The Basics of LTV Extension

Extending lifetime value is the name of the game when it comes to retention marketing. But as the concept becomes increasingly hypermediated, what does it actually mean for different businesses? Here’s what you need to know.

Ray Kurzweil’s race for immortality is well-documented; his tech-fueled singularity (or “nerd heaven” as one friend calls it) has the notion of indefinite life extension at its core. Take some pills, install some hardware, and presto - you’ll live forever (assuming you don’t get hit by a bus).

Mindful of the challenges inherent in Kurzweil’s vision, at Simon we’re concerned with a different, less ambitious version of tech-enabled life extension. Specifically, we’re focused on lengthening the “customer lifetime” - or what we call LTV extension.

As we’ve written previously, high-growth startups and corporations alike are increasingly finding diminishing returns in acquisition channels. The price to acquire new customers has steadily increased, particularly in competitive markets (e.g. box businesses), and getting more value of existing customers is critical to continued growth.

LTV extension allows you to maintain a favorable CAC/LTV ratio at higher acquisition costs, thereby maintaining growth where competitors can’t. But what are the categories of effort that comprise LTV extension? And how does it look tangibly for different businesses?

Here’s a high-level overview of how we see it:

Retain - The notion of retention has become the eponymous modifier for all marketers focused on the customer lifecycle. When more narrowly used, retention is essentially synonymous with “churn prevention” - keeping customers “active” to some baseline. These baselines can be different by customer cohort, acquisition channel, and business line, but all savvy businesses have them.

• For subscription businesses, this generally just means ensuring you remain a paying subscriber on some regular plan.
• For e-commerce businesses, this means keeping you “active” via repeated purchases within one or more predefined time windows (e.g. every 30, 60, 90, or 365 days).
• For non-subscription apps, retention can include elements of both regular usage and microtransactions, depending on the vertical (e.g. apps vs. mobile wallets).
• For publishers, this generally means content consumption, sharing, and more.
• For social networks, this can comprise a wide variety of activities, including posting, sharing, friending, and more.

Upsell - Beyond basic retention, increasing the amount spent by customers above the aforementioned active baselines is a critical component of LTV extension. 

• For subscription businesses, upsell opportunities include plan length extension, plan size increases (e.g. adding an extra item to a box), and incremental e-commerce opportunities that may arise (e.g. buying a concert ticket through Spotify).
• For e-commerce businesses, upsell means increasing both average order value as well as order frequency.
• For non-subscription apps, upsells are almost always microtransaction/in-app transaction-based, though businesses like Button are making deep-linked commerce opportunities much easier.
• For publishers and social networks, upselling might mean encouraging additional usage to drive ad unit performance, though there’s a lot of inherent variance in these businesses.

Reactivate - When customers drop below our baselines, it’s time to reactivate. Often colloquially referred to as “winbacks”, having efficient reactivation campaigns is essential.

• For subscription businesses, reactivations can actually be a natural process of the customer lifecycle. After receiving a monthly box of the same type for a year, a customer may simply need a break before re-engaging. Strategies for subscription win-backs often include discounts, billing cycle modifications, and more.
• For e-commerce businesses, focusing on engaging customers that have just past critical purchase windows is table-stakes. Typically, our customers look at 90 day and 365 day repurchase rates. Tactics used here are too many to count, but we often see frequent category-based discounts, category cross-sell opportunities, seasonal marketing, flash sales, and more.
• For non-subscription apps, publishers, and social networks, usage is king. Here, we tend to see heavy content marketing for activities that tend to correlate with upticks in engagement (see: FB’s insistent efforts to get you to post photo after a long layoff), along with the obvious e-commerce winback components for apps with microtransactions.

Even though investing in LTV extension is often a challenge for businesses to get excited about, it’s ultimately essential. As markets become more mature, customers often become savvier and more fickle, so having a strong strategy is critical for remaining competitive.

For instance, you might marginally increase downstream CAC by using FB custom audiences and coupons to reacquire lapsed customers. Almost always, these resurrections are going to be far more cost-effective than a new acquisition.

These are just a few of the ways that we've seen different types of companies rationalize and implement LTV extension programs. In future posts, we'll go into more detail about specific use cases and strategies for different company types - and of course explore the critical role of data in those efforts!