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Retailers Pressured to Drive Lifetime Customer Value

Some 58% of retailers say the top business pressure that influences their loyalty-program decisions is the need to develop lifetime customer value, according to research conducted by Aberdeen Group.

Lifetime customer value is defined as the present value of future cash flows through long-term customer relationships.

“In times of stagnant growth, retailers need to develop lifetime customer value through improved customer retention, re-activation, and acquisition strategies,” said Sahir Anand, senior analyst at Aberdeen and chief author of the customer loyalty benchmark report.

Among retailers, 93% say they execute loyalty programs as a standard offering for their web, store or catalog channel customers. Such campaigns may include point perks, rewards, coalition marketing, frequent buyer offers, and private-label credit cards.

However, the tactical nature of these loyalty campaigns targeting short-term retail demand often overshadows lifetime customer value, according to Aberdeen.

“Loyalty campaigns are executed without due consideration to ideal customer segments, tools, coordinated cross-channel marketing needs, and long-term customer relationships,” Anand said

Cost-benefit issues surrounding loyalty programs are top-of-mind for retail marketers, and measurement of ROI on customer loyalty programs is continuous, the study found. Determining such an ROI is a much simpler process than other retail solutions, such as POS, merchandising or pricing, Aberdeen said.

Repeat visit (61%), incremental sales (58%), and overall satisfaction (57%) have emerged as the three most significant factors used by retailers for justifying spend on loyalty elements, operational costs, and upgrade/deployment of loyalty software applications.

As for technology used to enable loyalty programs, the top priorities among best-in-class companies are database marketing, end-to-end loyalty marketing software, loyalty card-processing software and CRM applications, Aberdeen found:

Aberdeen conducted the survey of 231 retail enterprises between May and June 2008 to determine the current state of loyalty technology and process integration in retail.