Customer Retention Is The Most Important Thing. Here's Why And How To Do It Right.
According to a study by Frederick Reichheld of Bain & Company, increasing customer retention rates by 5% increases profits by 25% to 95%.
Looking at the next decade in online sales, it's becoming increasingly clear that customer retention will be more critical than ever for your e-commerce store.
In this substack, I’ll share why and what you can do to ensure your business embraces a customer retention mindset.
The changing landscape of e-commerce
Over the past few years, we've seen a massive shift in online shopping.
The rise of mobile devices and social media has made it easier for consumers to discover new products and purchase on the go.
This has led to many e-commerce businesses vying for consumers' attention.
At the same time, we've seen a growing trend toward subscription-based services and loyalty programs.
Consumers are increasingly looking for ways to save money and get more value out of their purchases, and these programs provide a way for businesses to incentivize repeat purchases.
The importance of customer retention
Given these trends, it's clear that customer retention is critical for your business.
Here are just a few reasons why:
Lower acquisition costs: Acquiring new customers can be expensive, and it costs five times more to attract a new customer than to retain an existing one (Harvard Business Review). Focusing on retaining your existing customers can reduce your marketing costs and increase your profits.
Increased lifetime value: Repeat customers tend to spend more than new customers. According to a study by Bain & Company, repeat customers spend 67% more than new customers. Further, a report by Adobe found that returning customers are responsible for 40% of e-commerce revenue, despite only making up 8% of site visitors.
Positive word of mouth: Happy customers are more likely to recommend your business to friends and family. By updating your customer retention strategy, you can create a positive feedback loop that helps to drive new business.
Strategies for improving customer retention
So, how can you improve customer retention for your e-commerce business?
Here are a few strategies I recommend:
Personalize: Use customer data to personalize your marketing messages and product recommendations. This helps keep customers engaged and coming back for more.
Add loyalty programs: Implement a loyalty program that rewards customers for repeat purchases. This can provide a strong incentive for customers to continue shopping with you.
Ensure excellent customer service: Provide exceptional customer service at every touch point. This can build trust and loyalty with your customers.
Remember to follow-up: Follow up with customers after they purchase to ensure they are happy with their experience. This can help to identify any issues early on and address them before they become more significant problems.
Understand the customer journey
The customer journey in e-commerce typically begins with the customer becoming aware of your brand through various marketing channels, such as social media, email marketing, or search engine advertising.
From there, the customer may visit your site to learn more about your products or services and purchase.
Once a customer has made a purchase, the post-purchase experience becomes crucial in determining whether or not they will become loyal.
This includes factors such as the quality of your product, the speed of delivery, and the level of customer service provided.
Develop a customer retention strategy
To develop an effective customer retention strategy, it’s vital to first understand the factors contributing to customer loyalty.
These may include:
Personalized experiences.
Rewards and incentives.
Excellent customer service.
Seamless checkout.
Analyze customer data and feedback to identify areas for improvement in their customer journey and implement strategies to address these issues.
For example, suppose your customers abandon their carts before purchasing.
What should you do?
Consider implementing a retargeting campaign to remind your customers of their abandoned items and offer a discount to incentivize them to complete their purchase.
Use segmentation
By segmenting your audience, you can tailor your marketing efforts to specific groups of customers, improving the relevance and effectiveness of your messaging.
Here are several ways you can segment to enhance your customer retention strategy:
1. Demographic segmentation: One of the most common forms of audience segmentation is demographic segmentation, which involves dividing your audience based on demographic characteristics such as age, gender, income, and education level. This information can help you tailor your messaging to specific groups of customers and improve the relevance of your marketing efforts.
2. Behavioral segmentation: Behavioral segmentation involves dividing your audience based on their behavior, such as their purchase history, browsing behavior, and engagement with your brand. This data can help you identify patterns in customer behavior and tailor your marketing efforts accordingly.
Keep reading with a 7-day free trial
Subscribe to BowTiedParrotFish’s Newsletter to keep reading this post and get 7 days of free access to the full post archives.