attracting a new customer is between 5 and 20 times more expensive than retaining an existing one. Once a customer gives a retailer a chance, they must do everything they can to build a meaningful and mutually beneficial relationship with them. Survey respondents were asked their top strategic priorities over the next six to 12 months in the customer lifetime value arena, and not surprisingly, 83% cited increasing customer retention as a top goal. While the value of retaining existing customers cannot be overstated, retailers must continue to attract shoppers to the brand on an on-going basis, evidenced by the 78% that said customer acquisition is a top priority now and into the future (Figure 1). Increasing the lifetime value of a consumer, i.e., keeping them as an engaged and active customer, requires a deep understanding of their wants and needs. To build this unified view of the consumer savvy retailers rely on POS/sales data (93%), shopping cart history (70%), and social data (55%), among other key data sources (Figure 2). Once this invaluable customer data is collected and analyzed retailers need to put it to use to attract and retain consumers. Currently, around a third (30%) of retailers are allocating between 1% and 5% of their total annual budget to marketing, with 46% reporting that between 6% and 15% of their budget is spent on marketing (Figure 3). Overall, the vast majority (88%) of retailers are spending 20% or less of their total budget on marketing, which translates to a massive commitment considering the size of a typical retailer’s annual budget. Where are these marketing dollars being allocated? Retailers have fully embraced the digital approach, with four of the top five areas retailers are allocating marketing funds to are in the digital arena: social media (98%), email (95%), text messages (35%), and mobile app push notifications (33%) (Figure 4). While digital is king when it comes to marketing, traditional approaches like print ads (73%) and billboards (30%) still have a prominent place in the marketing mix. Part of the appeal of a digital marketing approach is the ability to target messaging and promotions to individual shopper profiles. While a massive billboard on a busy commuter artery can and does build brand awareness, it is not the most efficient use of marketing dollars — with many of the impressions coming from consumers outside of the retailer’s key demographic. However, by personalizing their digital marketing efforts retailers can target not only their ideal demographics but also tailor the messaging based on a shopper’s unique wants and needs. Sixty-six percent of retailers report that they are currently personalizing their marketing and promotions. With another 47% personalizing products, 37% personalizing customer service, and 37% providing a unique and tailored shopping experience (Figure 5). When asked how much of their customer base they plan to engage on a personalized level over the next three years, retailers were very bullish on the prospect. In fact, 25% of those surveyed report that they will be personalizing their marketing efforts for greater than 70% of their customers by 2024 (Figure 6). Increasing their personalized promotional efforts over the next few years should help raise retailers’ typical 28% promotional ROI (Figure 7) to the ideal 51% level (Figure 8) survey takers say they strive for. Once a retailer has pinpointed their ideal shopper and consumers has begun engaging with the retailer either physically or digitally, asking for their contact information to allow for more high-level interaction is a logical next step. Shoppers are not going to simply hand over their personal information, retailers must provide the proverbial carrot if they expect consumers to provide their contact details. Retailers have been enticing consumers to hand over their contact information for decades with feature-laden loyalty programs. Seventy-four percent of retail respondents report that they offer some form of a loyalty program (Figure 9), which provides discounts, offers, exclusive content, and other benefits to members. Of those that offer a loyalty program, a third (33%) report than more than 50% of shoppers are members of the program (Figure 10). And the goods news is that if consumers are members of a loyalty program, they are very likely to make a purchase — shoppers only join loyalty programs of retailers they plan to shop with. Survey respondents were asked what percentage of their loyalty members have made a purchase in the past three months. Fifty-five percent of retailers report that more than half of their loyalty members have made a purchase in the past three months, and 17% say that more than 80% of their members have done so (Figure 11). There are several reasons a consumer would join a retailer’s loyalty program, but the most obvious and common is some form of financial reward — discounts, promotions, etc. Survey takers were asked what sets their program apart from the competition (Figure 12) and some of the most common responses were: cash rewards, tiered discounts, and exclusive products. Building a loyal and ultimately profitable customer base requires a host of technology designed to connect with shoppers and keep them informed and engaged with the brand. RIS asked our retailer survey takers to provide an in-depth look at their customer experience tech maturity (Figure 13). Around a third of respondents report that they have up-to-date email personalization (39%), loyalty tracking (38%), subscription service (31%), and personalized offers (28%) technology in place. Looking at where retailers are currently upgrading, email personalization (29%), loyalty tracking (26%), and personalized offers (23%) again top the list. Turning our view to the horizon, we see that over the next 12 months retailers are planning major upgrades to their personalized offers (28%), interactive digital signage (23%), image search (21%), and AI recommendation engine (21%) software. When the timeline is stretched to 24 months chatbots (21%), interactive digital signage (21%), live chat (20%), and AI recommendation engines (20%) capabilities all top the list. Methodology This research was conducted in December 2021 and January 2022. The survey was sent to retail executives at both large-scale and small regional chains. Sixty percent of respondents are employed at retailers with revenue greater than $100 million, with 18% working at retailers with revenue of more than $5 billion per year. The greatest number of responses came from grocery/convenience/ drug retailers (48%), followed by specialty (29%), mass market (13%), and apparel (10%). Seventy-nine percent of survey takers hold director level or higher titles, with 22% hailing from the c-suite. IT/technology, store operations, and marketing were the most common core business function among survey takers at 23% each. Conclusion In today’s hyper competitive environment building lifetime value among a retailers’ core customer base is a business imperative that cannot be overlooked. It is no longer enough to have the right assortment available at the right price — retailers must cultivate a two-way mutually beneficial relationship with shoppers to ensure their long-term loyalty. Forward-facing retailers continue to invest in their engagement, loyalty, and customer service technology to ensure the consumers they attract return again and again. Key Takeaways 83% of retailers are laser focused on increasing customer retention, with 78% reporting customer acquisition as a top priority. To build a unified view of their consumer base retailers rely on POS/sales data (93%), shopping cart history (70%), social data (55%), browsing history (40%), and partner data (30%). 66% of retailers report that they are currently personalizing their marketing and promotions. And 25% of those surveyed report that they will be personalizing their marketing efforts for greater than 70% of their customers by 2024. Among retailers that offer a loyalty program, 33% report than more than half of shoppers are members of the program. 55% of retailers report that greater than 50% of their loyalty members have made a purchase in the past three months, and 17% say that more than 80% of their members have done so. Retailers have up-to-date email personalization (39%), loyalty tracking (38%), subscription service (31%), and personalized offers (28%) technology in place. With major investment plans set for email personalization (29%), loyalty tracking (26%), and personalized offers (23%) over the next 12 months.