What is Lifetime Value and Retention Rate? Marketing Strategies to Know and Understand.

We think that to understand the beast, you need to enter the belly of the beast.  And we mean that metaphorically because while we believe that marketers are part of an unhealthy mass consumer machine, we certainly don’t think that they are beasts! But we do think that one of the most essential parts of learning to make your own decisions and chart your own course about where you will and won’t participate in the addictive consumer machine is to understand the language and tactics of the marketers who perpetuate it.  Today, we’ll be talking about a concept that drives marketers actions but that may not be visible or something that you’re aware of. That concept is lifetime value and retention rate, and much of the marketing you receive may be based on this concept and how you, specifically, play into it.

Defining the Term: Lifetime Value

The first step that a marketer has is acquisition. That means that he or she has to acquire you as a customer. But once you are acquired, an entire separate level of marketing kicks in. This level is designed to make sure that you provide the company with the maximum lifetime value possible. A lifetime value isn’t your value as a person, but you probably already figured that out! It’s the lifetime revenue that the company will make from you. It’s the number that the company’s accountants primarily use to determine how much marketers can spend to acquire you. Let’s say, for example, that you go to a store or website that sells shoes. You buy one pair of shoes for $30. If that’s all you buy over the course of time, then your lifetime value to the company was $30. But that means that the company may not have actually made more than a dollar or two from you in profit. By the time the company adds up the cost of goods sold, packaging, staffing and (of course) marketing costs, a single purchase may not even be profitable to them. What they really want in this example is for you to buy three pairs of shoes over the course of your relationship with them for a lifetime value of $90. Because each time you purchase, they experience economies of scale and their profit margin from you increases. How do they do this? They focus strongly on our next key term.

Defining the Term: Retention Rate

As you may have guessed, retention rate has to do with how long a company can retain you as a customer. Even the most passionate “brand advocates” eventually move on to other brands, manufacturers or stores. How long can a company or store maintain their relationship with you? The answer is exactly parallel to what they can expect to generate from you in lifetime value. Companies and brands truly do want a relationship with you, but don’t be fooled. The endgame of that relationship is to make more money off of you.

Marketing Tactics for Retention and Lifetime Value

So how do marketers work on retaining you and maximizing your lifetime value? The process is really two-fold. The first step is to open up communications with you. Right now, the most common way that is done is by gaining access to your email address. Once marketers have your email address, they can begin an ongoing conversation with you. Okay, let’s be honest. It’s not so much a conversation as it is a one-sided lecture. But chances are fairly high that you’re paying attention and that somewhere along the way the marketer is going to say or write something that spurs you to action. We’ll talk more about that in step two! There are other ways that marketers work to build this relationship: social media, endorsements, sponsorships, live events and even paper mailings are just a few examples. We’ve cautioned you before to be careful about giving up your email, postal address and social media contacts. This is why! Communication tools are the first (and most important) step in marketers turning you from a person to a retention rate and lifetime value number.

Step two of this process is equally important, however. This step is, simply, data. The more that a marketer knows and understands about what will make you like a brand, respond to a message or, most importantly, conduct a transaction, the more that they can put offers and messages in front of you that are likely to keep you around and turn you into another purchase. Did you purchase dressy heels or workout shoes at the shoe store or website that we just mentioned? Whichever it was, that’s the type of product information that marketers will now send to you to try to coax you into a second purchase. That’s a very simplified example and the way marketers at large stores or websites use data is extremely pinpointed and extremely accurate. But you get the general idea!

What Can You Do To Be In Control of the Process?

It’s unlikely that you’re going to completely stop shopping either in stores or online any time soon! But you can make decisions that will help keep you in control of the marketing retention and lifetime value cycle. Mix and match from the below ideas to create a strategy that works for you.

Don’t Give Up Information! The first step is to control marketers ability to contact you. That begins with not giving up your email or postal mail address. Be especially careful to look for small check boxes that are pre-checked that say that you give the company or brand permission to email you. Uncheck them!

Set Budgets Every Month. Every Month. We know that for some people not getting information from a company or brand isn’t the right move. So then the question is how do you make postconsumer choices with the information that you do receive? The first answer is to set budgets every month. That way, if a purchase item doesn’t fit within your goals, you can rapidly just say no to it.

Always Wait 24 Hours to Purchase. This is great advice for any time as well, but it’s particularly appropriate here. When you receive a communication that makes you want to buy something, put it away for 24 hours. You may think the better of the purchase in that time, or you may still want to buy it. Either way, you are then not making an impulse purchase.

Do Your Research! Learn about the companies and brands you are purchasing from or following. In many cases, you’ll uncover information that makes you simply want to disassociate from the company.

If It All Gets Too Much? Unsubscribe! At the end of the day, if you find that you’re struggling to resist retention and lifetime value messages from companies and brands, unsubscribe from them all! Trust us, it’s for the best and you will have found out how to get satisfied.

Did we miss a way that lifetime value is impacting the consumer machine? Tell us about it on the social media channels below.

Photo Credit: Julian Partridge via Flickr

By | 2017-08-29T13:00:50+00:00 September 25th, 2016|Consumerism, Marketing Traps|Comments Off on What is Lifetime Value and Retention Rate? Marketing Strategies to Know and Understand.