In this case study, read how Mike worked with an exciting UK-based scale-up to optimise their LTVs with the introduction of customer value management strategy, including the redefinition of the firm’s unit economics with a more compelling proposition portfolio that leveraged community engagement. The work delivered a 30% increase in net sales over the subsequent six months and an average 3:1 LTV/CAC ratio, up from -1:1.
Context
This scale-up faced a challenge common to many new organisations: a period of rapid growth meant that its product portfolio was rough and ready: many products were priced poorly with unsustainable unit economics; not only did this wreak havoc on the bottom line, but the inconsistent pricing confused customers, generating additional cost in customer contacts and complaints.
Although a small number of customers were deeply engaged with the product, most were semi-infrequent users, creating an opportunity to leverage existing community engagement through innovative proposition design and a clear strategy that balanced volume and revenue as equal priorities.
Employees at the business required an experienced leader to close the knowledge gaps within the business preventing them from managing customer value effectively.
Challenge
The CVG was brought in to define the customer value management strategy and improve lifetime value. This took the form of three streams of work: Proposition and Pricing Optimisation, Customer Value Management Strategy and Upskilling.
The work
Proposition and Pricing Optimisation – Both front and back-book propositions needed to be optimised to deliver a minimum 3:1 LTV/CAC ratio.
- Customer focus groups – CVG recommended the launch of a customer insight panel and regular focus groups to begin to understand what customers valued about the products and where they thought the product should go next.
- Price sensitivity – Explored pricing headroom amongst existing, prospects and lapsed customers to understand impact of a price rise with varying degrees of increase.
- Proposition Development – Launched and led a cross-functional team—the first of its kind in the business—to develop the new proposition portfolio based on customer and business expectations. Working backwards from the objective LTVs, the group was able to design a product portfolio that was priced correctly to drive incremental profit. Introduced a PAYG, Subscription and Membership to leverage existing community sentiment and engagement.
- Price Rise and Customer Migration – Designed the strategy for raising prices, communicating the increase to customers, and migrating customer to the new propositions with a view to proactively reduce price sensitivity before the change.
Customer Value Management Strategy
- Profitability Analysis – worked with the data and insight team to segment customers based on profit; enriched this analysis by overlaying purchase behaviour and developing whale curves to determine next steps.
- LTV development – Introduced LTV as a metric and developed strategy based on the new calculation, aligning it with business quarterly outlook and targets.
- CVM Framework – articulated the means through which the business could balancing volume and revenue whilst increasing LTV and improving overall unit economics and profitability.
Upskilling
- Insight Gathering – Outlined the correct means of collecting customer insight and overseeing the implementation
- Proposition Development – Outlined a framework for LTV optimised proposition development
- Strategy Development – Held strategy “Crash Course” workshops to teach key stakeholders the fundamentals of good strategy.
- Forecasting and LE process - Outlined a framework for the business forecasting process, grounded in initiative business cases and aligned with management expectations.
Results and KPIs
- Proposition and Pricing Optimisation
- Price rise completed successfully – 3:1 LTV/CAC ratio achieved
- New portfolio launched – 30% increase in net sales over subsequent six months
- Customer Value Management Strategy – 3:1 LTV/CAC ratio achieved
- Upskilling – Retention of key staff – 100%