This article was based on the interview with Neil Hoyne of Google by Greg Kihlström, MarTech keynote speaker for The Agile Brand with Greg Kihlström podcast. Listen to the original episode here:
Customer lifetime value (CLV) is a metric that measures the long-term value of a customer to a business. It takes into account the total revenue generated by a customer over their entire relationship with a company, as well as any associated costs. CLV is an important metric because it allows businesses to understand the true value of their customers and make informed decisions about customer acquisition and retention strategies.
In the podcast interview with Neil Hoyne, he discusses the benefits of focusing on long-term customer value. They argue that businesses that prioritize CLV are more profitable because they are not wasting time on relationships that won’t go anywhere. By understanding the value of the relationship with the consumer, businesses can provide better customer service and build stronger connections with their customers.
From the consumer side, the podcast highlights the importance of feeling understood and appreciated by businesses. Consumers are more likely to stay loyal to a brand that values their relationship and treats them well. On the other hand, if a business fails to recognize the value of a customer, they risk losing that customer to a competitor who does appreciate them.
The podcast also provides an example of Amazon and how they focused on high-value customers to build their business. By identifying that high net worth individuals disproportionately buy books, Amazon positioned itself to capture these customers and provide them with a superior service. This strategy allowed Amazon to differentiate itself from traditional brick-and-mortar bookstores like Borders and Barnes and Noble and ultimately become a dominant player in the industry.
Despite the clear benefits of focusing on long-term customer value, the podcast acknowledges that many companies still struggle to adopt this approach. The speaker suggests that there may be several reasons for this, including a short-term focus on immediate profits, a lack of understanding or awareness of CLV, or a failure to prioritize customer satisfaction and loyalty.
Customer lifetime value is a crucial metric for businesses to understand and prioritize. By focusing on CLV, businesses can gain insights into the long-term value of each customer, identify high-value customers, make informed decisions about customer acquisition and retention strategies, and prioritize customer satisfaction and loyalty. Ultimately, by optimizing CLV, businesses can drive sustainable growth and profitability.
