CMOs Are Struggling To Maximize Customer Lifetime Value

Just under half (47%) of marketers say they track LTV either slightly well or not well at all while only 17% say they track it well.

44% rate their ability to segment and target toward long-term value at just ‘slightly effective’ or below.

CMO Council has recently conducted a research in partnership with Deloitte entitled «Humanizing and Analyzing Relationships to Drive Revenue, Retention and Returns”. Based on responses from 150 CMOs, the research findings highlight the customer lifetime value (LTV or CTV) blind spots and how marketers can redefine and track it to reflect the new digital realities.

Customer Lifetime Value ( LTV or CTV) is a reflection of a brand’s ability to create loyal customers, which drives profit. It is a key performance indicator of a brand’s ability to deliver great customer experiences, helps marketers justify spending on targeted campaigns.

According to the research findings, 80% of marketers don’t fully understand the customer lifetime value, while only 17 percent of chief marketing officers track their LTV well. For 44 percent of CMOs, the top reason they analyze LTV is strategic organizational focus on customer retention and value creation.

Data from the report shows that 87 percent of consumers are loyal to their favorite brand for three or more years, with 61 percent making at least three purchases from the brand in the previous six months. The advantage of LTV investment for a brand, however, goes beyond the marketing team. The CMO Council found that 53 percent of chief executive officers and 49 percent of heads of sales utilize LTV to inform strategic decisions.

Nevertheless, CMOs struggle with tracking LTV– 82 percent track LTV only moderately well or worse, and more than one out of four don’t track LTV well at all.

The revenue of a customer over the course of a lifetime should be three times the cost to acquire that customer. While this cost of acquisition (CAC) to LTV ratio is a good starting point for understanding LTV, 43 percent of leaders rated their ratio as average at best. Another 25 percent rated it as below average or very poor.

Sixty-six percent of marketers cited revenue per user as a core component for measuring LTV, followed by 45 percent for transaction per user and 26 percent for sessions per users.

For LTV to be effective, however, leaders must take into account a variety of factors, starting with customer segmentation to ensure they’re not wasting resources chasing the wrong customers. The reality is 84 percent of respondents agree they’re not effectively segmenting and targeting customer sets with the most potential for long-term value.

The top challenge for cultivating lasting relationships boil down to data, without which marketers can’t segment and target customers with the highest potential for net profit. Respondents’ primary areas of concern include aggregating data for a robust view of the customer (55 percent), shifting from assumptions to predictive knowledge of consumers’ needs (47 percent) and identifying the moments to provide delight and differentiation (44 percent). The data-driven insights that CMOs seek most are: level of satisfaction (44 percent), LTV (41 percent), incident of churn and defection (37 percent), customer purchase history (35 percent) and brand loyalty (33 percent).

The good news is marketers know what steps they must take to convert customers—humanize connections, align the organization to fully deliver on the brand promise and offer products that meet well-defined needs.

LTV-boosting initiatives that CMOs currently find most effective include enhancing communication of product value proposition (47 percent), doing more sophisticated targeting (42 percent) and leveraging relevant marketing content (42 percent).

To maximize LTV, marketers must change their mindset from acquisition to retention, as well as pay close attention to channels where

Over two thirds of marketers (68%) say their lifetime value to customer acquisition cost (LTV-to-CAC) ratio was average, below average, or very poor.

customers leave signals about their needs, such as email (73 percent), social media channels (54 percent) and web forms (54 percent).

Consumers may provide the greatest amount of signals over email, but the most effective signals occur through service and support interactions.