If You Build Customer Lifetime Value, They Will Come

Don't weaponize personalization

Let’s imagine, for example, that you’re selling a soft drink. The category typically has two types of buyers: passionate and infrequent. Either you drink soft drinks every day and twice on Sunday, or you have them occasionally when eating lunch. The former kind of customer is of serious interest to the marketer, who will want to reward their loyalty. The latter type, not so much. Those consumers merely need to be reminded of the product and prompted at the right moments to buy, such as when they’re in an amusement park on a hot day.

Today, anyone—especially someone who is selling you marketing technology—will tell you that we have an unprecedented opportunity to reach our customers one-to-one at scale. But just because you can weaponize personalization doesn’t mean you should. Customers of many brands won’t welcome that level of personalization, and it could lead to fragmented communications and inflated production costs. Rather, brands need to harness data to understand the value of their customers and how to be relevant in their lives, not just in the upper part of the purchasing decision funnel.

In fact, it’s time for marketers to stop thinking of personalization in isolation and start thinking about the value of and to the customer first. Customer lifetime value (CLV) is of critical importance in rationalizing any personalization and segmentation strategy. To build it, we need to make a data-rich but realistic determination, even accounting for things like the lack of loyalty among most consumers.

CLV varies greatly from brand to brand, category to category and segment to segment. It also changes based on whether a company has two brands or 22. For example, if the company has many brands, it can use what it knows about Customer A to introduce her to Brand B. And finally, CLV depends on the margin and frequency of purchase of a product or service.

Once you understand the value of a customer, you can then come up with a segmentation strategy. It wouldn’t make sense as an investment. There is, however, a right segmentation strategy for your brand. You merely need to find it.

In other words, rather than following the lofty ideal of the right message to the right person at the right time, brands need to find the optimized level at which they can be helpful and meaningful to consumers. The right segmentation model might have seven categories or just one. It all depends on the product or service you’re selling. Is it expensive or high volume, frequently purchased or not, and high or low margin? Every customer for a luxury yacht is different, but most people buy soap for the same reason. You should invest in personalization for the first, but you wouldn’t want to segment too much for the second.

You might argue in a modern context, you want to build a relationship with your customer even if they don’t have much value and still need to connect with them emotionally to make a lasting bond. Such an argument is more from the world of logic than science. It’s important to understand that you’re not building a relationship with anyone. That’s a metaphorical concept that comes with a lot of baggage best left aside.

Research has shown that most people have loose relationships with brands. They may say they want deeper connections, but they rarely make them. Instead, it’s more important to be relevant when it matters most. We can use the data at our disposal to find those critical points and signals when our message will resonate. This can be as simple as selling umbrellas on a rainy day or as complicated as determining the emotional state of a person who really wants a product but is reluctant to buy.

That doesn’t necessarily mean that you’re particularly granular. You can easily be relevant to a large group of people in the same way at different times. The key is to find out when it’s best to be present and make sure your brand is in the consideration set at purchasing time and consistently adds value in their lives on their terms. When it comes to CLV, the entire customer experience is likely more important to a brand than precision marketing and one-to-one at scale.

Currently, too many people talk about personalization as a goal in and of itself. It should never be. Every brand has an appropriate level of personalization based on the value of the customer. Data today can identify that level of personalization and drive outsized returns. But we need to realistic about how much is too much, and instead seek to be personally relevant and valuable to consumers—and relax about personalization.