GUIDE TOPIC : Customer lifecycle marketing
A Quick Guide to Customer Retention Marketing for Ecommerce
April 12, 2016
Acquiring new customers is an expensive business, not least in the ever-crowded world of online retail.
The cost of clicks is rising, the first page of Google is increasingly difficult to crack, and many brands are setting the bar seriously high with their social and content marketing efforts.
As a result, customer retention - extracting as much value as you can from existing customers to increase their lifetime value - is becoming more important.
This short guide for ecommerce marketers will focus on customer retention from a marketing perspective. It will cover:
- The importance of customer retention
- Customer retention strategies
- Customer retention metrics
- Customer retention software
The importance of customer retention
In the world of football, you might splurge millions on having the best strikers in the league, but if your defence is poor you’re leaving yourself open to conceding goals and losing matches. Building a winning team is all about balance, equilibrium, yin and yang, or whatever you want to call it.
The same is true in ecommerce: going out on the attack to get your brand in front of more people in the hope scoring new customers is increasingly competitive and, as a result, increasingly costly.
Making sure you stay on the ball with your existing customers can be a far more sustainable way of generating revenue (according to Harvard Business School, increasing customer retention rates by just 5 per cent can increase profits by between 25 and 95 per cent).
Sporting metaphors aside, many online stores fall into the trap of underestimating the benefits of having a solid customer retention marketing strategy, instead focusing too much on customer acquisition.
Here are some more benefits of focusing on customer retention:
- More revenue per visit
- More reliable for predicting profitability
- Greater revenue during holiday seasons and times of economic dificulty
- Greater acceptance of price changes
- Loyal brand advocates bring in new customers
According to Adobe (source), repeat customers generate between three and seven times higher revenue per visit than first time visitors.
The more data you have on customers and their spending habits, the more accurately you can forecast profitability.
Adobe research (source) suggests that repeat purchasers deliver more reliable revenue during both holiday seasons and times of economic trouble.
Research (source) suggests that long-term customers are half as sensitive to price changes as new customers.
The more a customer purchases, the more loyal they feel towards your brand, the more likely they are to recommend you to their friends.
Customer Retention Strategies
So we’ve established that having some sort of customer retention marketing plan in place is a very good idea indeed. But what tactics can you use to increase customer retention rates?
At Ometria, we’re big fans of what we call ‘customer lifecycle marketing’ - an approach to ecommerce retention marketing which is all about using data to identify where an individual is in their customer journey and create marketing messages that will encourage them on in that journey.
Here are some lifecycle-related marketing tactics you might consider using. Remember with all of the below, the more personalised you can make your messaging, the more likely you are to succeed. This can be based on:
- Demographic/personal data (name, gender, location etc.)
- Transactional data (products/categories purchased etc.)
- Behavioural data (items viewed, visit frequency, browsing behaviour)
Email still rules the roost in ecommerce marketing, and triggered email in particular is a vital ingredient of any good retention strategy. There are many different campaigns that online retailers can implement to encourage existing customers to come back for more, including:
- Post-purchase series
- Cart abandonment campaigns
- Browse abandonment campaigns
- Anniversary/milestone campaigns
- Re-activation/winback campaigns
Paid social / display retargeting
Custom audiences and cookie tracking empower ecommerce marketers to deliver highly targeted, relevant ads on social and across the web that focus on existing customers.
VIP and loyalty programmes
Creating special programmes that focus on rewarding your best customers is a great way of fostering brand loyalty. How you reward these customers will depend on your business model, but examples include:
- special discounts
- early bird access to sales
- exclusive event invites
While some may consider it old school, direct mail is making a comeback with many brands using it to cut through the internet noise and capture the attention of customers oine. Forget tired, uninspiring catalogues, though - glossy magazine-style publications that focus on quality content are the way forward.
Customer Retention Metrics
How will you be able to tell whether your retention marketing strategy is working? There are a number of metrics and KPIs that you can monitor.
Customer Retention Rate
Customer retention rate - a measure of how loyal customers are to your brand - can be calculated in various ways, but one measure is to take a group of customers who first shopped with you in a certain period and look at whether, at certain points in the future, they could still be considered active customers.
If you consider ‘active’ customers to be those that have shopped in the last 6 months, you could take a slice of customers who first shopped, say, in January 2013, and see what percentage were active customers on 1st January 2014 (i.e. had made a purchase between July 1st and December 31st 2013), and what % were still active on 1st January 2015 (i.e. had made a purchase between July 1st and December 31st 2014).
You can make this figure more actionable by segmenting by:
- Marketing channel - which channels are driving long-term value?
- Product/category first bought - which products or categories attract more loyal customers?
- Marketing campaigns - which marketing campaigns bring in valuable, repeat purchasers?
Customer Churn (lapsed customer rate)
Sometimes referred to as ‘customer attrition’, customer churn is a measure of how many customers you’ve lost in a particular period of time. It can be calculated using the following equation:
Churn Rate = (# of customers lost in period/# of total customers at beginning of period)*100
But when should you consider a customer ‘lost’? This will vary from business to business depending on sales cycle, and you will need to carry out your own analysis or get in touch with us at Ometria.
For example, if I’m an online grocery business, I might start to get worried about a customer lapsing after 3 or 4 weeks, and consider them ‘lost’ or lapsed after 8.
At the other end of the spectrum, if I were an online sofa shop, it may be years before I start worrying that a customer has lapsed.
Customer Retention Software
So how do you go about implementing a data-driven customer retention programme? Here are some of the tools you’ll need for the job.
Customer lifecycle analytics
Knowing where each individual customer is in their relationship with your brand is vital to sending them messages that keep them shopping with you.
Being able to tell when a customer has been active on-site, the kinds of products they’re interested in, how long it should be before you can start worrying about them lapsing: gaining this kind of knowledge requires a tool that brings brings together many different data sources into one.
Next you’ll need a tool that takes this customer insight and turns it into real-life marketing actions.
Offering a personalised experience doesn’t have to be demanding on resource when you have software to automate the process for you.