Tried and True: Email Drives Customer Lifetime Value

Interview

Effective email strategies that focus on the repeat customer to increase Customer Lifetime Value (CLV) is still one of the best strategies for driving this growth.


Editor’s Note: This post is co-authored by Jacob Cook (Tadpull), Jay Stilwell, and Sebastian Brown Glad

Rewarding customer loyalty, win back strategies, and online promotional messages to a customer’s inbox is some of the tactics that online marketers are employing to encourage repeat customers. As we look across a sample of our clients’ recent performance, we’re seeing that ecommerce revenue is up, as is time-on-site. That said, it seems that success is somewhat specific to a product category, as customers appear to be making decisions based on ‘wants’ and ‘needs.’

Written by Keith Karlick, Principal at Mercutio

  • Keith Karlick
  • Keith Karlick Principal - Mercutio

Q: How are brands able to capture available dollars from customers while creating stable growth from the natural traffic increase?

Visualize “cost of a conversion” as a series of concentric rings, with the center ring being made up of brand loyalists, the smallest audience size. As the audiences grow—moving outward through the rings—the cost per conversion also increases, and the expected conversion rate decreases. At the same time, the marketing efforts also shift as you move to the outer rings. For example, customers who have purchased before or previously interacted with the brand have likely provided an email address, while new customers with low awareness of the brand were likely acquired via paid media.

Thinking back to my days in retail, the cheapest sale was always with an existing customer.

In the world of ecommerce, a focus around customer lifetime value (CLV) is a way to optimize for profit while using conversion as the KPI for top-line sales.

Q: What is “rewarding loyalty with loyalty,” and why is it more effective than a “one-and-done approach?”

“Rewarding loyalty with loyalty” is the idea that, by driving deeper relationships with customers, they’ll make repeat purchases, and these subsequent orders will have a lower cost of acquisition. Digital marketing tactics like email, branded content, social media, SEO and retargeting (email, search and display) are all tools to drive increased CLV.

We pull a few insights from the “Pillars of Profitable eCommerce” textbook used in graduate business analytics courses for eCommerce to explain why nailing CLV is so important now.

For some businesses: A one-transaction business model can be just fine, but only if you’re serving a huge market. The tricky part comes when you take into account the cost to acquire your customer (marketing spend, employee costs, business overhead) and the cost to produce the product itself. All these costs chip away at profit per unit. In fact, an ecommerce business can be doing $20M in sales and only seeing 2-5 percent net profit.

The “one and done” ecommerce business models are very tricky to pull off without cheap capital, and in “these uncertain economic times”, that seems especially difficult.

Now contrast that with Amazon Prime customers. They buy all sorts of things on the platform, which allows Amazon to double down on customer benefits and loyalty programs, funding them with the profits. Over time, that customer becomes quite valuable, as Amazon can sell them everything from paper clips to prefabricated houses. The lifetime value of each Amazon customer just grows, and grows and grows.

Here’s where Customer Lifetime Value gets very interesting. If we were to take all a business’ customers and graph them over time, we might expect to see the standard bell curve showcasing a normal distribution.

Graphics provided by Klaviyo


Instead, we see the Pareto Law or 80:20 Law in effect; in essence a small segment of our customers produce the vast majority of value for our business.

Q: Which customers are your best?

Turns out, there are a few key metrics. Without getting too deep into the statistics, we can look for the following traits in our customers’ data to get an idea of their Customer Lifetime Value (CLV), specifically as it relates to ecommerce.

  1. How often? (frequency)

    Why This Matters: Not all business models lend themselves to frequent purchases as we often see that widget businesses don’t lend themselves to repeat purchases. So, average order value basically equals the CLV which is a real gotcha when looking at monetizing acquisition costs.

  2. How recent? (recency)

    Why This Matters: The likelihood to purchase decays over time, and the greater the amount of time since a prior purchase, the less likely a user is to purchase again. We can use automation and anticipation signals here if the business model supports multiple purchases.

  3. How much? (monetary)

    Why This Matters: If customers buy repeatedly, the amount they purchase each time can help to identify them as having a high CLV.

Key Takeaways for Growing Customer Lifetime Value

It’s an estimate, but knowing your CLV starts to let you understand the drivers for running a profitable ecommerce business; figure in how frequently your user makes purchases, the cost to acquire that customer using online channels,and the cost to produce the actual product. And not all customers are equal, as the 80:20 Law dictates that a small percentage will drive most of your value.

The key is to spot those customers early, and to use your anticipation and automation tools for digital marketing campaigns to boost each cohort every year. Two tactics which can drive CLV are email marketing and promotions. As many of the technologies for email have evolved making it easier to create campaigns and segment audiences some of the methods remain the same.

Q: Why do Digital Marketing Activations drive Customer Lifetime Value?

Email is tried and true, and it continues to be a top revenue driver for many ecommerce businesses. Email also tends to be one of the smaller audiences to which brands can speak. The benefit of email is that customers can be sent a personalized message, and brands can assign each customer a unique identifier which can be tracked the entire way through the sales process. This information is highly valuable, as it drives learnings for future personalization efforts. The tactics of ‘batch and blast’ emails have largely been abandoned, as email technology has improved, allowing for the easy creation of dynamic segmentation. The benefit of sending emails to small segments of customers or individuals is being able to tailor the message to their interests, further increasing engagement, which improves the odds of a future purchase.

Cost of email acquisition is often the largest barrier when it comes to increasing the size of an email list. Additionally, the quality of the list—defined by the customer’s willingness to engage—is where the value of an email list resides. If a customer has already purchased from you, they are engaged. This is the moment where driving CLV via email begins: driving repeat purchases.

Promotions are typically built around discounting products and/or giving away an added gift for extra value (GWP, free shipping, etc.). These efforts can draw customers onto a site when used with email, social and paid media outreach, but they also give away margin to all customers who visit the site.

Q: Is there a way to give a discount to the customers who need a nudge to increase their AOV through personalized promotions as a method for driving CLV?

This would require an ecommerce platform with a fast API so a coupon code could be displayed in real time while the customer is on the PDP or cart page. It would also require a marketing platform that can determine the appropriate time to make the recommendation based on a CLV algorithm, as well as the ability to pass along the coupon code to the ecommerce platform.

Fortunately, all these technologies currently exist. Leveraging the Klayvio platform for customer segmentation, email setup + distribution, and automation makes all of this possible. Combined with our knowledge and experience of transitioning clients to effective email strategies, design, and automation programming helps to ensure a strong CLV performance. SOG knives, Theo Chocolates, and USCutter represent different customer segmentations though they are experiencing similar successes with their online marketing and ecommerce efforts. These clients are experiencing 20—30% revenue growth within 60 days of implementing Klayvio paired with a strong email strategy and 10% of revenue recovered from abandoned carts through email automation. With these performance metrics, it may be worthwhile to incorporate email marketing into your CLV strategy.

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