Building Customer Lifetime Value Across Borders
Most companies still measure success in the amount of product they move. They lump customers into a single mass and measure “average value,” although typically around 80% of their revenue comes from 20% of their customer base. They communicate to all customers in the same way. They spend the same marketing dollars on all customers, regardless of value or behavioral indicators. And as we have seen from the myriad of traditional retailers closing their doors over the past few years, this strategy is not working.
The most successful retailers are focused on building customer lifetime value (CLV). CLV is a forward-looking, predictive measurement that is calculated by modeling and projecting the following:
- Length of customer relationship (for churned customers) or likely length for active customers
- Number of transactions
- Value of transactions
- Other activities, such as referrals, positive reviews, social engagement, etc.
Companies that take the “customer-centric” approach of operating with the aim of measuring/managing CLV understand the importance of building a single view of the customer that includes all transactions and interactions with the brand. To this end, retailers are spending a huge amount of time and resources on creating omnichannel capabilities, but relatively few – including many of the largest brands and retailers in the world – are adequately focused on “omni-nation” commerce. There is no such thing as “domestic customer lifetime value.” Whether a shopper lives in Amsterdam, Abu Dhabi, or Austin, transaction data must be collected in a robust manner to ensure a consistent view of customers, regardless of where they live.
While the internet is making the world a smaller place in many ways, when it comes to making purchases abroad, or selling across borders as a retailer, it often seems just as big and spread out as it ever was. Borders and the administrative and logistical issues that come with them are still tremendous barriers that keep the world from being totally connected – and prevent the retailer from fully understanding the nature and value of its entire customer base. There is a long list of considerations for retailers endeavoring to sell across these imaginary lines, including-
- Building a country specific microsite vs. localizing the retailer’s primary site. Which will attract and better serve high-value customers?
- How to best market to local shoppers—using the right terminology (i.e. jumpers vs. sweaters), featuring the right merchandise for the climate, etc.
- How to convert prices into the right currency and have them make sense, in addition to aligning them with the prices the shopper would see in a local store. Appropriate duties and taxes per country must also be calculated and figured into the mix.
- How to ensure that a loyal shopper can gather and use their loyalty points no matter where they shop, and fully participate in the brand experience a domestic shopper can.
- Offering the most locally relevant and highest converting payment methods at checkout.
- Getting the merchandise to the shopper in a timely and cost-effective manner.
- Making returns and refunds as seamless (and as expedient) as possible.
- Making sure the retailer is compliant with all local laws including privacy and service.
- Keeping visibility into the customer’s data and maintaining a single view of the customer.
Despite all the potential hurdles, cross-border eCommerce is currently the single best way to move the needle significantly for many retailers, considering the untapped market of billions of people it unlocks. However, optimizing the cross-border shopping experience is not only a matter of making products available to more shoppers. Retailers must also must ensure that they retain visibility into the identities and activities of international buyers and can interact with them just as they do with domestic customers. Some of the most loyal, highest value customers might be buying from their favorite brands during their travels. If retailers don’t account for those transactions, they’re missing a big piece of the data picture and also passing up potential marketing opportunities.
Many retailers look to expand globally by outsourcing their cross-border operations to eCommerce solutions or selling on marketplaces. While this can be an efficient solution vs. building in-house capabilities, it may also mean giving up the ability to retain control of their brand experience and their customer data. In the case of marketplaces like Amazon, retailers are directing traffic that would have gone to their own websites to a third party that now controls that data. Not only can they market to the customer going forward, but the company has lost the visibility into that customer’s data and activity. While this might be the best solution for smaller brands looking to gain traction with minimal investment, established brands should think twice.
When you take a customer-centric perspective (as outlined in my new book “The Customer Centricity Playbook: Implement a Winning Strategy Driven by Customer Lifetime Value”), you come to realize that resolving all these cross-border issues isn’t a matter of cost – it’s an investment in understanding your customers around the world and developing deeper relationships with them. It’s worth every penny (or peso or rupee, etc.).
About Peter Fader
Peter S. Fader is the Frances and Pei-Yuan Chia Professor of Marketing at The Wharton School of the University of Pennsylvania. In 2015, Fader co-founded Zodiac, a predictive analytics firm that was acquired by Nike in 2018. More recently, he co-founded Theta Equity Partners, which focuses on customer-based corporate valuation. Fader is also the author of Customer Centricity: Focus on the Right Customers for Strategic Advantage.