Experimentation

Optimise customer experience to deliver  Customer Lifetime Value

Personalisation is not the only approach to CLTV and driving recurring revenue.

The digital landscape of today is one in which customers dictate the terms of interactions with brands. They don’t just expect more; their expectations also change quickly, and they are willing to switch between competitors with very little loyalty.

Personalisation continues to be the buzzword of the decade and this coupled with a focus on optimising the acquisition experience, are commonly seen as the solution to exceed customer expectations and drive revenue.

To an extent yes it is true, however, I would argue that if a brand, particularly one with a subscription-based business model, wants to deliver exceptional value to their customers and drive recurring revenue in a sustainable long term manner, their priorities need to shift.

To avoid being locked into a vicious cycle of constant customer acquisition followed by high churn, brands must look at the entire customer lifecycle. This is where Customer Lifetime Value (CLTV) as a metric comes in.

What is CLTV?

CLTV is the average amount of money your customers will spend with your business over the lifetime of the relationship.

Why is it so important?

Customer acquisition is expensive. By increasing customer retention rates by 5% it’s possible to grow profits by 25%-95% - a big jump. 31% of brands believe they have a basic approach to CLTV, and 24% state they had no discernible approach to it.

At Daydot we have seen the power of subscription brands focusing on CLTV and the important role experimentation has to play in maximising CLTV and revenue. For the last four years we’ve been working with The Wall Street Journal (WSJ) who in 2015 set out a company-wide objective to reach three million net members in three years. Even with the best acquisition strategy, it was not possible to reach that objective by solely focusing on increasing the acquisition of members. This meant that not only did we want to acquire as many new members as possible but we wanted to retain them for as long as possible, helping The WSJ to maximise CLTV and achieve their company objective.

Experimentation for customer retention

In order to increase retention, new members need to understand the core value of your product as quickly as possible and create habits with it. Your customers aren’t going to be able to achieve this on their own - data and experimentation is needed to help establish the best onboarding and ongoing engagement strategy.

This is an issue that The WSJ and many other news publications face. With customers becoming more demanding of trials, it is common to be able to purchase a low cost trial e.g £12 for 12 weeks. While such a trial helps to reach order acquisition targets, it creates a large retention and churn problem. You have only 2 months to demonstrate maximum value and create habits before members are auto-renewed into the full subscription price, which at times can be a 700% price increase. Needless to say you’re fighting an uphill retention battle.

The post-purchase onboarding experience for many brands is just not working hard enough.

By understanding what retention driving actions we wanted The WSJ members to take (e.g. downloading the app), the priority of these actions and the window we had to create habits, we’ve been able to transform (through experimentation) the onsite and email onboarding experience.

We continue to experiment with the onboarding journey to help WSJ members see maximum value from their membership and to date it has delivered an 18% increase in customer retention, increasing CLTV.

Experimentation for churn prevention

In an online world it’s getting easier for customers to cancel subscriptions.

Currently if you live in the state of California and you purchase a subscription online, you need to be able to cancel online. This law is expected to pass to other states. Additionally, in 2019 it was announced that from April 2020 if you purchase a subscription in the US with a Visa card you need to be able to cancel online. I’m sure it won’t be long until we see similar laws in Europe.

This poses a new and larger churn problem. If you don’t have a call centre agent speaking to the customer at the point of cancellation how can you try and save them?

To reduce churn for the WSJ at the point of online cancellation, we carried out a research study to understand motivations for churning, what each member’s understanding was of their membership features and benefits, and what save tactics could prevent churn.

Using this research we have and continue to optimise the cancellation flow which to date has allowed us to reduce churn by 24%, increasing CLTV.

Re-aligning your acquisition goals

Experimentation within acquisition also needs to be a priority. However, a shift needs to take place in regard to the specific goals brands are optimising for. As I mentioned, if you only sell an introductory offer, such as the £12 for 12 week, you’re going to have a large churn problem. While, if you just sell a 12 month membership you’ll reduce the size of your churn problem, but you’re going to reduce your acquisition conversion rate, as only a small segment of your prospects will be primed and committed enough to purchase this.

With the WSJ we applied a new approach to acquisition testing which focused on long-term measurement. When running an A/B test - be it testing different levels of discount, value proposition or shop design - we not only look at the conversion rate and upfront revenue, but we wait to see the churn impact of each variation. It’s only at this point that we declare a winning test variation, with long-term revenue being our primary KPI.

It’s this optimisation and experimentation approach across acquisition, retention and churn – the entire customer lifecycle - which has allowed the WSJ to reach their order targets, and importantly meet their three million members in three years company objective. It has also played a vital role in helping the WSJ to drive sustainable recurring revenue that maximises their CLTV.

Top three takeaways for those looking to drive CLTV via optimisation:
  • Optimisation efforts need to move away from focusing on just acquisition conversion rates to also focus on CLTV in order to truly have a positive impact on the bottom-line and long-term growth.
  • To drive CLTV businesses need to better persuade customers to engage with their products / services and build habits around them.
  • To effectively deliver growth in CLTV, teams from across an organisation need to be united with a shared goal / focus on CLTV.
Katie Bloor

Head Of Optimisation, Daydot