When marketers talk about customer centricity, they always say “the customer is always right”, “making the product and service the top priority to satisfy all your customers”, or even “fire your worst customers”. These ideas above are mostly taught in traditional business course and are deeply believed by some marketers. However, this is ineffective from a scientific digital marketing perspective.

Today, when we talk about customer centricity, we focus on which are the customers that we should be surrounding, who are the best customers, what we can do to enhance their value, and how to find more customers like them. That’s customer centricity with the capability of Internet to trace the user path and help marketers make decisions This is the reason why we want to introduce CLV——a new way of building customer centricity.

What is Customer Lifetime Value (CLV)?

The lifetime value of a customer, represents the total amount of money a customer is expected to spend in your business, or on your products, during their lifetime. This is an important figure to know because it helps you make decisions about how much money to invest in acquiring new customers and retaining existing ones. 

Besides discounted cash flow (DCF) , CLV has become a significant part in corporate valuation where more and more business analyst started to pay attention to projections on how long its customers going to stay with the company, how much it has invested to acquire these customers, and how many repurchases they will make in the future, etc. 

However, a lot of people talk about it as if it’s just an abstract concept when trying to get it down to the ground. A concept that a company can barely implement whereas it’s just good to think about the different long-run customer value of each customer. It’s never easy to predict future transactions, much harder to predict transactions for each individual.  

CLV can be a real thing in ATA Technology

Recently, the CLV model has come out of the journals and articles and become actionable for companies. After the validation of the machine learning model, we are happy to see our clients working with ATA, being able to identify differential value of customers and take the right actions on marketing or product iterations. 

In 2019, A travel-related commercial brand from Australia has surpassed $20,000,000 in revenue in Canada. While most channels such as Amazon, Facebook, Google had a dramatic increase in advertising fee during 2020, they were facing challenges in acquiring new customers in a cost-effective way. Therefore, they invested in an emerging channel — P where traffic are cheaper. 

In a relatively short term, the Australian travel brand discovered that the emerging channels did lower their customer acquisition cost and gain better conversion. However, the repurchase rate  of a certain product which was periodically purchased previously by customers decreased continuously. Thus, they started to work with ATA Technology to seek for a better solution.

ATA Technology firstly established the BG/NBD model based on the transaction data during the past five years. Categorizing customers with similar purchase behaviour into the same cohort — i.e., customers with their first order of purchasing product A, B, C…; customers with their first order of purchasing product A via campaign X, Y, Z…, and so on. ATA Technology calculated the average CLV based on the model.

The result is quite surprising for users who purchased the popular discounted product on their first order have the lowest CLV score among all cohorts. The common characteristic among these users are that these users were first brought to the brand from the same channel, which is channel P. Specifically, when the brand first invested on channel P, it has conducted several half-price promotions in order to attract customers and increase brand presence quickly. However, the customers were converted only because of this one-time discount, which caused the result that the customer loyalty is much lower than the regular customers. That is, what we call — a fantasy illusion built up from the low-quality customer acquisition. 

After demonstrating the possible value of different customer cohorts, it is necessary for the brand to deliver a high-quality and creative customer acquisition campaign, to monitor the customer value from every marketing campaign in real-time , and meanwhile to acquire similar high-value customers. 

ATA Technology thus established a CLV platform, being able to collect data on multiple channels and get real-time performance from different marketing campaigns. With the implementation of BG/NBD model and CLV platform, we were glad to see the brand’s repurchase rate increased by 15% under the condition of remaining the same customer acquisition cost during the first 6 months of 2021.