Customer Retention – A Retail and Ecommerce Guide
Posted on 20th June 2023 at 10:14
Read Time: Approx. 4 Minutes 51 Seconds
Author: Dave Trolle
What is customer retention?
Customer (or client) retention is the art of ensuring that a customer continues to have a high affinity with your brand (is more likely to buy from you again, following their initial engagement and purchase. All business’, no matter the sector should have this as an objective that they are measuring their success on.
Why is customer retention important for ecommerce businesses?
Whilst paid marketing is a key part of the marketing mix, it’s hard to escape the fact that advertising costs across channels such as paid search and affiliate marketing are increasing. This has been largely driven by an increase in competition, with many new ecommerce sites launched during Covid. A competitive landscape can also result in lower share of wallet and risk of customer churn rates increasing.
Ensuring customers are retained must be a key focus of any ecommerce business for both its short term and long term success, from driving increased margin, to provide a higher equity upon investment or sale.
What is the key to successful customer retention?
We often get asked what the elements of a customer retention strategy are. We like to break this down in to 5 simple steps.
1. Map out your customer journey – the path to purchase is not linear and neither is the post purchase journey. We find the best starting point is to understand the different customer touchpoints following the sale. Whilst a data first approach is always advocated, for new business’ this will not be possible, therefore an assumption led approach or enlisting the support of experts who have been there before with similar business’ would be advantageous
2. Understanding your customer – we’re not all born with the same DNA and our behaviours, expectations and needs are certainly different too. So, what can we do to understand more about our customers? The phrase if you don’t ask, you don’t get is our mantra. At each stage of the journey, look at opportunities to complete the customer profile. This will help the marketing planning and execution stage too 😊. Ensure your willing to provide value back to the customer though
3. Great customer service – the same standard of customer service needs to apply to a customer, whether it’s the first or the tenth time they have purchased from you. This cuts across all parts of the customer journey, from the post purchase messages they receive, how quickly the product is delivered and whether the products arrive as expected (does this meet at least what has been stated, during the buying process). It’s better to surprise and delight rather than over promise and under-deliver. Taking ownership of the returns policy, making it easy for people to return products should be part of the consideration set here too, especially for sectors with typically high returns rates such as fashion
4. Clear marketing plans and proposition – we find that so much time and investment is often spent on acquiring the customer, that retention techniques are often overlooked or underutilised. Saying that you are doing email or SMS is not enough. By having your customers post purchase journey mapped out, you can easily identify each touch point.
Making sure you also have a proposition that drives repeat purchase should be part of the roadmap of the business. Creating an emotional connection with the customer, aligned to what’s important to the customer base should be what all brands have in the front of their minds. We’re often part of the conversation with senior stakeholders, in answering these …
Should sustainability be placed higher up on the agenda?
Will extra benefits for loyal customers drive increased retention and frequency?
Would providing convenience and saving via subscription models be relevant?
Do you need a different sales channel like an app?
Remember, create the conversation with customers and don’t assume anything.
There is also quite a big elephant in the room to answer here in respect of how much or whether you need to discount, to your more loyal customer base
5. Measure your success – we always say you cannot manage what you cannot and do not measure. Make sure that you have the Key Performance Indicators (KPI’s) and targets identified and built into your management reports. Only report on the metrics for time periods where you will have seen a noticeable change. We’ve seen brands reporting on these for weekly trade meetings, which is way too frequent. We would advocate quarterly reviews, where there will be enough data to develop actionable insights. Also, deep diving into the context as to what has driven the change is essential, especially where you have made conscious changes to your marketing or proposition
Is customer retention a KPI?
Businesses should see customer retention as an overarching objective rather than a specific KPI. We work with clients to determine their current position across many key metrics, which should be regularly reported on. These include:
Time to second and subsequent purchase – how long does it take to repurchase
Purchase frequency and value – how many times each year does a customer repurchase from you and what is their average value and predicted lifetime value
Number of active customers – this metric has a strong relationship with time to second and subsequent action, as this can determine when a customer may become at risk of churning
Repeat order rate – whilst this may seem low, aiming for at least 1 in 3 customers purchasing from you is a good starting point
Customer lifetime value – simply how much does the average customer spend with your business
Once the baseline of the above is determined, we are then able to benchmark, understanding how this compares to industry standards. This is also used as the baseline to determine forecasts and measure customer growth.
What metrics are important to my brand?
We know that the above metrics are significantly different, not only for each brand but often dependent on product and customer type. For example, a skincare retailer may know that a customer purchases collagen supplements every 30 days, however the moisturiser they also purchase may only require replenishing every 3 months.
The vertical that you are in will also affect the above. Whilst someone may purchase furniture for a different room in their house, due to the cost of their initial purchase, a second purchase could take another 12 months (if not longer). Clearly behaviour like this is linked to metrics such as disposable income, with a potential second purchase being sooner.
Finally, the metrics that you measure will be less or more important, depending on how long you have been in business. For example, a start-up should care more about the number of active first-time customers, how these are trending and time to second purchase over purchase frequency and customer lifetime value. Once you have at least 18 months of data, customer value can come into play.
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