The Complete Guide to Customer Value Optimization (CVO)

Throughout this guide, we will discuss the concept of customer value optimization. This is something that all business owners need to understand. It is one of the key elements in any growth strategy, and you must learn how to get the most out of it to scale your business. 

To start, we’ll tackle an obvious question…

In this Guide:

  • What is Customer Value Optimization?
  • Why Do You Need To Focus On Customer Value Optimization?
  • What Does ‘Raising The Value of a Customer’ Mean?
  • What Does The CVO Process Look Like?
Customer value optimisation

What is Customer Value Optimization?

In simple terms, CVO is a process by which businesses look to raise the value of their customers in order to grow. 

If we dive a bit deeper into things, it focuses on creating a fantastic journey or experience for the customer. Specifically, we are looking at eCommerce businesses when we talk about CVO. The purpose of customer value optimization is, ultimately, to improve the ROI of all your digital marketing activities. 

Furthermore, CVO doesn’t look at short-term gains. The focus isn’t on trying to convert as many leads as possible to generate loads of sales. Instead, it’s all about creating a better customer experience by providing them with a more tailored approach to marketing. In turn, this will lead to customers that are more loyal to your business, and more likely to stick around for the long term. 

Why Do You Need To Focus On Customer Value Optimization?

In the past, eCommerce businesses would put all of their efforts into something called CRO – conversion rate optimization

A brief overview of CRO is that it looked at increasing the percentage of users performing specific actions on a website. So, you’d try to increase the percentage of users that bought a product or clicked a link to provide their contact details. 

The problem with CRO is that – as mentioned above – it focuses more on short-term gains and new customer acquisitions. Now, should you try to gain new customers? Absolutely, that’s a vital part of running a business. The issue is when you devote too much time and money to this, rather than looking at the bigger picture and inspiring customer loyalty. 

To put things into context, the probability of selling to an existing customer is 60-70%, while this probability shrinks to 5-20% for new customers. Naturally, this translates into some pretty big losses financially. You can spend the same exact amount of money on CRO and CVO, but CVO will be more beneficial and present a bigger ROI. 

So, from a basic viewpoint, customer value optimization is important for the growth of your business. It allows you to make your marketing budget go further, building loyalty and using customers that have already spent money with your business. 

However, it can also help with the following: 

  • Improve your customer retention rate by developing an approach that focuses on the customers themselves
  • Learn about the most valuable customers in your business – these are the ones most likely to spend more money and continue spending again and again
  • Pinpoint the products/services that are selling better than the rest, letting you optimize inventory management or resources

Ironically, CVO can also help with new customer acquisition. How? Well, think about the whole idea behind customer value optimization. You are creating a better journey and experience for every customer that interacts with your business. This doesn’t just include existing customers; it includes potential ones. Therefore, people are more likely to become customers because the journey is more tuned to their individual needs – we’ll talk more about this in a moment. 

Moreover, if your existing customers are becoming more loyal and having a better experience, they’re likely to tell others about this. Either through word of mouth or online reviews – both methods will help you generate more new customers. 

Clearly, CVO is a critical aspect of your business and marketing strategy!

What Does ‘Raising The Value of a Customer’ Mean?

When we provided our definition of customer value optimization, we mentioned that the goal is to raise a customer’s value. 

What exactly do we mean by this? 

Well, the easy way to think about it is that we’re discussing how valuable a customer is to your business. What do they bring to the table? 

For example, a bad value customer is one that will make a purchase and never do anything after it. Even worse, they return the order, wasting your time and money. Customers like these are hard for you to make a profit on because they don’t provide any value to your business. 

If you were to raise the value of this customer, they might start making more purchases. They keep coming back for more, placing larger orders, and rarely return anything to you. It allows you to make more profits, and continuously rack up some impressive sales figures. 

So, raising the value of a customer is all about making them contribute more to your business. And that is basically what customer value optimization is all about. You want to create a system that fills your business with high-value customers. 

Guide to Customer Value Optimization

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What Does The CVO Process Look Like?

Most marketing experts will agree that the CVO process has several different stages to it: 

  1. Identify your audience
  2. Use targeted advertising
  3. Create a lead magnet/tripwire
  4. Push your other products
  5. Provide a way of maximizing profits
  6. Develop a return pathway

We’ll now break down every step in this process to help you understand how to implement a customer value optimization system in your eCommerce business. 

Step 1: Identify your audience

Firstly, you need to begin by identifying your audience. Who are you trying to target with your marketing strategy?

Primarily, the purpose of CVO is to target the high-value customers we mentioned earlier. These are the ones that are most likely to be interested in what you sell. There’s no point wasting time and money on low-value customers because they aren’t ever going to help you make profits. 

Think about the type of consumers that will be very interested in what you have to offer. They are highly likely to buy something, meaning they have already done research into your product type. They may have bought similar things before as well.

Step 2: Use targeted advertising

A critical part of customer value optimization is using adverts that are targeted at your main audience. These ads have been tailored to them; they offer solutions and answers to the problems they currently have. 

It’s a really good idea to use channels such as Google Shopping Ads as part of your CVO strategy because you present your products to people searching for them – or for similar items. Social media ads are also extremely effective at generating traffic to your site. Not only that, but they generate traffic that’s interested in what you offer. 

Make sure that all of your ads provide a customer value proposition. This is something that gives your product more value. It’s a way of encouraging people to click on the ad because they feel as though they’ll get more than they would from a different brand. 

Step 3: Create a lead magnet/tripwire

A lead magnet is something you use to gather contact information from leads. It can be a free gift, a discount code; or anything that’s not a product yet encourages people to submit their contact details to you. 

You need a long list of contacts and email addresses as it helps with remarketing later down the line. When you’ve got people’s details, you can send them emails or personalized marketing material designed to encourage them to become repeat buyers. As such, they’re more valuable customers to your organization. 

Similarly, you could also create a tripwire offer. This is an initial offer that gives customers a discount on a product/service. It’s okay to sell this offer at a loss! The main aim is to generate some first-time customers and gain a large contact list. Once people have bought something from you, they are more likely to keep buying products – remember the stat from earlier!

Step 4: Push your other products

When someone has bought something from you, it’s time to up their value by pushing your other products towards their attention. These products will be the more expensive items that you can make a lot of profit on. They’re hard to sell to cold prospects, but once someone has already had a positive experience with your business, they’re more than likely to be interested. 

The key is to look at your customers and learn as much as you can about them. Again, thanks to modern technology and cookies, you can understand so much about a person’s browsing history and buying habits. This allows you to pinpoint the products most suited to them, pushing them towards your customers through email marketing, texts, or even just more display ads. 

The idea is to encourage customers to not only come back but to come back and spend more money. 

Step 5: Provide a way of maximizing profits

As we’ve mentioned throughout this guide, CVO is all about making a customer more valuable to your business. Repeat purchases are one way of ensuring this happens, but another way is to simply increase the money they spend with each purchase. 

To do this, you need to provide a way of maximizing your profits from every customer. A simple solution is to copy the Amazon method. 

Go to Amazon right now and click on a product. It can be literally any product you see but have a look at the rest of the page. Immediately below the product, Amazon will usually list a few other items and tell you that they are ‘frequently bought together’ with this item. There’s even a handy button to add all the items to your basket. 

This is such a clever method of generating more customer value. Instead of just buying one thing, they buy multiple things that all relate to one another. It actually improves the experience for the customer as well; they can get more from their purchase with these extra items! 

Another idea is to generate more profits by selling add-ons. Again, this is another Amazon tactic – but loads of other brands use it too. When an item is added to a basket, the customer is prompted to buy some additional things. Specifically, this could include insurance or an extra warranty. Once more, these add-ons encourage more money to be spent, optimizing the value of this customer. 

Consider many other ideas that are like these; you want to maximize profits from every purchase, while still maintaining a customer-focused approach. 

Step 6: Develop a return pathway

Lastly, you need to develop a return pathway. Fundamentally, this is what we’ve been speaking about a lot during these stages. It’s the idea of encouraging customers to make more transactions, rather than buying one thing and never returning. 

Your focus is to continue communicating with your customers to entice them into coming back and spending more money. A few ways you can do this include: 

  • Email marketing
  • Retargeting
  • Exclusive offers for existing customers
  • Loyalty bonuses – this is actually a very smart idea. Develop some sort of loyalty scheme that rewards consistent purchases. Tesco and other supermarkets do this all the time. It encourages customers to keep on buying your stuff, and they also receive benefits from this – like further discounts in the future

Don’t forget about a customer after they have made a purchase. Be sure to follow up and communicate your marketing material to them, so they are persuaded to return for more. 

In conclusion, customer value optimization is an effective way of making every single customer a more valuable prospect. They help your business grow by generating more profits per customer. Instead of your customers visiting your site and never returning again, they keep coming back for more – and spending more of their money. Follow the steps of CVO above, and you will see dramatic improvements in customer retention and loyalty. 

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