Customer Lifetime Value Management
Lifetime value (LTV) is the value of a customer based on the total amount of order value less costs over a customer’s lifetime with a brand. Maximizing customer LTV is a key tactic for creating recurring revenues, reducing customer churn and limiting total customer acquisition costs. L.E.K. Consulting has developed a proven technique for managing customer LTV by driving retention, order volume and average order value.
L.E.K.’s approach to managing customer LTV involves first analyzing current customer LTV, loyalty and churn, and then assessing pricing models and consumer preferences (e.g., subscription, bundling, price tiers) to identify how to better meet evolving consumer needs. Additionally, opportunities for loyalty programs and methods to increase “stickiness” are reviewed to ultimately reduce customer churn, further driving customer LTV.
|LTV analysis: Evaluate financials and perform data mining to analyze consumer retention, average order value and order frequency|
|Customer segmentation and targeting: Analyze company data (e.g., first-party data, transaction data) combined with consumer surveys to identify the highest-value consumer segments and opportunities for driving further LTV|
|Portfolio offering: Assess how the company portfolio offering compares with consumer needs, to identify potential opportunities to improve customer retention or increase average order value/frequency|
|Competitive benchmarking: Research competitor strategies to determine best practices for driving customer loyalty, and establish benchmarks to rate effectiveness and performance|
|Predictive analytics: Build a machine learning model that identifies triggers for consumer churn, which can lead to strategies for improving overall retention|
|Strategy development: Review all elements of current customer LTV, consumer preferences and competitive offering, and suggest tactics to better manage customer LTV|
A global cruise line company launched a new product line yet struggled to attract sufficient customer volume. The company approached L.E.K. to pinpoint a target segment that will be attractive and profitable. L.E.K. ran a consumer survey of about 6,000 respondents to calculate customer LTVs and gather insights on media targeting. The client gained insights about its most attractive pools of consumers and their respective shopping behaviors, which can be leveraged for future product pricing and marketing to maximize customer LTV.
An emerging digital consumer finance company was considering product expansion outside its historically targeted and proven customer segment. L.E.K. partnered with the company to develop a commercial plan to assess the attractiveness of proposed customer segments, by evaluating the product economics (customer LTV and respective acquisition costs), key competition and the company’s right to win, and provided a market entry strategy.
A leading global magazine publisher was looking to improve its ability to acquire and retain subscribers to grow revenue and profitability more effectively. L.E.K. conducted a detailed review of the client’s customer and transaction database to identify indicators of churn or repeat purchasing. To analyze customer churn, the Data & Analytics team used L.E.K.’s machine learning toolkit to create a model that predicted consumer churn based on customer behavior and characteristics. The client was ultimately presented with initiatives to improve subscriber retention and launch interventions for customers likely to churn.