BREAK ON THROUGH TO THE OTHER SIDE

Whats the REAL value of Customer Lifetime Value?Greta WilsonVP Brand Strategy, Pitney Bowes

Today I will be discussing Customer Lifetime Value and how to get real value from it. I will be sharing new research we conducted with Forrester where we spoke with 120 marketing and customer data analytics professionals about CLV and a new way to think about it.

CLV is often used to determine the kind of experience delivered to a customer delivering the best experiences to your most valuable customers.

So lets start by looking at a video of customer experiences the kind of experiences you would NOT want to deliver to your most valuable customers

1

How NOT to treat your MOST valuable customers

Those are pretty awful experiences for any customer, but what if those folks were your companys most valuable customers?

Seems pretty important to know who they are so you treat them in a way that keeps them coming back and not in the way we just saw. Experiences go beyond those that are in person. They also include direct marketing, advertising, sales approaches, and so on

2

What is Customer Lifetime Value?Its thism*L - AC

So what is Customer Lifetime Value? Some of you may already be very familiar with CLV, but for those who are not

In its simplest definition, its the calculation of the annual profit margin of a customer, as noted by the m

Multiplied by the average life of that customer with your business, noted by the L

Minus the cost to acquire the customer, noted by the AC.

3

What is Customer Lifetime Value?And this

But calculating Customer Lifetime Value can also be more rigorous, factoring in the rate of retention for each customer the depreciating value of a dollar over time and so on. 4

Whats it for?

High valueMedium valueLow value

Regardless of what calculation is used, CLV helps identify your most valuable customers, to your next most valuable, and so on.

5

To decide:Who to targetWho to fireHow much to spend to acquire, retain, and/or up-sellWhy is it used?

"Knowing our highest-value guests allows for more laser focus, giving 15-20% of guests the best possible experience so they have a higher propensity of coming back."

By knowing the CLV of each customer, businesses can maximize revenue and profit. HOW?

By identifying who to target. such as with direct marketing. Knowing who is most valuable to you can help guide you in terms of knowing who to send your more high impact direct marketing pieces to.

CLV also tells you which customers to fire. If the cost to service a customer is higher than the profit of that customer, then it may be better to let them go. In 2009, American Express paid customers $300 to end their relationship because they showed a high risk of defaulting on their credit card debt. Sprint/Nextel canceled the service contracts of 1,000 subscribers because they called customer service for help too often, driving up their cost to serve.

CLV can also tell you how much to spend to acquire, retain, and up-sell a customer always with an eye on ensuring the profit of that customer is more than the cost of having them.

From our research, we heard the following as an example of why and how CLV is being used

Knowing our highest-value guests allows for more laser focus, giving 15-20% of guests the best possible experience so they have a higher propensity of coming back.

6

CLV is forSource: A commissioned study conducted by Forrester Consulting on behalf of Pitney Bowes, August 2015Base: 120 US-based marketing and customer data analytics professionals involved in calculating CLVImproving customer acquisition and retention72%Improving customer loyalty59%Increasing customer engagement 54%Improving sales lead generation40%Allocating budgets for long-term planning 34%Increasing share of wallet 32%Decreasing cost to serve customers 31%Improving win-back22%Q10. What business objective(s) is your company targeting by using Customer Lifetime Value?

Across all audiences in our research the #1 reason businesses are using CLV is to improve customer acquisition and retention

This isnt too surprising.

We all know the 80/20 rule 80% of business comes from 20% of the customers.

Knowing who those customers are and then making sure you get them and keep them is critical.

7

Todays CLV calculation is NOT valuable!

But Im here to tell you that todays calculation is not that valuable. 8

Why? Whats changed?

So whats changed that makes todays CLV calculation not valuable?

9

Nothing and everythingWord of mouth influences brand decisionsWord of mouth is louder than everData is goodData is amazing

Nothing and everything.

First {CLICK} word of mouth has always been important in influencing brand decisions.

There was the famous Faberge commercialfrom the 70s that showed a woman who told 2 friends about the product and how they told 2 friends and so on and so on.

{CLICK} Word of mouth is still very important today According to Nielsen, 92% of consumers believe recommendations from friends and family over all forms of advertising.

In a recent study from the American Marketing Association, 64% of marketing executives believe word of mouth is the most effective form of marketing.

Today. with more than 10 billion connected devices, 1.5 billion people on facebook, 800 million on WhatsApp, 300M on Twitter, the world is more connected than ever before friends are texting, tweeting, liking, snapchatting, instagraming, and commenting all the time about everything. We are in the share and tell era. And our friends are influencing us our views our decisions.

{CLICK}When Daniel Craig was filming Skyfall he wore a Billy Reid peacoat that he purchased himself and convinced the director to use in the movie. As they were filming in Shanghai they posted some pics of James Bond in this coat and fans took notice. While the tweets were not about the coat, people admired it, wanted it, recommended it, and promoted it. It went viral with the store immediately sold out.

{CLICK}SecondWhile data has always been important the access to it and what you can do with it today, is astounding {CLICK}. Data is amazing!

Businesses are able to track individual behaviors of a person and serve them the most relevant information at the most relevant time.

This past summer, I was invited to a super heroes party. I went to Amazon looking for an Incredibles t-shirt and placed it in my Amazon shopping cart. I ultimately decided against it but the next day when I was online, I started seeing ads for Incredibles t-shirts. Amazon had me in their cart. I was ripe. They were maximizing their most recent behavior data on me to drive a purchase. SMART. At that moment I became a little more valuable to Amazon and they acted on it.

10

"Wewant to see what we can collect in terms of data so that the level of precision in predicting value increases in accuracy and is more prevalent to ensure people walking through the door with high value get a high level of service."

11Accessing more data to predict with greater precision which customers have the highest value is key to business. As said by this Global Hospitality Executive from our research

We want to see what we can collect in terms of data so that the level of precision in predicting value increases in accuracy and is more prevalent to ensure people walking through the door with high value get a high level of service."

The question is what data should be collected? And how can we use it, in real-time, to drive our marketing decisions?

Q9. Which of the following factors are included in your companys Customer Lifetime Value calculation model?Source: A commissioned study conducted by Forrester Consulting on behalf of Pitney Bowes, August 2015Base: 120 US-based marketing and customer data analytics professionals involved in calculating CLV

Revenue or sales77%Duration of customer relationship49%Acquisition costs 49%Service levels47%Recurring marketing and service costs33%Churn or deflection rates, survival analysis 32%Current CLV models are largely based on financial data points

12Today 3 in 4 Marketing and Customer Data Analytics professionals use revenue or sales as part of their calculation.

Half are using the duration of the customer relationship the cost to acquire that customer and required service levels for that customer in their calculation.

All of these data points are largely financial

Half full or half empty?

A customer can appear to us one way, but with the proper view they can appear JUST THE OPPOSITE.

We CAN calculate CLV today to be MUCH MORE VALUABLE!

13

Mary vs. Jane

$200$500

As an example, lets say Company X determines that Mary (CLICK) has a customer lifetime value of $200 over 5 years. But Jane (CLICK) has a customer lifetime value of $500 over 5 years. Naturally Company X puts more focus and investment in Jane, than Mary.

But when looking at non-transactional behaviors, we see that Mary is very active in social (CLICK), sharing positive information about the company. As a result Mary delivers (CLICK) approximately 5 new customers to the company each year.

Jane, however, is not active in social and rarely talks about Company X.

When Mary and Janes social behaviors are added into their CLV calculation.. Mary is actually more valuable than Jane. Company X begins to service Mary better making her an even stronger advocate, driving in 10 new customers each year.

14

Behaviors across the customer journeyEngage

Service

Fulfill

Transact

How many touches does it take?

Who forwards to a friend?Was it just enough to get the free shipping?

Cash or credit?How many calls are made?

Who prefers online, self-serve support?How many steps are needed?

The examples of behaviors to capture for a valuable CLV go beyond social.

They should be considered across the entire customer journey. 15

CLVLife as customer

$$$ Customer profit$$$ Cost to acquire

The blend of transactional and non-transactional data are the core inputs for calculating (CLICK) Real Customer Lifetime Value.

16

CLVLife as customer

$$$ Customer profit$$$ Cost to acquireComments

Influencers

AdvocacySpending trends

Service needsSteps to fulfill

Connectsreal

17

Real Customer Lifetime Value - DefinedA living metric that calculates the total lifetime value of ALL customer interactions including transactional (such as a purchase or service request) and non-transactional (such as product review or brand advocacy on social platforms) across the entire customer journey and all touchpoints.

We shared a definition of this concept to the respondents in our research18

What do you believe are the greatest benefits from implementing a real CLV solution?(Percentage who ranked as 1st, 2nd, or 3rd)Source: A commissioned study conducted by Forrester Consulting on behalf of Pitney Bowes, August 2015Base: 120 US-based marketing and customer data analytics professionals involved in calculating CLV

Retain more of the most valuable customers54%Understand the complete potential value of each customer 34%Identify customers that have a high potential to grow long-term customer value 34%rCLV delivers REAL value

19Marketing and customer data analytics professionals could immediately see the potential of what rCLV could do for them.

It enables them to understand the total value of the customer, optimize that value, and retain more of their MOST-valuable customers.

Resort

#

Let me share a personal example of a company that used only financial data to deliver an experience not considering more real-time behaviors for a better understanding.

For the past three summers I have vacationed with my family at a beautiful resort in the Adirondacks. We are a party of 5 so usually stay in the more expensive suite. We also spend a good amount of money while at the resort. When we arrived this year, we received a nice box of high end chocolates (CLICK) from the Manager in our room - welcoming us back.

The resort had transactional information on us that determined we were worth the nice box of chocolates. That small gesture confirmed our reasons for coming back.

We had such a good time we decided to extend our stay. But we would need to move to another room. No big deal. We moved. When we turned in for the night, we noticed the box of chocolates welcoming us back to the resort again. (CLICK)

But we never left!

The hotel had a procedure for returning guests who spend a certain amount of money with each booking. What they failed to incorporate was a real-time behavior we simply extended our stay.

They could have saved the $10 for the chocolates, or sent something else with a note apologizing for any inconvenience with having to move rooms.

20

Dear Greta,

Its June and summer is finally here. You must be thinking about your plans for summer vacation. We would love to have you back at our resort. Since you stayed with us for 5 days last summer but chose to extend your stay (and we would like to apologize again for any inconvenience you experienced with moving rooms), we want to share a special offer just for you. This summer, book for 7 days but pay the rate of only 5. rCLV for Direct Marketing

#

The opportunities to create value for your most important customers based on their most recent behaviors goes beyond service experiences. They can be applied to areas like direct marketing too. Consider the resort example. Imagine if they looked at data like when I typically book, and perhaps my interactions with their direct marketing activities. With that information, they could have sent me something like this in a direct mail piece or email

21

Dear Greta,

Its June and summer is finally here. You must be thinking about your plans for summer vacation. We would love to have you back at our resort. Since you stayed with us for 5 days last summer but chose to extend your stay (and we would like to apologize again for any inconvenience you experienced with moving rooms), we want to share a special offer just for you. This summer, book for 7 days but pay the rate of only 5. When I booked last yearIve been clicking on their ads lately

#

22

Dear Greta,

Its June and summer is finally here. You must be thinking about your plans for summer vacation. We would love to have you back at our resort. Since you stayed with us for 5 days last summer but chose to extend your stay (and we would like to apologize again for any inconvenience you experienced with moving rooms), we want to share a special offer just for you. This summer, book for 7 days but pay the rate of only 5. Acknowledged last behaviorApologized for it

#

23

Dear Greta,

Its June and summer is finally here. You must be thinking about your plans for summer vacation. We would love to have you back at our resort. Since you stayed with us for 5 days last summer but chose to extend your stay (and we would like to apologize again for any inconvenience you experienced with moving rooms), we want to share a special offer just for you. This summer, book for 7 days but pay the rate of only 5. They know Im a heavy spender while at the resortMade a relevant offer to me

#

24

Q22. How confident are you that you can identify the most-valuable customers in real time with rCLV?Source: A commissioned study conducted by Forrester Consulting on behalf of Pitney Bowes, August 2015Base: 120 US-based marketing and customer data analytics professionals involved in calculating CLV

Using rCLV will help identify most-valuable customers in real time50% completely confident, very confident, or confident

25With behavioral data incorporated into the lifetime value calculation, 50% of companies have greater confidence in getting a REAL-TIME view to drive the best next action.

Q24. What is the importance of being able to calculate and apply rCLV in real time?Source: A commissioned study conducted by Forrester Consulting on behalf of Pitney Bowes, August 2015Base: 120 US-based marketing and customer data analytics professionals using CLVHelp our sales force change their interaction strategy

Shape a more emotionally connected experience with the customer

Insight into marketing programs effectiveness more quickly

Enable customer service reps to manage different valuable customers

Help us give the best possible offer in the moment of need51%50%46%44%38%rCLV in real-time can drive best next engagement

26Per our research, marketers and customer data analytics professionals can see many benefits to rCLV

Just over half believe that a more complete picture of their customers in real-time could help their sales force determine the best way to interact with their customers.

Half also felt they could deliver a more emotionally connected experience Like the resort giving me a sorry for your inconvenience gift versus the same welcome back one I received.

Gaining insight into marketing programs more quickly focusing service reps on the most valuable customers and determining the best offers to provide in the moment of need were also identified as key benefits of rCLV in real-time.

Getting startedIdentify team and develop a shared visionDetermine the right data pointsDo a data inventoryDevelop a planFind an experienced partner

Getting started with real Customer Lifetime Value begins with.

{CLICK} Identifying the right team and developing a shared vision

{CLICK} Next, you need to determine the data needed to realize that vision keeping in mind the customer journey

Do a data inventory what data do you already have and what do you need?

{CLICK} Develop a plan for how you will ingest, analyze and ultimately use the data consider end business users who have to determine best next engagement with customers along their journey with your business.

{CLICK} Find an experienced partner who has capabilities to help you successfully execute your vision.

27

Why Pitney Bowes?

So why am I here, a Pitney Bowes executive, discussing real Customer Lifetime Value? Youre probably thinking doesnt Pitney Bowes do something with mail? Yes, we do. But we do more than this.

28

{CLICK} Today, we are a leading global technology company enabling billions of transactions in commerce for our clients in 5 key areas: Customer information management, Location intelligence, Customer Engagement, Shipping & Mailing and Global Ecommerce.

{CLICK} Specific to real Customer Lifetime Value, we have .

Experts who can help you determine the right data points to capture and how to do it

Leading Customer Information Management software to pull the data together, in real-time, from across disparate systems {e.g. Spectrum Enterprise Data Integration and Spectrum Customer Analytics}

Customer engagement solutions that determine and implement the best next engagement based on the rCLV of a given customer. {give example Portrait Interaction Optimizer which provides real-time recommendation}

And new, innovative engagement solutions, such as EngageOne Video for creating and delivering a personalized, interactive video offering different information to different customers based on their unique value. 29

Who wants to start using rCLV?

30

Thank you

31