The Role of AI/ML in Customer Lifetime Value in Retail

Artificial Intelligence (AI) and Machine Learning (ML) are rapidly changing the retail industry. One key area where AI and ML are having a significant impact is in the calculation of customer lifetime value (CLV). 

Written by TAFF Inc 20 Jan 2023

CLV is a metric that predicts the total monetary value a customer will bring to a business over their lifetime. By using AI and ML, retailers can better predict customer behavior and spending patterns, allowing them to target their marketing efforts and increase customer retention. This can lead to a significant increase in CLV, as loyal customers tend to spend more over time. With the use of AI and ML in CLV, retailers can gain a competitive advantage and improve their bottom line.

As on date, 28% of the retailers are already deploying AI or ML solutions which is a 7-fold increase since 2016. Traditional analytics are no longer sufficient for retailers to study customer insights and they have to switch to AI/ML based data for staying ahead of the competition.


Why Customer LTV is necessary in Retail

Customer Lifetime Value  is a crucial metric for retailers as it measures the potential revenue a customer will generate over their lifetime. By understanding Customer LTV, retailers can identify their most valuable customers and allocate resources accordingly to maximize profits.

Speeds up Customer Retention

CLTV not only identifies high value customers but it also reveals those customers who are easier to retain. Once you have this data, it will help you speed up the process of acquiring and retaining customers. You’ll be able to design a more efficient marketing strategy since you know how much to invest for retaining each customer. 

Helps Incentivize Repeating Customers

In the e-commerce marketplace, the potential of selling to a repeat customer is quite high compared to a traditional retail outlet. The probability of selling to an existing customer is around 60-70% while the probability of selling a new customer is only 5-20%. CLTV helps you identify repeat customers and aids you in creating a marketing plan where you reward your repeat customers. Instant gratification is one of the perks of running an e-commerce retail. 

Generates More Profits

Most of the retailers follow the principle that 20% of the customers bring 80% of the business. This helps them in categorizing customers according to their high LTV and investing more on them. Once this strategy is in place, it will automatically lead to higher profits for the company.

Increases Customer Loyalty

You will be surprised to hear that a mere 5% increase in customer loyalty will lead to an approximate 25% to 95% increase in profitability. This clearly indicates the importance of increasing customer loyalty for any business and is even more critical for the retail industry. With CLTV, you can create a marketing plan dedicated towards increasing customer loyalty.

Role of AI/ML in Customer Lifetime Value in Retail

AI/ML can assist retailers in understanding customer lifetime value by analyzing customer data, predicting future purchases, and optimizing marketing strategies. This can lead to increased revenue and improved customer satisfaction.

1. Follow a More Targeted Approach using Customer Data

A business collects huge amounts of data each day about the customer. Artificial Intelligence will help the business analyse and make use of these vast amounts of data and convert it into actionable insights for the marketing team. With AI, you can clean, process, filter and analyze this data and it will help out in reaching individual customers appropriately. 

AI can analyze each and every aspect of customer data like search history, purchase history, and every single detail about the customer to learn about their behaviour. This will lead to customer segmentation and the marketing campaign can be focussed in delivering highly targeted marketing for each segment of customers that they can closely relate to. Such highly customized campaigns will make the customers feel more special and will lead to customer retention.

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

AI and ML can be used to improve CLV in retail through personalized marketing. By analyzing customer data, AI and ML algorithms can identify patterns and trends that can be used to create targeted marketing campaigns. 

For example, an AI-powered recommendation engine can analyze a customer’s purchase history and browsing behavior to recommend products they are likely to be interested in, increasing the chances of a sale.

A generic message sent to all customers carries no value today, whereas a personalized message will create more value for the customer. With machine learning, a retailer can achieve a high degree of personalization at every stage of the customer lifecycle. A customer comes across multiple marketing messages across channels daily and it is highly unlikely he will notice a message unless it has a high level of personal touch. This is possible only through Machine Learning solutions.

3. Loyalty Programs Will Always be a Hit with Customers

Everyone likes to be rewarded and most likely in the retail space. Most of the top retail brands offer rewards points or loyalty programs in some form once a customer makes a purchase. They can then redeem this reward points for a gift or discount for a future purchase. Though every retailer has a reward point program, you can stand out from the crowd by using artificial intelligence in crafting the loyalty program. With AI, you can offer personalized rewards that a customer will love instead of offering generic rewards for all customers.

4. Multichannel Marketing is Necessary for a Competitive Market

The modern-day customer no longer shops from a single channel. The same customer who ordered through your e-commerce portal might order from a social media store next month. It is important as a brand that you pivot the concept of omni-channel marketing. With AI, you can identify various platforms where your potential customers are spending time and target them accordingly. 

5. Cross-Selling Promotions Bring More Value

Cross selling has been in existence for many decades now in traditional retail. However Amazon was able to implement the same in the e-commerce space successfully by leveraging the use of ML and AI. For example, if a customer purchases a smartphone, their AI algorithm will automatically cross sell related products like smartphone case, tempered glass, headphones, etc. These are products that a customer is highly likely to purchase right after their recent buy.

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

A business is at risk of losing repeat customers if they abandon their customers after their initial purchase. Customers develop a liking towards those businesses that make them feel appreciated by simple gestures like sending a thank you message, wishing them on birthdays and anniversaries or sending exclusive discount coupons. 

For example, a clothing store can offer a loyalty program where customers earn points for each purchase, which can be redeemed for discounts on future purchases. Additionally, the store can send personalized promotions and offers to customers who have made repeat purchases in the past, encouraging them to continue shopping at the store. 

Overall, repeat and continue purchase programs can help build customer loyalty and drive sales for retailers in the retail industry.

7. Customer Segmentation and Annual Marketing Budget

AI and CLTV helps in segmenting customers. Once you’ve segmented customers based on various factors, it helps in allocation of marketing budget. Proper allocation and use of marketing budget is important for business success. 

According to a survey by Criteo, 98% of the respondents say that CLTV is important for their marketing strategy and 56% of the marketers believe CLTV enhances brand loyalty. 


It’s important to note that AI/ML usage in retail is still in its nascent stage, but with advancements in technology and increasing data availability, the retail industry can expect to see more use cases in near future. The key is to understand the data, the customer and the business problem in order to apply AI/ML effectively. For any retail business to be successful it is important to understand and invest in CLTV. 

The key to achieve all these is to partner with an Artificial Intelligence consulting company like TAFF. We’ve pioneered the art of artificial intelligence and helped many businesses develop a successful loyalty program based on AI and ML. Get in touch with us for detailed discussion on how to leverage AI for increasing Customer Lifetime Value. Contact us today

Written by TAFF Inc TAFF Inc is a global leader and the fastest growing next-generation IT services provider. We create customized digital solutions that help brands in transforming their vision into innovative digital experiences. With complete customer satisfaction in mind, we are extremely dedicated to developing apps that strictly meet the business requirements and catering a wide spectrum of projects.