The Vital Role of Customer Experience and Lifetime Value

My bright blue bathing suit had turned pale pink from all the chemicals in the pool and I knew it was only a matter of time before the chlorine ate through the nylon fabric. Once, when I waited too long to replace an old suit, the front of my trunks ripped wide open and the see-through mesh lining underneath left little to the imagination. I did not want to repeat that walk of shame back to the locker room.

So I did what millions of shoppers do every day: I signed into Amazon and with a few simple clicks, I found and ordered my favorite suit. And then, because it doesn’t get any easier than Amazon, I picked up a few spare bicycle tires, filters for the vacuum cleaner and a novel I’d been meaning to read.

Within five minutes, my shopping was done and I was grateful for all the time and hassle Amazon just saved me. At this point, I’d usually log off and forget about Amazon until the next time I needed it. But this time, I did something wholly out of character: I signed up for Amazon Prime, the company’s $99-per-year membership that provides subscribers with free two-day shipping, streaming music, movies and TV shows, unlimited photo storage and other benefits.

It was out of character because I generally dislike shopping and I do my best to ignore sales or anything else that smacks of marketing to needs I don’t really have. But we’d just bought a smart TV and I figured now might be the time to take advantage of Prime’s media offerings.

And who better than Amazon, a company that bends over backwards to make its customers happy? It’s easy to use, provides highly personalized service and it almost always works. If by some chance something goes wrong, Amazon will fix it, no questions asked. Based on every single interaction I’d had with Amazon, I had no doubt Prime would be a great customer experience.

It used to be that a great product was enough to propel a company to newfound heights, but those days are long gone. Customer experience is the foundation upon which a growing number of companies are betting their futures. It’s a simple premise: give your customers the best experience they could hope to find and watch them come back time and time again.

Customer Lifetime ValueAn article earlier this year in the Harvard Business Review “The Truth About Customer Experience” defined customer experience as a customer’s overall journey with a company–the cumulative impact of multiple interactions over time, which generates a positive relationship feeling, or lack of it. What the C-suite is coming around to is that providing a great customer experience is a true competitive advantage that results in higher customer satisfaction, increased revenues and lower costs.

Superior customer experience is also central to the concept of Customer Lifetime Value (CLV), which is a prediction of all the value a business will derive from its entire relationship with a customer. At its highest level, CLV is a “weather vane” that measures whether a company is cultivating more meaningful, profitable long-term customer relationships.

While CLV is not new, it’s increasingly getting the attention of the C-suite as a litmus for fiscal health and a compass for corporate direction, and there are a couple of reasons why. First, it enables companies to segment customers according to their long-term return to the company. The most profitable customers, the estimated 20% who account for the lion’s share of a company’s long-term profits, behave differently than those who spend much less. Second, once a company can distinguish among its customers, it can choose the most optimal service level for different types. CLV also enables a company to discover which acquisition strategies and/or channels attract the most profitable customers.

Over the next several weeks, I will be exploring the various ways companies identify, satisfy and retain their most valuable customers with the aim of maximizing their customer lifetime value.

Next up: CLV and customer retention.

About the author: S.A. Morrison is a San Francisco-based freelance writer who has followed software trends for a variety of leading technology publications. Morrison was a proponent of recurring revenue models long before they became popular.