As part of our “Master Guide to Shopper Retention and Acquisition” series, we will be presenting Best Practices as they relate to a specific topic on this subject. In turn, these guides will help ensure the success of your business going forward into 2018.
Growth is an endless pursuit. For eCommerce merchants, that pursuit often results in focusing most of their attention on marketing to potential customers. However, this approach tends to have an adverse effect which presents itself through the neglect of existing customers.
That neglect, in turn, costs merchant’s big money in the long run.
In fact, only 45% of marketers are focused on retention.
This translates into serious money left on the table.
As a rule, existing shoppers provide the most value to a business in the long run. Therefore, a business that provides these customers with the best possible experience time and time again, will see continuous returns well into the future. Coupled with a solid loyalty program, any business can ensure that these shoppers will keep coming back.
According to market research, 82% of companies agree that retention is, in fact, cheaper than acquisition for their long-term revenue efforts.
Naturally, this begs the following question – how much effort should a business put towards their customer retention efforts? And just what is the best way to reward shopper loyalty?
Fact: Highly-engaged shoppers purchase 90% more often than their non-engaged counterparts. On average they spend 60% more per transaction.
So how do we repeatedly engage these shoppers to keep them interested?
Enter the Circle of Loyalty:
The traditional method of making sale revolves around getting shoppers to complete the arduous task of traveling through the meticulously constructed sales funnel. This funnel is typically constructed as follows:
When a shopper follows the funnel from start to finish, the result is a conversion. With average conversions rates hovering anywhere from 1.5% – 3%, it’s clear that the overwhelming majority of shoppers in these funnels just don’t make it to the end of the process
But there is good news – this is where the “circle of loyalty” comes in.
In this model, the outer loop looks at the contemplation and evaluation process, like current funnel models. It differs from the point where shoppers have made a purchase, looking at the factors that make a loyal customer. In this model, once the shopper has reached step 4, we no longer need to work on getting them to start over from step 1. When a shopper deeply enjoys a product and the service they received with their purchase, odds are they will become voluntary brand ambassadors. Simply because they had, and keep having, a great experience. Think about it this way, when you have an excellent steak at a new restaurant, you often can’t help but share this fact with your friends and workmates.
This is backed up by research which shows 20% of customers who have a good experience will relay this information to at least 10 people they know.
In fact, there is not a single quality of service metric in any industry that is more valuable to a brand than word-of-mouth advertising. Even with social media, WOM is still the number 1 influencer when it comes to people making a final decision regarding a purchase.
In fact, think about most any item you recently purchased – there is a good chance it was prompted by a WOM recommendation from someone you trust.
The circle of loyalty brings us to our next point – customer lifetime value.
Shopper Lifetime Value / Lifetime Sales, in Relation to the Circle of Loyalty:
The most important metric a business can use to gauge the value of a shopper is that of Lifetime Value (LTV) and Lifetime Sales (LTS).
Some people will try and tell you that LTV/LTS have different ways of being measured. To that, we say “Nonsense” there is only one absolute way of measuring these metrics.
LTV is the amount of money a shopper has spent at your business. That’s it. There is no special formula.
$$$x1 + $$$x2 + $$$x3 …. $$$x10 = $$$$
LTS is the number of times a shopper has completed a purchase of your business.
Sale 1 + Sale 2 + Sale 3 …. Sale 10 = 10 Sales.
Now just to be clear, this metric can be imprecise – it depends on what you are selling. In other words, an expensive item, such as a car, or a fridge is hard to measure because not only are these items expensive, they also purchased infrequently.
However, goods such as clothing, or food, are likely to result in greater customer LTV/LTS in the short term – especially since they are easily measurable. So, for example, if you sell office supplies, there is a good chance you will have shoppers with easily understood LTV/LTS measurements. A Doctors office may only need to order one box of A4 paper every 3 months, while a math tutor might need one box per month. Thus, the Doctors office will have a lower LTV and LTS then the math tutor over the same period.
LTV/LTS doesn’t just show us how many times our shoppers have purchased and how much they spent – it also pulls double duty as a predictor of future behavior.
Which brings us to our final point – how do we tie the circle of loyalty, LTV/LTS, and retention all together?
Tying the circle of loyalty, LTV/LTS, Retention and Acquisition Together:
Ultimately, both retention and acquisition are equally important to the health of a business.
Strictly focusing on retention is not smart because this means that you are limiting your businesses ability to grow at a steady rate – which is a direct inhibitor to your financial health.
For a young business like a startup or a firm targeting a niche market, the short-term focus may very well be customer acquisition – after all, a business still needs to grow.
Therefore, the ideal split is 50/50 over 12 months.
In other words, 50% of the budget you allocate to omnichannel marketing campaigns should be focused on customer retention. The other 50% should be focused on the acquisition of new customers.
At the same time, LTV and LTS can be used to segment shoppers based on their value to your business. You can then come up with value-based rewards that center around their continued loyalty. These rewards can easily be delivered through email. This will help feed the circle of loyalty as shoppers will be more inclined to come back and keep purchasing from your website. Ultimately this method will reduce your marketing and advertising cost because your existing shoppers will come directly to you. The savings from these efforts can then be applied towards the acquisition of brand new shoppers.
Datacrushers
Founded in 2015, Datacrushers uses Machine Learning and A.I. along with NLP to identify and recover revenue loss, cart abandonment and discover new revenue sources across any site. The revenue discovery platform completes the deep ongoing analysis of eCommerce websites by monitoring the three main focal points of any site: The User, Site, and Product.
Unlike traditional “cart abandonment platforms,” Datacrushers does not require shoppers and customers to be logged-in to conduct both on and offsite campaigns. We use a wide range of data-driven and analytics based conversion tools to target the shopper at the right time with the most accurate and effective campaign to drive the sale.
Datacrushers is platform, language, and currency agnostic and requires only a few lines of code to get started therefore delivering an ultra-fast go-to-market with minimal set-up time and tech intervention.
Based out of Jerusalem, Israel, Datacrushers has clients worldwide including, The US, China, Russia, UK, Germany, and more.
