Growth Hacking Tips to Successfully Implement Customer Lifetime Value

Doing everything right for your product could also lead to underwhelming results. This happens because of a lack of marketing knowledge and missing indicators like product-market fit, consumer-brand loyalty, and repeat business from existing customers.

One hack that marketers around the world use is called the Customer Lifetime Value. At the MoEngage mixed in Jakarta, Ika Paramita Prasetyo VP – Marketing Technology of AiryRooms, gave a wholesome overview on this subject. 

AIRYRooms is an Indonesian hotel chain with branches in over 100 cities and 200 partners. They have seven million app downloads in just three years. They cater to consumers of all types like family and business travellers. 

AIRY’s Value Proposition 

AiryRooms works with hotels independent of any franchise and transforms them as part of their chain. Here are some ways they managed to master this model: 

Transformations 

The first step towards creating a valuable hotel property for AIRY is the transformations and renovations service. They find a mid-ground with a hotel and ensure necessary changes happen faster. 

This change is in the form of either a renovation aid or a loan. The choice of this option stays with the hotel. Additionally, AIRY provides its marketing expertise for better facades and neon-light boards. They also help with the branding of all elements inside the hotel. 

Lastly, they help with improving the supply chain process by adding the hotel to quality hotel suppliers. This process allows the hotel to gain higher bookings and indirectly enhances revenue. They also help in altering tariffs to meet industry standards. 

Technology 

The other way that they make the hotels a “world-class standard” is by adding the relevant technology that the hotel lacks. This upgrade is to improve and manage the end-to-end operations of the hotel. 

They start with a top-of-the-line property management system to enhance the booking and sorting process. If needed, AIRY also invests in a self-check-in kiosk. They also provide additional tech support in hotel shops and other limbs of the establishment. 

Training 

A critical way to build trust in a hotel chain is by ensuring the staff is equally competent at all outlets, which happens with hospitality training and certification. 

They train the staff in everything from management experience to building a property community. They ensure these steps meet consistent quality with other branches of the hotel chain. 

This training is possible both online, in-class, and via the learning platforms. 

Transparency

Lastly, they enforce transparency between the hotel outlet and AIRY. This belief occurs with the help of real-time payments and transaction reporting. The communications are end-to-end, and both parties are always kept in the loop about the operations of the hotel. 

They also ensure transparency in aspects like hiring, payroll, expense reporting, and much more. Feedback from both sides is always open to ensure flawless operations. 

The Foundation of Customer Lifetime value: 

Before we dive into the process behind acquiring the CLV; what does it even mean? According to AIRY, a customer lifetime value is the profit margin a company expects to earn over the entirety of its business relationship with the average customer.

This lifetime value is nothing but the total gross revenue after subtracting the total cost spent on the project. There are multiple ways to achieve this process, and Paramita Prasetyo, perfectly explains this at the mixer by MoEngage. 

Here are a few pointers one must keep in mind when deriving the CLV

Understanding Metrics

The first step to any successful derivation starts by understanding the data. Ensure tracked data of the organisation accurately. 

Understand which KPI is your True North. One way to do this is by selecting the right key performance indicator. These can be parameters like revenue, monthly active users, or new customer rate. Based on the industry, these KPIs will alter. 

It’s imperative to assess your monthly customer acquisition cost. Also, use these parameters to calculate your monthly user retention rate.

User Segmentations

The next step is to identify the most valuable consumers of the organisation. You can do this in two ways. Firstly, the use of Python can help you conduct an Elbow Clustering Method. In this case, use just two matrices for your calculator. 

The other commonly used model is RFM — Recency, frequency, monetary value. This is a value calculated based on the three parameters. 

Recency is how recently the customer attempted to or made a purchase of the product or service. Frequency is when a consumer makes a repeat purchase, and monetary value is the amount they spend. 

The scores are determined (usually) on a scale of 0-5, and the consumer segment who scored the highest in each division is called the “best consumer.” 

CLV Model 

To determine the CLV, you will have to first start by averaging your variables. Consider the variables as Customer Expenditure, Visits to store/website, and customer value [i.e., (expenditure) x (number of visits)]. 

Once you have all this data collected, you can imply one of the three equations to determine the CLV. 

1. Simple LTV = 12[( average customer value)] x (average customer lifespan) 
2. Custom LTV = average customer lifespan [12 x (average customer expenditure) x (average purchase cycle) x(profit margin per customer)]
3. Traditional LTV = Average Gross margin customer Lifespan{(Retention rate) / [1+(discount rate)-(retention rate)]}

Each of these methods to determine the customer lifetime value are debatable; the best trick for marketers is to calculate all three results and average them for a final CLV score. 

The same step, done for different consumer segments, helps understand which fragments are the most valuable to the brand. 

This calculation might seem highly overwhelming for new marketers; you can see the talk by Paramita Prasetyo to understand this with an example of some dummy data. 

Prediction Model and Testing 

One final step in the process is to use a prediction model to identify who is likely to return in a given time. Many businesses also use these models to enhance the retention rate. This would also be the ideal time to determine the excellent Product-Market fit. 

Lastly, back all this research with the market and A/B testing. Once again, perform cross-validations by performing as many and as different tests as possible. 

In Closing, 

Keep in mind that customer Lifetime value is just a tool, and it’s not a strategy. This process helps you determine a direction, retain more users and play with only specific segments of consumers. 

Take the time to modify and adjust your prediction models and adopt many learning methods to keep your market study timeless and relevant.