How can CPG brands adopt more of a CLTV mindset?

Monday 25 June 2018

Article

I've been working a lot in Africa recently - which has been a fantastic privilege understanding the reality of CPG supply chains, sales and route to market, basic data and analytics...and it's been an education. Its brought me back to CPG basics.

After 30 years of building consumer goods analytics models, perhaps CPG analytics isn't as complicated as I thought; it's the number of customers, their purchase frequency, pack size, and realised pricing, minus acquisition and retention costs. This inspiration is perhaps important to re-thinking the maths of CPG brands in a post-Byron Sharp world of "penetration eats frequency". The maths is pretty elegant.

And this elegance lends itself to bringing Customer Lifetime Value thinking to Consumer Goods... I've spent a career building CLTV models in Media, Telco and Retail (e.g.: the highest decile customers for a supermarket have circa 70x the CLTV of the lowest decile).

How can CPG brands adopt more of a CLTV mindset?

I have worked at the intersection of brand building and analytics for a better part of my working life - 30 years of building econometric models! So I know to break this down into a series of questions;

The first question is why CLTV, and its value as both a tool and an overall mindset? CLTV may sound like another one of those complex analytical terminologies, but it is not. In simple terms, CLTV is a dollar value of customer loyalty. You have to agree with me on one thing – maintaining loyalty is one of the key challenges for any CPG brand (for that matter for any brand).

Defining and measuring loyalty has always been difficult for a CPG brand. There are various disruptive factors at play – high levels of retailer influence at the point of purchase, increasing fragmentation of categories, rise of a more cost conscious customer and the emergence of e-commerce.

To take an example, the near-riots in France’s Intermarche supermarkets caused by heavily discounted prices of Nutella, is an example of retailer stupidity that destroys brand value. The riots were not inspired by brand loyalty but by sheer money-saving motives.

If CPG brands were to adopt a more CLTV mindset, they need to understand the best practices of the approach. CLTV is more than a metric. It is a holistic approach that encompasses brand portfolio optimisation, SKU optimisation, up-selling and cross selling and reward / loyalty programmes. In simple terms, a customer with a high CLTV is more loyal. But the opposite is not true.

A customer with low CLTV is not necessarily less loyal, but more open to experimentation (not the first time I've heard that this Cannes Lions week) and has a bigger repertoire of brands for any occasion. A CPG brand can have all (or any) of the following aspects built into a high-value CLTV customer creation strategy:

• Improved acquisition tactics (both short and medium term)
• Proactive customer acquisitions, i.e. right from launch and continuing through to brand lifecycle
• Continuous margin improvement
• First “90 Days Bonding” – this may sound romantic but loyalty is built quicker in the earlier days
• Ensuring that there are no “lost sales” by understanding factors that impede the final moment of truth
• Increase up sell and cross sell – this is valid specifically for any CPG brand that has a broad range or has invested in line or product extensions
• Increasing purchasing frequency – this is fundamental to loyalty and can be achieved by making a brand appealing and relevant for a variety of occasions
• Improving retention levels – this transforms low CLTV customers to high ones
• Repelling competitive attacks by investing in value enhancement throughout the portfolio
• SKU optimisation – identifying top performing SKUs so as to prioritise investments on their distribution
• Winning back ‘lost’ customers – a lot of effort is put behind new customer acquisition but enough on winning back lost ones
• Designing and implementing innovative reward programmes – CPG brands need to think out of the box when it comes to reward programmes. Effective reward programmes impact CLTV levels significantly
• Enhanced customer experience – high quality customer experience impacts CLTV positively. CPG brands need to ensure that customer experience is consistent across all touchpoints, which is critical because of the non-linear nature of customer journeys

For any CPG brand, a CLTV strategy leads to more effective segmentation of its customers. Marketing planning can become more targeted by focusing on different CLTV groups, who are differentiated by frequency of shopping, level of spend, brand loyalty or combinations of different aspects of shopping behaviour.

A CLTV enhancing approach allows a CPG brand to focus on three important dimensions – store (could be online, offline or both), customer (behaviour, attitudes, path to purchase, engagement with category) and category (competitive dynamics, category evolution, channels of purchase). Meshing these three aspects together allows a CPG brand to have more clarity over the growth path it wishes to undertake.

In short, a CLTV mindset is a more customer-centric mindset, not sales first, and with clear long term revenue and profitability objectives. For any CPG brand, it is a more disciplined, evidence-driven and forward-think approach for brand building.