7 Ways of Using AI Marketing to Improve Customer LTV in Retail

  • Home
  • Blog
  • 7 Ways of Using AI Marketing to Improve Customer LTV in Retail
blog image

7 Ways of Using AI Marketing to Improve Customer LTV in Retail

Can you run a business without promoting it? No, right? You need to have a detailed marketing plan to attract new customers and retain the existing ones. Marketing is essential for a retail business to flourish in competitive conditions. When we talk about marketing and customers, things get rather tricky. Who is your target audience? What metrics should you consider when reaching out to the target audiences? Why is customer LTV important and yet undervalued until recently?

Marketing relies on too many factors, and not understanding these factors can result in an unsuccessful or semi-successful marketing plan. Though several companies have understood the importance of data and are making an effort to collect it in real-time, the results are varied. 

Why? It’s because collecting data doesn’t automatically translate to understanding it. Unless the enterprise adopts the data-driven model by investing in artificial intelligence and machine learning, it is not possible to fully tap into the benefits of processing real-time data. AI solutions can help you understand your target audiences and customers. You can improve customer lifetime value using AI and ML technology and generate more returns for the retail business


When we talk about marketing and customers, things get rather tricky. What metrics should you consider when reaching out to the target audiences? Why is customer lifetime value important and yet undervalued until recently? How can AI solutions help you improve customer LTV and bring more returns? 

We’ll find the answers to these questions and more in this blog. Our focus will be in terms of the retail sector since customers are an integral part of the industry. Without customers, there is no retail sector, isn’t it?

What is Customer Lifetime Value?

Whether you call it CLTV or customer LTV, the term represents the amount of money a customer would bring to the brand during their entire time as a paying customer of the business. It tells us the value of a customer and helps decide how much you can invest to retain them with the business. 

CLTV shows us if a customer will repeat their purchases or not. A customer with a higher value is more likely to be a fan of your brand and will continue to make purchases (unless you do something to annoy them). Does it mean retailers do not have to focus on customers with lower value? Of course not. Marketing is sophisticated, and hence the need for artificial intelligence in retail. Understand CLTV and how it can impact your marketing plan, customer satisfaction, and profits. 

How to Calculate Customer LTV? 

Now that we know what customer LTV is, it’s time to see how this value is calculated. How do you decide whether a customer is valuable or not? How do we know if the value is high or low? 

CLTV is calculated based on four KPIs (Key Performance Indicators)-

  • Average Order Value (AOV) = Total Sales Revenue / Total Number of Orders
  • Purchase Frequency (PF) = Total Number of Orders / Total Number of Unique Customers
  • Gross Margin (GM) = [Total Sales Revenue – Cost of Goods Sold (COGS)] / Total Sales Revenue
  • Churn Rate (CR) = (No. of Customers at End of Time Period – No. of Customers at Beginning of Time Period) / No. of Customers at Beginning of Time Period

CLTV = AOV * PF * GM * (1/CR)

One aspect you should remember is that the customer LTV should be higher than the customer acquisition cost (CAS). There’s no point in spending $100 if the customer’s LTV ranges around $50 or $70, isn’t it?

Customer Lifetime Value Calculation
Customer Lifetime Value Calculation

Why Does Customer LTV Matter in Retail? 

Now, this is a question many retailers might have in mind, especially if you haven’t bothered about CLTV earlier. Your retail business might be booming, and in such instances, you might wonder if there’s a need to put so much effort into something like this. 

The answer is yes. Customer LTV matters to every retailer. Whether you know it or not, whether your business is highly successful or struggling to take over, CLTV should be one of the primary factors to consider when deciding a marketing plan for your business.  Traditionally, retailers went with instinct and experience in assessing customers and their LTV. While we cannot completely ignore the business instinct, relying on it is not enough in this competitive market. That’s where AI in the retail industry is changing the way retailers make decisions.

Artificial intelligence makes it easy for you to identify valuable customers and devise a marketing plan to retain them. AI helps in increasing customer value. The approach you follow can convince a customer to spend more and stay with your business for the long term.

Customer LTV is necessary for retail for the following reasons-

Speeds up Customer Retention

CLTV helps you identify customers who are easy to retain and find a way to speed up the process. Your marketing strategy will be more effective when you know how much you should invest in acquiring a customer and the best way to go about it. 

Helps Incentivize Repeating Customers

In the eCommerce market, the chances of selling to a repeat customer are as high as 60%-70%. However, the likelihood of selling to a new customer is around 5% to 20%. CLTV helps you understand your repeat customers and increase their value. AI empowers you to nudge these customers to spend more money, either by buying frequently or buying more (or both). 

Generates More Profits 

Most retailers follow the Pareto Principle. It means that 20% of customers bring 80% of the business. This principle helps in categorizing customers with higher LTV and spending more money on retaining them. Your marketing plan should have different strategies to acquire and retain customers from different categories. 

Increases Customer Loyalty

Do you know that just a 5% increase in customer loyalty can lead to anything between a 25% to 95% increase in the average profits? This goes to show how vital customer loyalty is for every business, especially a retailer. Customer LTV helps you assess which customers can bring such profits. You can create a marketing plan to increase their loyalty towards the business. 

Remember that customer LTV doesn’t mean spending more on customer acquisition. It means spending carefully on each customer to increase the retention rate and purchasing frequency. AI services help you achieve this by targeting CLTV. 

Increase Customer Lifetime Value using Artificial Intelligence. Get Started.

How to Improve Customer Lifetime Value using AI Marketing in Retail

The following are seven ways to use AI marketing to improve customer LTV and increase profits. However, it is essential to hire a reputed and trustworthy AI consulting company to assist you with the process. Adopting artificial intelligence needs proper planning, training, and approach. 

Before we talk about customer LTV and Artificial intelligence in the retail industry, we need to consider the other aspects of customers and the retail business. What’s that?  

We are talking about the increasing occurrences of shoplifting in supermarkets and other stores. Be it jewelry shops or fashion stores, shoplifting seems to be a cause of concern. Do you know that shoplifting is one of the most common crimes in the US

Artificial intelligence and computer vision technology can help you find a solution to this problem by automating data collection and analysis. The data from CCTV cameras were collected and processed to identify, detect, and alert the supervisors in case of suspicious activity. This helps separate genuine customers from fraudsters and focus on them.

1. Follow a More Targeted Approach using Customer Data 

We’ve talked about data in the introduction of this post. Artificial intelligence helps you make use of the vast amounts of data collected and stored in the business. By cleaning, processing, and analyzing this data, you can come up with ways to reach out to individual customers. 

Understanding customer behavior is the key to developing a targeted approach, and to understand the customer, you need to analyze the data related to them. Be it the email id, search history, or past purchases, every single detail about the customer will give you an insight into their purchasing behavior. 

AI marketing helps in segmenting customers. This enables you to come up with tailored marketing plans for each segment. Not only that, you can further categorize customers and focus on them at an individual level. The more specific your approach is, the better will be the results.

2. Personalization is the Key at Every Stage of Customer Lifecycle 

Personalization rules today’s markets. A generic message sent to all customers has little or no value compared to a personalized message. A personalized greeting can be just as effective as a generic message.

Machine Learning consulting company helps retailers send personalized messages to customers at every stage of their lifecycle. The nature and tone of the messages change as the relationship between you and your customer gets stronger. 

Also, the customer’s attention span has reduced drastically over time. Unless your ad campaigns attract their attention and keep them interested, you cannot generate a sale. Do you know that more than 80% of customers browse their online products without any intention of purchasing them? In such instances, it becomes even more vital to send personalized emails, messages, and ads that will convince them to buy your product.

3. Loyalty Programs Will Always be a Hit with Customers 

Who doesn’t like getting a little reward in return for a purchase? Several chains of stores and top brands offer reward points and loyalty programs to attract new customers and retain existing ones. The purchases are converted into reward points which can be redeemed to get gifts or discounts over time. 

There are several software solutions to create a customized loyalty program for your retail store. That said, when you invest in AI marketing, you are also gaining access to such software. Artificial intelligence doesn’t just help you understand your customers. It also helps you create strategies and implement them using the latest technology. 

Loyalty programs are based on customer and market data. Your offer needs to be attractive enough for your competitor’s customers to come to your business. And retaining customers is possible only when you follow through with your plan.

4. Multichannel Marketing is Necessary for a Competitive Market 

Customers today no longer stick to a single channel of purchase. They can come to your store, order on the phone, or buy online. However, for this to happen, your customers must know that you offer multiple ways of purchase. You need to show customers your activity in multiple channels and urge them to try whichever is convenient. 

It takes the pandemic lockdowns, for example. People rushed to brick-and-mortar stores before the lockdown to buy groceries. Then they relied on phone calls, web browsers, and apps to order the necessary items. Some retailers took orders via WhatsApp, Facebook Messenger, and other such platforms. The artificial intelligence consulting firm helps you identify potential marketing channels based on your customer segments. People from the older generation might want to order through calls. The younger generation might prefer an app, and so on.

Learn how AI Solutions can help your Retail Business. Connect with us.

5. Cross-Selling Promotions Bring More Value 

Cross-selling is when you offer customers products that are related to the purchases they’ve made. Amazon does it using AI and ML algorithms by recommending related products brought by other customers. 

As an example, if a customer orders a smartphone, the algorithm will suggest a phone cover, tempered glass, headphones, etc., that go hand in hand with the smartphone. It prompts the customer to buy the items at once rather than search for them individually. 

At the same time, cross-selling also depends on the customer’s purchase history. Suggesting a product they’ve previously searched for will increase the chances of convincing them to buy it.

6. Repeat and Continue Purchase Programs- Don’t Abandon the Customer 

Artificial intelligence helps you lower the rate of one-time customers and cart abandonments. If you ignore your customer after they’ve agreed to buy, you are at a higher risk of losing them. Customers prefer brands that make them feel appreciated by sending thank you messages, wishing them on birthdays and anniversaries, or sending exclusive discount deals. 

Even after you acquire a customer, you need to keep up the marketing campaign and ensure that the customer comes back for the subsequent purchases. You can also send them monthly reminders to nudge them that it’s time for another order.

7. Customer Segmentation and Annual Marketing Budget 

Naturally, you cannot run a business without allocating budgets to each department. How you use this money decides the success of your retail store. AI marketing assists in segmenting customers and helping to allocate budgets to each section. 

You might want to spend more money on customers with higher LTV while also spending enough to increase the lifetime value of customers in other segments. Optimizing the price of the products is another way to cater to different customer segments. It helps in achieving the balance between price, customer LTV, budget, and returns. 

Customer Lifetime Value: Some Statistics
Customer Lifetime Value: Some Statistics


Once everything is in place, the AI systems and ML algorithms will start working on the patterns to fine-tune your retail marketing strategy. The ultimate aim of increasing customer LTV is to increase your customer base, enhance customer satisfaction, and thus increase sales and profits and surpass your competitor. 

Research says that there is a profitability of 60-70% if you sell to an existing customer when compared to a maximum of 20% when selling to a new customer. Moreover, 72% of the adults in the US are a part of at least one loyalty program. Developing the right strategies is the key to happy customers and a successful retail business. Artificial intelligence will help you understand customers and plan powerful marketing strategies.

Hiring a well-known firm that offers artificial intelligence consulting will streamline the process in your business. You’ll have more time to focus on R&D and grab opportunities to expand your business. Contact an AI company for more information. 

Leave a Reply

DMCA.com Protection Status