A study in the Harvard Business Review showed that increasing customer retention by 5% can lead to a 25% – 95% increase in profit. That’s an amazing statistic, but what is customer retention, and how can you get it your business?
Customer retention is exactly what it sounds like — the act of getting your customers to stay loyal to your product or service. A successful customer retention strategy takes one hit wonder shoppers and makes them loyal, repeat purchasers that buy more, more often. A customer retention strategy will boost your profitability while encouraging the repeat business necessary to drive a sustainable business model.
Customer retention is the future of eCommerce, so here are 3 tools you can use on your eCommerce site.
1) Loyalty Programs
A loyalty program is a fantastic way to boost customer retention. When a shopper is given additional value (like points or coupons) for shopping at your store, it becomes much more difficult to choose a competitor for their next purchase. Points create switching cost, meaning that if your customer moves to a competitor, they would be leaving potential money or points earned on the table.
Ecommerce loyalty programs allow you to reward more than just repeat purchases. One of my favorite eCommerce sites rewards me for writing reviews, giving referrals, and sharing their products on social media. These actions (reviews, referrals and social sharing) are profitable actions for your business as it is free marketing by a satisfied customer.
Points are often used to mask the true value of what you are rewarding. For example: you may be willing to pay 3 cents for a share on Facebook, but 30 points is a stronger motivator for your customer than 3 cents.
So how do you know if a loyalty program would be a good feature for your product or service? Well, loyalty programs work best for retailers who have products that are purchased regularly (a couple times a year). Examples would be fashion, supplements, or pet supplies.
The application of game mechanics is not just for mobile apps and video games anymore! You can get the power of gamification working for your customer experience and purchase process. With gamification, you are encouraging shoppers to complete actions by making it more enjoyable and adding a sense of competition.
Sites that incorporate gamification often have leaderboards, status, and badges so shoppers can showcase where they stand relative to others. Gamification is great because it can be incorporated into other things like promotions and the loyalty programs I already mentioned.
So is gamification right for you? Well, gamification works best for retailers with a demographic that is familiar with game mechanics (usually a younger demographic or a sports or competitive demographic). It also works very well when used in tandem with a loyalty program. Examples would be a slots game where you win a certain percentage off at checkout, or an actual game on your site that has a leaderboard where winning gives points or some other reward.
Personalization allows you to increase customer retention through more relevant and tailored experiences with the brand. Personalization requires you to collect data about your customers that you can later use to make recommendations and tailor promotions individually to each customer’s interest. There are a few ways to use personalization.
An example of this is bodybuilding.com, they take all your previous purchase information and make product recommendations based on what you like and the product you are currently looking at. Another example would be Amazon’s “Customers who bought this item also bought” bar under your selection. This is smart because it provides relevant offers and click through opportunities based on the successful purchases of others.
A simple way to use personalization to increase customer retention is through email. Many email service providers allow you to mark emails with a personalized name or company. When a shopper is addressed by name with content they care about, they will be much more loyal to you and your store.
Personalization sure sounds great, but who should use it? Well, a total personalization strategy is something to work towards, but simpler tactics like email personalization and login recognition should be used by anyone that wants to nurture customer loyalty. More specifically, I’m talking about everyone.
When all is said and done, a customer retention strategy is necessary and profitable for all eCommerce merchants. These are just few options to consider when putting together your plan. As more and more merchants start to sell online it will become harder and more expensive to acquire new customers, making retention even more important. eCommerce merchants that focus on customer retention will be more sustainable and more profitable than those focused only on acquiring new customers.
KaJ Labs has experience creating successful eCommerce sites with these features and others. To start your customer retention strategy, talk to the experts at KaJ Labs about your eCommerce site!