Delivering differentiating CX experiences has become a focus for many marketing leaders. Gartner research reveals that 67% of companies surveyed indicated they currently compete on the basis of CX. In two years, this expectation rises even further, with 81% of respondents anticipating their companies will compete mostly or completely on the basis of CX.
In an era of marketing accountability, marketing leaders feel pressure to demonstrate how their marketing investments — including increased investment in CX — bring value to the enterprise. (Alas, the days of Mad Men are gone.) Marketing accountability requires that marketing leaders align their marketing objectives with business outcomes and link marketing to their company’s financial performance. Marketing leaders are challenged to justify their investments to their CEOs and CFOs.
But as marketers shift their focus to CX, they struggle to identify effective measurements. Customer lifetime value (LTV) seems like a natural choice. LTV is a prediction, based on past purchase behavior, of an individual customer’s future value to a company. When combined with customer acquisition cost (CAC) in the lifetime-value-to-customer-acquisition-cost ratio (LTV:CAC), companies can measure the future profit they can expect from nurturing a longer-term relationship with that customer.
C-level stakeholders often are interested in LTV:CAC as a strategic metric because it aligns closely with profitability and long-term revenue growth. In practice, however, measuring LTV is easier said than done. Only 38% of CMOs surveyed by Gartner report that customer lifetime value is a top metric they use in decision making, and a full 58% of marketing analytics leaders surveyed by Gartner report that they have moderate or no trust in their customer lifetime value modeling.
Accurate measurement is the cornerstone of marketing accountability, but focusing on specific metrics at the expense of strategy can eclipse other opportunities to connect marketing initiatives to growth metrics. Incorporating the principles of LTV into your segmentation strategy, for example, and focusing your marketing initiatives on your more valuable over your less valuable customers (what is known as value segmentation) can demonstrate measurable lift in both revenue and profit.
Gartner’s Value Framework offers a model for identifying and serving your high-value customer segments. “Value” in a customer-centric world extends beyond short-term profitability and a tally of product sales to more sophisticated customer relationships that consider profitability, loyalty and advocacy. Our framework plots longer-term profitability against brand affinity.
Because marketing efforts are focused on acquiring and retaining customers whose behavior contributes most effectively to greater revenue and profitability, value segmentation can help shift the focus of success metrics from specific campaign and operational metrics to more business-oriented growth metrics.
Clients interested in getting started with value segmentation can read more here.
Clients interested in seeing how focusing on high-value customers helped one company cut marketing costs while simultaneously raising sales can find an illustrative example here.