CLV Based Loyalty Program

Background

Reward programs tend to be little bit ad-hoc in the beginning, but careful reporting systems and self learning algorithms will enable to fine tune offers progressively. Proposals for specific offers and their price usually come from product managers. As a rule of thumb, products and services to be building blocks are selected by product managers based on existing need based scores and past LTV/retention impact of certain offers. Similarly to LTV, things get more complex when reward program is applicable across brands.

Customer Lifetime Value of offers were usually a bigger driver than churn, at most reward programs, the primary reason being that it hurts less when less profitable leave the operator. Once the business objectives were defined, the last and in many cases most complicated question remained: Can the operator find a good public rule that is in line with CLV based reward mechanism?

The algorithm shall be defined so that the appropriate CLV cluster mostly matches the appropriate reward segment. A reward program needs to be closely monitored along with the effectiveness of other retention and campaign initiatives, to ultimately define the most effective budget.

Aim of the project

1. Align Retention toolkit to CLV to keep most profitable customers

2. Reduce churn

3. Incentivize prepaid to post paid to cable to broadband conversion while keeping individual brand usage incentives

4. Use reward program to introduce high value clients to VAS usage, but not discounting perception of VAS value

5. Advertising touch points on direct mails

6. Customer service always needs an authentic reason to call the client

Methodology

In our experience, the following steps would be done in such a LTV based Reward project:

1. Business stakeholders define most important goals and budget of program.

2. Theoretical concepts to be defined. For example if customer gets tariff discount, does it qualify as an up-sell, or loss of revenue?

3. Building blocks of program and redemption mechanisms are compared against each other, e.g.:

4. Every 6 months, snapshot on overall LTV impact on segments are made. It is not a good sign if publicly communicated high LTV segment membership qualification criteria let in too many worse performing LTV segment members.

Results

• Building blocks of program for brands/segments
• Complete rule system to arrive at customer level actual reward availability in the system
• Communication system boundaries to incentivize usage
• Reward reporting system on each offer measured along target KPIs

Example factors to consider at LTV segments

DOs and DON’Ts

Why are we different?

• 4 years of experience in designing and experimenting with various telecom reward systems
• Colleagues have compound skills of mathematics, simulation and real life experience
• System is closely connected to churn and customer lifetime value
• Churn of highest value customer segments decreased double digit after introduction of loyalty system designed by Thesys Group