Artificial Intelligence (AI) and Machine Learning (ML) are rapidly changing the retail industry. One key area where AI and ML are having a significant impact is in the calculation of customer lifetime value (CLV).
CLV is a metric that predicts the total monetary value a customer will bring to a business over their lifetime. By using AI and ML, retailers can better predict customer behavior and spending patterns, allowing them to target their marketing efforts and increase customer retention. This can lead to a significant increase in CLV, as loyal customers tend to spend more over time. With the use of AI and ML in CLV, retailers can gain a competitive advantage and improve their bottom line.
As on date, 28% of the retailers are already deploying AI or ML solutions which is a 7-fold increase since 2016. Traditional analytics are no longer sufficient for retailers to study customer insights and they have to switch to AI/ML based data for staying ahead of the competition.
Why Customer LTV is necessary in Retail
Customer Lifetime Value is a crucial metric for retailers as it measures the potential revenue a customer will generate over their lifetime. By understanding
Speeds up Customer Retention
CLTV not only identifies high value customers but it also reveals those customers who are easier to retain. Once you have this data, it will help you speed up the process of acquiring and retaining customers. You’ll be able to design a more efficient marketing strategy since you know how much to invest for retaining each customer.
Helps Incentivize Repeating Customers
In the e-commerce marketplace, the potential of selling to a repeat customer is quite high compared to a traditional retail outlet. The probability of selling to an existing customer is around 60–70% while the probability of selling a new customer is only 5–20%. CLTV helps you identify repeat customers and aids you in creating a marketing plan where you reward your repeat customers. Instant gratification is one of the perks of running an e-commerce retail.
Generates More Profits
Most of the retailers follow the principle that 20% of the customers bring 80% of the business. This helps them in categorizing customers according to their high LTV and investing more on them. Once this strategy is in place, it will automatically lead to higher profits for the company.
Role of AI/ML in Customer Lifetime Value in Retail
AI/ML can assist retailers in understanding customer lifetime value by analyzing customer data, predicting future purchases, and optimizing marketing strategies. This can lead to increased revenue and improved customer Read More…
