The Complete Guide to Customer Value Optimization (CVO)

Customer Value Optimization
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Understanding your clients and their sentiment is the key towards Customer Value Optimization. In this article we will understand a few basics such as – what is customer value, why it is important, and the steps you should take after reading this blog to start optimizing your customer value.

What is Customer Value?

A click, a purchase, a review, a subscriber – it’s what it’s all about – the customer. That’s who you cater to with your products and tailor your strategies to. However, not all customers are created equal in terms of customer value.

Customer Value: the cost investment into attracting/retaining a customer vs. the revenue return of their loyalty.

Customer Value is usually grouped into 3 categories, but can be adjusted to fit your company’s goals:

  •  Low Value: the customers that bring in minimal profit – don’t buy very often, and only buy low-margin products, return products, etc.
  •  Mid Value: the general majority – one-off or occasional customers, with an average spending and return rate.
  •  High Value: the ideal customer profile – repeat buyers or high-margin spenders, satisfied and loyal.

The goal is to turn as many low- and mid-value customers as possible into high-value ones. Read on to find out how.

Why is Value Optimization Important?

Customers aren’t created equal, but they are all equally important to consider. By employing strategies that optimize (and maximize!) customer value, the business model becomes more efficient cost-wise, channeling spending into approaches that create the most useful outcomes while bringing in a profit that you can re-invest. For this to be successful you need to accurately determine the value of each customer and provide the appropriate response for each.

RFM

The first point of action is to analyze customers according to the Recency – Frequency – Monetary Value (RFM) Model.

  • Recency: How long has it been since a customer’s last activity? (i.e., purchase, interaction)
  • Frequency: How often does a customer engage with the company? (i.e., number of transactions, loyalty)
  • Monetary Value: What is the average spending commitment of a customer? (i.e., Average Order Value (AOV), transactions value)

Keeping in mind the specifications of your business, you may have to adjust the way you measure, allowing for average or desired customer lifecycle, frequency, and product value margins in your industry.

The next step is to apply these measurements to your advantage.

Optimizing Your Customer Value

The strategy of extracting the maximum value from your existing customers by transforming them into a growing base of high-value customers is called Customer Value Optimization (CVO).

CVO & Jay Abraham

When talking about CVO, you’ll often hear references to marketer Jay Abraham and his theory that a business can only be grown in three ways:

By increasing:

  1. The number of customers
  2. The average transaction value per customer (Monetary Value & AOV)
  3. The number of transactions per customer (Frequency)

This model also effectively connects with the components of a high-value customer base – many customers who buy a lot and return often.

So where do you start with building a Customer Value Optimization system? There are several clear steps to take, making sure to delight customers at every checkpoint of this well-known and well-used funnel.

The 7 Steps

1.  Find the Fit

The first step is to align the Product/Market fit.

Figure out what your market is and where your product fits in – what is the problem that your customers have and how is your product a solution?

Define in detail both your target market and product relevance, and from there work through understanding what your customers want at each value level. In this way, you can optimize your marketing to address their needs better, focusing especially on the mid- and high-value level customers.

If you want to go further, determine how your product is the best solution out of all the competitors. The wider the gap between your target customers’ concern and the state of satisfaction when it is solved by your product, the more value your product holds for them – which can be reflected in the pricing.

2.  Target Traffic

The second step is to narrow down your most effective traffic sources.

There are many traffic sources and platforms available, both paid and unpaid. Spreading efforts across many inefficient sources can be hard to manage and measure, which becomes a waste of time and resources.

Focus on the traffic sources that bring the most value. Your aim is to filter and attract the prospective and most engaged customers and drive them to the rest of the CVO funnel; have the correct tools and metrics in place to measure the value of the traffic.

Measuring the value is incredibly important, as your aim is to track engagement and relevant data of the traffic to understand what is working and what isn’t. With the proper targeting, the resources you invest into the traffic source (and each visitor or click) should be eventually providing a reliable return on investment in the form of a high rate of attracted visitors turning into engaged customers.

When you get to a point of stable growth from your traffic source, you might find that you may well be able to afford investing even more than the face value of the traffic, because you have established a stream of proven conversion down the line.

3. Lure in with Lead Magnets

You can look at Lead Magnets as the customer hook, where you offer useful products for free in exchange for contact info.

Lead magnets are usually placed on landing pages or squeeze pages to attract attention and ask for names and emails in return. By receiving the customer’s info, you are officially opening up an avenue of direct marketing, where you can follow up and further engage.

Lead magnets should be valuable to the customer and free of charge. If they are useless, vague, or misleading, they will be ineffective at convincing customers to volunteer their info and open up mutually beneficial communication.

Ebooks, courses, guides, templates, discounts are all lead magnets. Offer various lead magnets of interest to your target market, segmenting them by topic or type. Specificity in Lead Magnets helps encourage a high conversion rate as their appeal is in being highly tailored to your target audience’s needs.

4. Tease with a Tripwire

A Tripwire is a low fee product offer with the aim of converting leads to paying customers.

This is the first financial transaction in the funnel, where your audience is presented with a valuable offer at an irresistible price, encouraging them to make the transition to buyers, and drawing them in to higher priced products.

The Tripwire must be and a proper taste of your product or services on a low-cost or discounted scale – depending to the industry you’re in, this could be products, books, special introductory prices, free trial access. The aim of this transaction isn’t to generate profit, it is a way to get customers over the hurdle of hesitance.

You can publicize your Tripwires on your website, but they are most often used in the direct marketing stage with the contact info obtained earlier, when your Lead Magnet has made a positive impact. This is also where your Customer Service and Experience should start shining through, making communication a delight for the customers.

5. Prepare the Core Offer

This is the main event, where the Core Product comes in: the flagship products or services of your business.

Hooked and reeled by the Lead Magnet, and over the hurdle and happy with the Tripwire, your customer has been primed for continuing the relationship with the brand. If they have been satisfied with the service, quality, and value so far, customers will be more interested and inclined to buy into your higher-value core items.

You offer them your core product – clearly advertised and thoroughly marketed – your specialization in what is most valuable for your customers, the features they should invest in and keep coming back for. Customers are much more likely to buy at this point after having had several different positive transactions and experiences with the business than if the Core Product was marketed via cold campaigns.

And although this part can be profitable, usually the main money usually comes in the next step…

6. Provide a Profit Maximizer

Profit Maximizers are extra products that complement and enhance your core offer.

Would you like fries with that? Every purchase is a customer experience with a product and items or services that enhance that experience are usually where most businesses make their profit. These products are usually offered during or after the sale of the Core Product. By working enticing Profit Maximizers that are useful to the customer into your plan, you can create a rich brand ecosystem.

Upsells, cross-sells, recommendations, accessories, bundles, subscriptions, premium tiers, memberships are all examples of profit maximizers… Think of the adage whereby cinemas make most of their profits on selling popcorn rather than the movie tickets.

7. Retain with a Return Path

As a customer goes through this Customer Value Optimization system, their value increases. Step-by-step they are turned into high-value customers, buying at high margins and returning often. Maintaining an ongoing relationship with your customers is crucial to keeping them high-value.

Use a Return Path to gently direct existing customers to the start of your CVO funnel.

Incentivizing customers to return is key to continuing the cycle of providing value and receiving profit. A Return Path restarts the process of overcoming hesitation and easing them into their next purchase. This reinforces you work through the steps of the RFM model – increasing the frequency and monetary value of interactions with your customer base.

Loyalty programs, discounts, exit offers, personalized email marketing, ad retargeting, social media, and other incentives are all ways of maintaining contact and reengaging.

Recap and Conclusion

By understanding how your customer base works and measuring it with the correct metrics, you can use Customer Value Optimization to increase the potential of your customers.

By applying the Recency – Frequency – Monetary Value (RFM) model to your customer segments and following the 7 Steps of: Product/Market Fit, Lead Magnet, Tripwire, Core Offer, Profit Maximizer, and Return Path, you can streamline your inbound business model, making it cost-efficient and extracting the maximum value from each customer while providing top-quality service to meet their needs.

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About Revuze

Revuze is the first company to provide on-demand access to 1 billion consumer insights into over 300,000 products. Since 2013, Revuze has been servicing some of the biggest brands in the world with access to valuable consumer insights in a matter of hours, instead of months.

Revuze’s AI-powered solution helps product companies in any industry — from electronics to personal care, from home appliances to consumer-packaged goods — monitor the ecommerce market, identify emerging trends, and assess products’ strengths and weaknesses. Backed by Nielsen and SAP, Revuze is headquartered in Netanya, Israel, and has offices in New York, NY, and Montréal, Canada.

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