There are two types of customers: those who buy and those who keep coming back. Success in ecommerce, and retail in general, depends on the latter. For VCs backing ecommerce upstarts, exponential growth and expansion often focuses on speed and a “growth at any price” mindset. On the other hand, traditional retailers must reinvent their playbook to keep up with a customer experience driven by tech that evolves quickly enough to meet consumers’ rising expectations. While delivery speed or online conversion rates for an ad campaign are essential to track, customer lifetime value (CLV) should be treated as the most crucial KPI for retailers in 2024.
CLV Isn’t Just Important — it’s the Difference Between Boom and Bankruptcy
A 2022 study revealed that ecommerce acquisition costs rose by 222% over an eight-year period ending when the study took place. This meteoric rise in cost further skews the oft-repeated rule that customer acquisition costs 5X more than retaining existing customers.
However, beyond those startling numbers are two other crucial aspects of CLV that make the metric indispensable. The first is that loyal customers pay off by spending more and referring more. Those with an emotional connection with your brand, a factor critical to that loyalty, have a lifetime value 306% higher than the average customer. Second is that most customers (73%) will jump ship and switch brands after just a single bad experience.
The bottom line is that lifetime value can propel a company, but is fragile. Brands must exceed customers’ expectations and connect with them as a top priority.
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Unlocking Lifetime Value and Loyalty Means Going Beyond Speed
Free two-day shipping lost its novelty long ago, and for successful retailers, fast shipping is a standard, accepted reality, not a significant differentiator. However, delighting customers is possible by focusing on other aspects of delivery and how they tie into the overall customer experience.
A great starting point is recognizing — as most retailers already do — that not all deliveries are equal, and the more challenging the delivery, the more improvement is waiting to be unlocked. Making painful deliveries (like those of big and bulky items) great is much better than making incremental improvements on food deliveries or small items that already offer a fantastic delivery experience.
Focusing on the Toughest Deliveries has the Biggest Payoff
Large furniture and appliances don’t often have fast shipping options; they usually come with long wait times and seemingly full-day delivery windows. They’re the Mount Everest of delivery complexity, often requiring the optimization of multiple delivery routes to converge at precisely the right time, so multiple delivery people can lift the item and do so at the same time that an installer is available. If the customer isn’t there or any of the other moving parts fail, it means a failed delivery, which often results in days more of waiting time and a repeat of the same intricate dance while the customer is already lost. It’s a challenge, but focusing on the tougher deliveries has the most impact and greatest ability to foster CLV.
Make Sure Customer Interactions are a Two-Way Conversation
The emergence of ChatGPT and other large language models (LLMs) has led to even more chatbots that often do more harm than good. Nearly eight in 10 customers prefer humans, a nod to the reality that current offerings are, by and large, not up to par. But it doesn’t need to be — and frankly shouldn’t be — an either-or situation.
Retailers understand the necessity and value of chatbots, especially amid a shortage of workers and the large volumes of conversations that can bog those workers down. Yet without retailer- and customer-specific data such as order history, customer information, buying preferences and previous engagements, as well as the ability to connect to often completely separate systems for logistics, it’s a one-way conversation with zero personalization, few good answers and plenty of frustration. Breaking down information silos and adding some of the basics allows for a humanized AI experience that is actually pleasant. Additionally, the ability to hand off to humans when necessary enhances the experience even further.
Fostering and maintaining customer loyalty over the long term has enormous implications on ecommerce and physical retail, and going to the tired old playbook of faster delivery won’t ensure success. Retailers must look to aspects such as the most challenging deliveries to solve — big and bulky — where they can unlock the most value and delight customers.
Likewise, improving upon ubiquitous tech such as “intelligent chatbots” that aren’t up to snuff allows retailers to win over customers in an area already deemed critically important without reinventing the wheel. While delighting customers takes time, investment, expertise and most likely multiple attempts to get it right, customers will leave after only one time of getting it wrong. The biggest risk is doing nothing for customers and hoping they’ll return.
Ziv Fass is the CEO and Co-founder of Package.ai, an AI-based platform transforming last-mile delivery from a cost center to a customer engagement gold mine, leading to 10X growth in brand loyalty, advocacy and customer lifetime value. Fass holds an MBA from The Wharton School of Business and has decades of experience envisioning and building customer-centric communication software, including various product leadership roles at Microsoft/Skype.
