Picture this. A customer’s online order arrives later than expected. She reaches out to your customer service team to complain. Do you have a standard policy to appease customers with this same problem? Perhaps it’s a partial refund or 15% off a future purchase.
But should all of your customers get the same appeasements when making a complaint? What if you knew that customer would never purchase again?
Some low-value customers might complain to customer service just to get a discount, coupon, money back, or even a full refund. If those customers are unlikely to purchase from your brand again, it doesn’t make sense to lose money appeasing them.
In this post, we will share how to quantify customer service and appeasements based on customer lifetime value.
Personalized customer service
Instead of offering all of your customers the same appeasements for various complaints, consider switching to a personalized customer service strategy for each customer. This may seem daunting, but you can rely on a few key tactics to get the process up and running quickly.
First, figure out how much each customer is worth to your brand. You can do this by calculating the individual lifetime value of each customer using first-party data. For this process to be most effective, it’s important to rely on customer lifetime value metrics that are available early in the customer journey. This way, you’ll know how much a customer is worth after just a single purchase.
Continue to consistently record this metric throughout each customer’s journey. “Tracking CLTV in real-time allows your agents to quickly assess a customer’s retail value and gain insight into their loyalty,” Ted Mico, CEO and co-founder of Thankful AI, said. “This is crucial for tailoring service experiences to each individual customer and making them feel valued.”
Next, determine how much you should spend on appeasing customers based on their individual CLV. You can make this process as tailored as you like. We’ll walk through a few ways you can structure the process.
One option is to base appeasement spending based on customer lifetime value. For example, if a customer is worth $200 to your brand over their lifetime, you might decide to only spend 20% or $40 appeasing them with refunds or discounts. For a customer worth $500 to your brand, you would then be willing to spend up to $100.
Another option is to create tiers of customers by value. For your lowest value customers, who may never even purchase again, you could only offer discounts on a future purchase. For your highest value customers, on the other hand, appeasements could come in the form of partial or even full refunds. It’s more important to retain a very high-value customer than it is to keep a low-value customer.
Regardless of which method of appeasing customers is best suited for your brand, having customer-centric policies in place will help build customers’ trust with your brand. “The key is ensuring all customers are receiving the same level of personalized support every time,” said Mico. In order to consistently maintain these appeasement practices at scale, Mico recommends leveraging AI automation. Calculating optimized appeasement offers based on a number of different criteria can be a tedious and repetitive process, which is exactly the type of task AI automation can handle with consistency and ease.
Trained and customized for your business, AI automation can fully resolve large volumes of personalized customer conciliations. “Customers expect you to uphold your customer-centric brand policies while still delivering quick and pain-free service. AI automation allows you to do both without making any sacrifices,” Mico said.
Predictive customer lifetime value
As discussed above, the best metric to power your personalized customer service strategy is predictive customer lifetime value. By employing your first-party data–and any third-party data you might have access to–you can determine the lifetime value of your customers at the point of first purchase.
With CLV metrics available early in the customer journey, you don’t have to wait around for three, four, or more transactions to determine what each customer is worth to your business. Instead, you can start actioning on this lifetime value information immediately.
For customer service, this means you can determine how much you should spend on each customer in terms of appeasements, discounts, refunds, and the like. With accurate and predictive CLV, you can use this strategy for all of your customers, not just those with a large transaction history.
More specifically, you can also use residual customer lifetime value to power your customer service strategy. If a customer’s CLV is $500, and they’ve already spent $400 with your brand, you can use the residual CLV–in this case, $100–to determine how much to spend on appeasements. Logically, if a customer’s residual CLV is high, you should spend more to retain that customer and earn the remainder of their lifetime spend with your brand. And if the residual CLV is nearing zero, you should spend less on customer service related costs.
To further illustrate how this process works, we put together a Quality of Customers (QoC) Report for a leading retailer using third-party data from 4.6M anonymous, random U.S. customers. For this example, we assumed the customer acquisition cost is $40 and that the gross margin is 60%.
This leading retailer has an average order value of $104 per customer, with an average of 4.4 orders per customer per year.
The QoC illustrates that 20% of customers bring in 65.7% of the revenue for the retailer. It would make sense to spend the most on appeasements to retain these customers, given the large share of revenue they make up.
Next, the QoC also offers engagement based segmentation metrics. These segments can easily be applied to the customer service strategy. There are four groups:
- Champions (12%): the most loyal customers who repurchase and spend the most
- Potential loyalists (47.8%): customers who have purchased a few times but are not high lifetime value yet
- Can’t lose them (5.4%): customers on the verge of lapsing
- Lost high value (2.7%): previous high lifetime value customers who churned
The retailer should spend the most money on customer service for “champions.” It’s important to keep these customers happy and resolve any issues quickly because champions have the highest CLV.
Next up is the “potential loyalists” group. It’s crucial to reserve an appeasement budget for this group with the aim of pushing them into the high CLV tier.
For the third group, “can’t lose them,” it may make sense to focus customer service solutions on future purchase discounts. This group is at risk of churning, so the retailer could use customer service appeasements as a way to inspire a future purchase.
The final group, “lost high value,” aren’t worth much to the retailer. It doesn’t make sense to spend a lot of money appeasing this group, as they are very unlikely to purchase from the brand again anyway.
The leading fashion retailer example helps illustrate how you can use predictive CLV metrics to drive your customer service strategy. Instead of spending the same amount on every customer in terms of appeasements, a personalized strategy not only saves costs, but can help you retain your best customers and improve the incremental CLV of your mid-level customers.