A month ago, Peter Fader and Daniel McCarthy, professors of marketing at Wharton Business School at the University of Pennsylvania, published a paper titled Customer-Based Corporate Valuation for Publicly Traded Non-Contractual Firms.
In the paper, the academics found that the underlying models of customer acquisition and retention do not adequately reflect the empirical realities associated with these behaviors, and the associated valuation models do not meet the standards of finance professionals.
Motivated by an increasing trend whereby companies are disclosing information on the number of customers acquired and lost, customer lifetime value (CLV), and other data, the academics sought out to find the link between the value of a firm’s customers to the overall value of the firm, with the term “customer-based corporate valuation” being used to describe such efforts.
The authors' findings not only prove that marketers play a direct role in growing business valuation, but also refute the belief that growing the customer base is the most important element contributing to business valuation. In fact the retention of loyal customers and the extension of customer lifetime value reap greater rewards.
The research shows that when companies focus on retention marketing, they contribute much more value over the long run in terms of their business valuation. Advertisers can immediately apply five best practices to grow customer lifetime value for their portfolio, using e-commerce as the cost-effective channel for discovery and fulfillment.
1. Reactivating inactive prospects
When marketers embrace list hygiene and run re-engagement campaigns, retention flourishes.
Peter Ansbacher, the strategic advisor at iContact, helped Freedom Motors sent targeted inactive prospects a series of three emails. The client's open rates increased from 12 percent to 22 percent and still continues to trend upward.
"As a residual effect, the unique open rate has also increased by 57 percent," shares Hank Hoffmeier, the strategic insights manager at iContact. "Since there was more email opens, it is normal to see an increase in click rates, and this client welcomed that increase."
According to Hoffmeier, the combination of purposeful email marketing best practices led to an improvement in email deliverability, increase open rates, and increase your return on email marketing investment.
2. Offering free shipping
Popularized by Amazon, free shipping has proven itself to be an effective hook to spark customer interest in a product and is especially useful to drive trial of new offerings.
Salik Gadit, head of e-commerce for Junaid Jamshed Australia, grew the average order value from A$90 to A$100 by offering free shipping.
"To calculate your current average order value and target your new average value that you want to achieve, simply make the new number a threshold for free shipping," he says. "This helped us in two ways: customers started adding other category products in their carts such as makeup and fragrances to complete the threshold, and they loved these additions.
Not only was the average order value increased, but the volume of orders rose by 20 percent.
3. Embracing personalization
Achieving favorable unit economics often means comparing the costs of customer acquisition to the variable cash flows after the fact. With personalization in pixel tracking and the deployment of email marketing best practices, advertisers can effectively program campaigns in line with replenishment needs of their target audience for specific product segments.
"Effective retargeting will ensure that you connect shoppers with the things they need and love," says Dushyant Sapre, business development director for Australia, India and Southeast Asia at Criteo. "We have found that shoppers who are shown personalized ads at the right time will more likely return to the site to purchase. Through relevant recommendations, they are also more likely to purchase similar or related products."
Sapre says that by using Criteo's retargeting technology, ShopClues was able to predict a shoppers’ readiness to purchase and show them relevant ads, resulting in a 323 percent increase in sales volume and 70 percent rise in sales order value.
4. Offering bundles
Commercially popularized by organic user behavior on Pinterest, "Get The Look" brand messaging allows merchants and retailers to pitch a head-to-toe ensemble of outfits or wearables, preferably around a well-known figure or even a fictional character. Within the field of ecommerce, this practice is referred to as bundling, offering the shopper the perception of getting more for less.
By allowing its shoppers to build their own bundle, Jet.com was able to sell 12 million products to more than 4 million customers last year. Sites oriented around new moms, such as Moms.sg, grow the customer lifetime value by offering bundles around subscriptions for items such as pampers, baby food, and bibs, with SMS reminders offering immediate replenishment options.
5. Planning rewards
A favored hack of marketers when using digital as a tactic, social currency rewards have been proven to be effective in incentivizing actions that allow advertisers to gather information, retarget better, or simply sell. With audio and visual cues tied to uplifts in dopamine, this controversial tactic is tough to master.
“Increasing order value is often needed to help achieve economically viable e-commerce," shares Emily Lim, the managing director for Lion & Lion in Malaysia. "For example, in one case we increased average order value by almost 50 percent by offering free shipping on orders above an economic price point, increasing cross-sells through targeted emails and ads, creating bundled promotions and using time-sensitive deals, such as 11.11 to give a reason to ‘buy now’."
With careful and considerate combination of these tactics, and reflective A/B testing, brand marketers can grow or extend CLV while gradually improving the average order value. Smart monitoring tools and nudges aside, the perspective of delivering value to the customer consistently across channels delivers the highest brand sentiment and recall, driving intent based search on the dot-com. By placing customer experience at the heart, a business achieves top of mind recall and captures enough mindshare for shoppers to proactively return on their own volition.