Not all customers are created equal
Large brands such as Amazon, knows exactly how much you are going to spend and when you are likely to purchase from them again. They acquire this knowledge through merging all the data they have on you, from purchase, to behaviour. From this they design clever personalized paths for you that they monitor. These paths or in marketing lingo funnels, are tested and designed for you in a constant iteration process.
With 310 million active customer accounts (as of the first quarter of 2016 according to Statista) – how do Amazon know whom from all the millions of customers, that they should prioritize and how?
The secret to that is knowing each customers specific lifetime value (CLV).
As CLV allows you to identify your most profitable customers in terms of generated income from purchases from your business.
This is also a metric you can follow over time for specific customer segments to identify if the results of your marketing efforts are improving over time. In short, is your personalization and marketing efforts having any impact at all? Are your relationship improving with the customer?
Knowing your CLV you know which your most profitable customers are and therefore can take active steps to attract more of these specific types of customers.
Calculating CLV helps you understand who your potential quality customers are and how much money you can spend on acquiring this type of customer. More high quality customers allows for a higher acquisition cost. Whereas for other types of customers, you should not allow the same CPA for in terms of calculating marketing costs and budgets. Makes sense right? However, many marketers still allow a baseline CPA for their marketing activities, whereas this should be reflected by the customers CLV. I.e the quality of the potential customer, in a specific case – the quality of the target group determine the specific CPA.