3 techniques to boost holiday CLV with advanced segmentation

There’s a good reason for New Year’s resolutions — with the holidays comes mass consumption. And while some of us might be concerned with our calorie intake, retailers have other concerns: US consumers will spend over $655 billion during the holidays. For the retail industry, the holiday season is a sure-fire source of new customers.

New customers and increased spend mean that the holiday season is a crucial time to solidify relationships so that these consumers turn into repeat shoppers.

There are two important metrics to keep an eye on during the early part of the customer lifecycle: Early Repeat Rate (or ERR) and Predictive Customer Lifetime Value (or (P)CLV).

ERR captures the current one-time buyer conversion rate; it’s the percentage of new shoppers who make their second purchase within 60 days of their first.

(P)CLV captures the value of those customers; it’s a prediction of the total amount of revenue or profit a single customer will spend throughout her relationship with the brand.

It’s important to measure both metrics to provide some checks and balances. For example, imagine a marketing team that tries to improve the ERR with extensive promotions following the first purchase. In this case, the ERR will likely increase substantially. However, the (P)CLV scores will drop considerably.

September and October generally have highest Early Repeat Rates, as new customers often come back and transact during the holidays. However, holiday shoppers are tough. A finite number of customers are transacting during the holidays, and there’s a lot of noise (events, promos, products).

The CLV of holiday shoppers (that is, shoppers who make a first purchase during the holiday season) is also 15 percent lower than customers acquired during the rest of the year, as these customers are often buying gifts and don’t become repeat customers.

While the competition can be tough during the holiday season, it’s important to keep an eye on those two key metrics: ERR and P(CLV). To make it easier this year, here are three segmentation techniques to help you communicate the right way with new customers this holiday season.

1. Right product

How do we deliver relevant product stories to our customers? Which customers should get our snow boots email and which should get our cashmere sweaters email? Customers receive a barrage of retailer emails during the holiday season, so one way to cut through the noise is to show customers the products that are most relevant to them.

Algorithms like k-means clustering can help you sift through large amounts of data to uncover patterns — for instance, customers who have similar interests or have a tendency to buy similar kinds of products. These analytic approaches can help sort even brand-new customers into known clusters based on leading indicators of purchase behavior.

2. Perfect price point

Customers tend to have a price range in which they’re willing to purchase an item. And whether that’s $30 for a scarf or a thousand dollars for gold-plated dumbbells, you want to be able to highlight great holiday items in the customer’s desired price range. Which customers should get the luxury self-gifting email and which the regular gift guide?

Price point segmentation is also critical during the holidays. By showing customers products in the right price range, you can not only increase conversions, but you can also grow revenue with the ability to effectively showcase your higher-priced items. Using a customer analytics solution, retailers can group customers into buckets based on meaningful price ranges.

3. Right channel

How do we maximize return on investment during the holidays by tailoring the channel to customer preferences? Which customers are likely to respond to email and which on Facebook?

Forty-five percent of paid search budget is spent in Q4 alone. Anything we can do to make more intelligent choices about how to use this paid ad budget is beneficial. For example, retailers can look at customers with low email engagement and high CLV, target them on Facebook and Google and optimize return on ad spend.

Looking at a customer’s email engagement rate and predicted email frequency, retailers can make decisions about whether they should be receiving more or fewer emails. Marketers can use this to determine which paid channels to invest in and how many emails to send.

Final thoughts

As the most important time of year for new customer acquisition and with competition on the rise, it’s crucial for retailers to optimize ad spend and differentiate themselves. These three segmentation techniques should help make holiday messaging more relevant and improve Early Repeat Rate and Customer Lifetime Value.