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Customer Lifetime Value in Digital Marketing


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Orientace na budoucí profit zákazníků zní v teorii skvěle, ale jak s tím dokážete aktivně pracovat? Kdy a jak konkrétně přináší CLV užitek a konkurenční výhodu?

Published in: Data & Analytics

Customer Lifetime Value in Digital Marketing

  1. 1. Confidential & ProprietaryConfidential & Proprietary Customer Lifetime Value in Digital Marketing DATA restart, 22. 4. 2016 Pavel Jašek (@paveljasek)
  2. 2. Confidential & Proprietary CLV: The Holy Grail of Customer Centricity
  3. 3. Confidential & Proprietary “ Customer centricity is a strategy that aligns a company’s development and delivery of its products and services with the current and future of a select group of customers in order to maximize their long- term financial value to the firm ”
  4. 4. Confidential & Proprietary Focusing on profitable customers % of Total Customers (sorted by profit) %ofTotalProfit ID 123 When there is a large heterogenity in your customer base in terms of profits that your customers bring you or losses you can count, you need to focus on selecting such segments. Create a Pareto chart like this using Tableau.
  5. 5. Confidential & Proprietary “ Customer Lifetime Value (CLV) is the present value of the future (net) cash flows associated with a particular customer “ “ Customer Equity is the sum of customer lifetime values across a firm’s entire customer base“
  6. 6. Confidential & Proprietary When a telco company acquires a customer, cash flow for next 2 years is easily predictable
  7. 7. Confidential & Proprietary When an e-commerce acquires a customer, how can you predict future profit?
  8. 8. Confidential & Proprietary How easily can you predict customer behavior? History Present Future Customer 1 Customer 2 Customer 3 Transactions in the learning period
  9. 9. Confidential & Proprietary E-commerce settings Focus on end customers (B2C) Non-contractual settings Non-membership status Always-a-share (vs. lost-for-good) Continuous buying Variable-spending environment Partial identification possibilities
  10. 10. Confidential & Proprietary Google Analytics only helps you to focus on top purchases and their traffic sources
  11. 11. Confidential & Proprietary Reports of lifetime value in Google Analytics serve its own purpose
  12. 12. Confidential & Proprietary How does CLV look like in reality? For each customer you typically estimate lifetime profit (discounted in following years). I’ve found out that for better actionability it is useful to estimate profit for some shorter term: ¼ to 3 years. This should be selected depending on the nature of business when your customer have high probability of repurchasing. Also, you typically calculate CLV each month/week/day in order to see how your predictions evolve.
  13. 13. Confidential & Proprietary
  14. 14. Confidential & Proprietary Your monthly calculations for each customer. Naturally, CLV models change when customer purchases and “fade out” the value when the customer is inactive.
  15. 15. Confidential & Proprietary Levels of CLV that you might use Trend of exact values: 107 CZK → 123 CZK Current exact value: 123.45 CZK Bucket: CLV High (3000+ CZK)
  16. 16. Confidential & Proprietary The simplest way to estimate CLV: sum up profits by acquisition cohorts Gross Profit for all customers
  17. 17. Confidential & Proprietary Easy way to estimate simplifications
  18. 18. Confidential & Proprietary Can you choose CLV as your KPI? CPA ROAS Profit Revenue Value Optimized ROI and Total Profit Optimized Conversions Cost Optimized PNO (CtRR, ERS, COS) Conversions Cost Optimized Long term Profit Customer Equity Customer Lifetime Value Optimized (CLV) Can you manage and optimize CLV directly? Or do you need to speak in terms of CPA and ROAS with your advertising platform?
  19. 19. Confidential & Proprietary Simplifications of marketing activities Seeing all touchpoints Attribution of conversions and costs Word of mouth and referrals Cross-environment behavior (cross-device, omnichannel) External and indirect effects Individual campaigns vs. portfolio approach Simplifications of customer data Future incremental purchases Past behaviour of a customer (new customer?) Variable spending Volume of sales Averages vs customer heterogeneity Data in the right moment At each step, you come across many simplifications
  20. 20. Confidential & Proprietary When a path is the goal P | alive Monthly or annual repurchase rate Ratio of new customers Ratio of profitable customers Number of customers with annual profit of 1000+ You can benefit from customer centric KPIs while not talking directly about CLV. Don’t hesitate to start with examples like this at first phase.
  21. 21. Confidential & Proprietary Areas where online marketers can benefit from CLV
  22. 22. Confidential & Proprietary Main areas where online marketers can benefit from CLV Theoretically: ➔ Customer Acquisition - Expansion - Support - Retention ➔ Direct Campaigns ➔ Customer Intelligence (CRM, managerial reporting) Ideas of use cases like those mentioned on The Wise Marketer, on Econsultancy and Custora are nice, but lack details.
  23. 23. Confidential & Proprietary 1) Customer Acquisition How much can we afford to pay for a new customer? What is the true value per acquisition? Should that influence CPA / ROAS targeting? What products drive higher CLV? How fast can we estimate CLV for a fresh user/customer? When can we compare CAC and Historical Profit + CLV?
  24. 24. Confidential & Proprietary Kevin Hillstrom There is a direct correlation between annual repurchase rates and the length of time you are willing to wait for payback.
  25. 25. Confidential & Proprietary 2) Customer Expansion For what segments of customers should we increase/decrease marketing activities (/costs)? When? When can we push marketing efforts on fresh customers? What is the impact of (up|x)-selling on CLV? What less profitable customers should we remove from mailing? What if CLV estimation rises?
  26. 26. Confidential & Proprietary 3) Customer Support Should we give a customer a gift or an exclusive deal? Who can (not) be given a discount? Who should wait in a queue for a support?
  27. 27. Confidential & Proprietary 4) Customer Retention How much can we afford to pay to retain a customer and still being profitable? What to do when CLV estimation drops? How to treat customers with low or negative CLV? Should we give incentives when CLV rises?
  28. 28. Confidential & Proprietary 5) Evaluate Direct Campaigns by change in CLV Decide which customers by CLV to select for a campaign. Can we get top 10% customers by CLV? Use ratio of CLV as max costs per campaign.
  29. 29. Confidential & Proprietary 6) Customer Intelligence and managerial reporting of your customer base Where will high profits come from? What are profit drivers? How well can we forecast sales? How does CLV/Customer Equity evolve? For various companies, markets, customer types, segments of customers. What activities can you do to support the growth?
  30. 30. Confidential & Proprietary 2 examples of acting upon CLV
  31. 31. Confidential & Proprietary Actionability concerns Reporting vs. optimization Using the data: support of bidding mechanisms Having the right technology platform for all of it Is there an opportunity for incremental conversions?
  32. 32. Confidential & Proprietary Step 1: Store GCLID upon conversion Step 2: Predict CLV using tools like the Google Prediction API Step 3: Upload conversion to AdWords using Offline Conversion Import based on GCLID (using CSVs or API) Step 4: AW Auto-bidding optimizes bids based on CLV $ - Sale or Sign-up Prediction of CLV A) Optimize for Lifetime Value using Offline Import
  33. 33. Confidential & Proprietary Offline Conversion Import 1 2 Create a CSV with Conversion Value of CLV, paired to a gclid. Try uploading the CSV
  34. 34. Confidential & Proprietary In AdWords, you then can get a custom column of imported conversions. It is recommended to start with a separate value, i.e. not including this metric in Conversions.
  35. 35. Confidential & Proprietary Target ROAS bidding strategy (simple example) Current ROAS: 6.67 (Revenue = 1,000,000, Cost = 150,000) Sum of CLV_12months: 350,000 (of incremental gross profit) Expected 12 months ROAS: 9.00 (+35%, Revenue = 1,350,000, Cost = 150,000) You can calibrate target ROAS by -35 % to 4.33 and estimate the reach of the same or even higher revenue.
  36. 36. Confidential & Proprietary Read more about Offline Conversion Import and learn how to optimize it via API More about target ROAS auto-bidding strategy
  37. 37. Confidential & Proprietary B) Google Analytics CRM Integration CRM Visitor ID: 123456 Loyalty ● Lifetime Value: High, $100k ● Gender: Male ● Visited Store on 3/15/16 Male USER ID 123456 High Customer uploads CRM data using CRM Visitor ID as join key via a csv file, API or Measurement Protocol 3 Remarketing list is defined in GA based on CRM imported user attributes and exported to Adwords/DoubleClick Customer generates CRM Visitor ID and sends it to GA via Custom Dimension (or utilizing User ID) during site visit 1 2 pred_CLV High
  38. 38. Confidential & Proprietary Act on CRM User Insights, e.g. CLV bucket Step 1: Create user segments based on the integrated CRM data Step 2: Compare the performance of, i.e. loyalty- targeted campaigns across members Step 3: Optimize campaign targeting and bidding Step 4: Use GA remarketing for robust CRM-linked audiences retargeting (RLSA, GDN) pred_CLV High Segment: High CLV
  39. 39. Confidential & Proprietary tl;dr 1. When you care about long-term profit, go for the pure CLV! 2. Act on CLV by importing it into your marketing solution and calibrating performance targets. 3. Target ROAS, RLSA and GDN remarketing are your actionable friends.
  40. 40. Confidential & Proprietary Additional reading For managerial overview of CLV and Customer Equity, read Peter Fader’s book on Customer Centricity. It is thin and recommended. If you want to start with modeling of CLV, read Gupta’s article (PDF) and study Bruce Hardie’s notes. For e-commerce, start with Pareto/NBD (if you use R, there is a package Buy 'Til You Die). Find out more about Pavel’s research project
  41. 41. Confidential & Proprietary @paveljasek