In this blog, you will discover 5 proven ways to increase customer lifetime value using design thinking. Explained herein is CLV and design thinking and the relationship between them. Questions answered include: How to increase customer lifetime value? How to improve CLV?

Do you know that improving customer experience and focussing on customer retention are five times more profitable than acquiring new customers? What can you as a business leader (CEO, CFO, CXO) or chief marketing officer (CMO) do to improve customer experience and customer retention? What role does improving CLV play in growing your business? How can incorporating design thinking increase your CLV?

Traditionally, it is believed that acquiring new customers can cost up to 5 times more than retaining them. Hence, improving the experience of customers and focussing on retaining them have always been more rewarding than actually putting all your funds into driving new traffic, and/or acquiring new users or customers.

While the cost of acquiring new customers may have gone down relatively as companies have largely shifted to digital marketing, in the words of Wharton Marketing Professor Peter Fader, decisions about customer acquisition, retention and development should always be based on “future value”.

So, how to find the future value a customer can bring to your organization? Customer lifetime value, or CLV, in short, is the answer. Let us understand what CLV is.

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What is CLV?

CLV is the value that a single customer brings to your organization throughout their relationship with your business. CLV is a measure of how valuable a customer is to your organization, not just on a particular purchase but across the entire history of purchases.

Customer lifetime value is an important metric, as it usually costs less to keep existing customers than it does to acquire new ones. So, aiming for increasing the value from your existing customers is a great way to drive growth.

Knowing the CLV helps businesses not only to retain existing customers, but also to develop strategies to acquire new customers, while maintaining profit margins.

CLV is distinct from other similar metrics such as the Net Promoter Score (NPS) that focusses on customer loyalty. An example of NPS may be in the form of a survey question asking existing customers to rate the likelihood that they would recommend your organization, its products or services to a friend or colleague.

CLV is also different from a metric like CSAT (Customer Satisfaction). CSAT is an often-used key performance indicator that helps in tracking how satisfied customers are with your organization’s products and/or services. 

Let us find out how to measure CLV.

How to measure CLV?

If a customer has made, on an average, a purchase of Rs 500 from an electrical shop every Diwali for the last 10 years, the CLV for this customer would be Rs 500 x 10 = Rs 5,000. This is pretty straightforward. 

But in bigger organizations, with more complex products and business models, it takes a little bit of complicated calculations to derive the CLV.

Needless to say that some organizations, therefore, do not even attempt to measure CLV. They cite various reasons like the challenges of segregated teams across cities, inadequate tracking systems and untargeted or undocumented marketing.

Talking in real terms, calculating CLV is easier even in bigger organizations, provided there is a willingness in the leadership team to walk the mile to make an effort to gather data from all areas of the organization.

Below, I am listing the steps on how CLV can be measured. Additionally, this list may also give us the answer as to how to improve CLV.

  • Identify

The first step is to identify the touchpoints where the customer created the value. (That means collecting the data on when and what amount of purchases were made by the customer since the beginning of their association with your organization.)

  • Integrate

The next step is to integrate the records by recreating the entire customer journey.

  • Measure

The third step is to measure the revenue at each touchpoint.

  • Add

The fourth and the final step is to add together the revenues over the lifetime of that customer.

If you look up the internet, you may be overwhelmed with suggestions on how to improve your CLV. But which ones are the most effective? Which ones give more permanence to your results?

The answer is not so simple, but the most important factor to help you choose the right way to improve your CLV is to see if your organization has incorporated design thinking into its culture.

What is design thinking?

Design thinking is based on human-centred design and innovation that emphasizes empathy so that its problem solving is based on the needs of the customer or end user. It is a creative problem-solving toolkit that prioritizes customers’ needs and aspirations above everything else.

Please read what is the importance of design thinking to learn about design thinking in detail.

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How to increase customer lifetime value with design thinking?

Here are the five proven ways to increase customer lifetime value with design thinking:

1. Focus on brand experience over ads

Branding is the most powerful tool to have recurring customers, because branding is the bridge between your product and customers. The products or services of your competitors might be better than those of yours or they may have features that are directly or indirectly copied from yours. But your brand will remain yours. 

If you are able to create a strong emotional connection with your customers through your branding, which is anyway easier with design thinking, your customers will take note of who copied your product features, and they will have reasons to distrust the copycats.

Here are two suggestions on how you can focus more on branding.

  • Lower your marketing expenses and invest in customer problem solving.

Turn your organization into the resource your customers are searching for to solve their problems. This can be easily done through storytelling, about which we will write in an upcoming blog. So, instead of spending lakhs in marketing ads, make direct connections with your existing customers instead and become their partner in solving their problems. Your customers will recognize you as a trustworthy source too soon.

  • Optimize your branding expenditure.

Strike a balance between larger one-time branding expenditures and smaller recurring ones. One-time branding expenditures will include creating a brand strategy, listing brand guidelines, designing brand systems and refurbishing your website and/or logo. Recurring expenditure might include training the junior and intermediate design thinkers to follow the brand guidelines and design systems already created.

2. Measure the impact of your design-thinking-based actions

You need to track your design performance the same way you do with your costs and revenues. Below, let us see how we can measure the impact of our design-thinking-based actions. To keep it simple, we are citing examples from an online subscription-based business.

  • Track your conversion rate and online views

Check your analytics regularly to find out basic trends like whether the views are increasing or decreasing. A conversion rate is considered lower if it is 1% or less and higher if it is more than 10% or more.

  • Look for how many people sign up before cancelling

A higher number of cancellations can indicate that customers are not satisfied with your product or service. It can also be due to the fact that the customers after signing up did not understand the next steps. Doing a round of feedback or test iteration can help you solve this.

  • Mind the page load speeds on every device

If a page on your website or mobile app takes more than 3 seconds to load, your website or mobile app will be usually considered slow. And this might drive away a lot of potential customers and frustrate existing ones.

  • Make feedback submission easier for your customers

Redesign your website or mobile app to make it easier for customers to submit feedback every time they use it. First-hand feedback collected at the very moment of transactions is one of the most optimum uses of design thinking to increase customer lifetime value. Also, read customer comments carefully and help them solve their problems.

  • Observe the other less-prominent aspects of analytics

Check the time taken to complete certain tasks on the mobile app or website, and use the data to redesign your processes.

3. Give autonomy to design-thinking problem-solvers

Design thinking encourages creative problem-solving for your customers to improve CLV. In order to get the best out of design thinking, you as a business leader must give autonomy to the designers. One of the best ways to do this is to put designers into decision-making roles.

Designers can translate creativity and design-thinking into quantitative business results. This can improve business outcomes and deliver long-term strategic goals. 

While thinking of investing in new marketing strategies, it will be a great idea to consult your design thinkers and ask them to revisit the already-created customer touchpoints.

4. Prioritize your customers and their experience

The deep understanding of customers and the practice of putting the needs of your customers first to solve their problems through empathy and iterations help you to build not only the best products and services but also the most engaging and delightful experiences for your end-users.

  • Synergise design-thinking strategies at each customer touchpoint

Consider your brand, your products and services, the customer support team and every other touchpoint in your organisation an entire experience on its own for your customers. It makes sense to synergise design thinking strategies at each customer touchpoint.

  • Create a mechanism to constantly learn from customer feedback

Take frequent short surveys from your customers, and set a system in place that constantly learns from these surveys. Acting on customer feedback is how you can create the experience your customers want and expect from you.

  • Set a strategy to test new features

Testing new features on a smaller set of your customers can help you launch market-ready products and services faster. But you need to employ a strategy to select your audience for testing. To test new features, it is better to use a mix of those customers who know you (40% users) and those who do not know you (60% users). 

5. Lower new customer acquisition cost

While investing on existing customers is one of the best policies, new customers are essential for growth and expansion. In order to increase CLV, you as a corporate leader can use strategies to keep new customer acquisition costs at the minimum. These may include embracing user testing early, using Squarespace or Webflow for website development, creating a strong community and using social media to your advantage.

What is the relation between design thinking and CLV?

Design thinking gives us some of the most efficient ways to increase customer lifetime value, since it is entirely focussed on a customer-centred approach to build products and services around the needs of the customers.

In a 2018 study that lasted over five years, conducted by McKinsey consulting firm, it was found that design-led companies have 32% more revenue than other companies and 56% more total returns to shareholders.

Since design thinking has the ability to build strong emotional connections, it is by far one of the best tools to get closer to the customers through the iterations of empathy, testing and implementation. 

You no longer need to spend lakhs of rupees every month for aggressive marketing campaigns, you just need to improve your CLV using design thinking.

About the author, Ajay Aggarwal – A Haryanvi by origin, an entrepreneur at heart and a consultant by choice, that’s how Ajay likes to introduce himself! Ajay is the Founding Partner at Humane Design and Innovation Consulting (HDI). Before starting HDI, Ajay founded the Design Thinking and Innovation practice at KPMG India. His 16+ years of professional career spans across various roles in product and service design, conducting strategy workshops, storytelling and enabling an innovation culture. He has coached 50+ organizations and 2000+ professionals in institutionalizing design and innovation practices. He loves to blog and speak on topics related to Design Thinking, Innovation, Creativity, Storytelling, Customer Experience and Entrepreneurship. Ajay is passionate about learning, writing poems and visualizing future trends!

We at Humane Design strongly believe in the human ethos and draw inspiration from humans and other elements of nature to design innovative solutions for organizations of all sizes. We will be glad to be your success partner. Email us your requirements at explore@humaned.in.

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