It’s common knowledge that it can be almost 5 times more cost effective to retain an existing customer than acquiring a new one.
In fact according to RJMetrics, the most successful Ecommerce businesses who focus on Lifetime Value (AKA- Retention) see over $600k in monthly revenue after just 6 months in business and acquire new customers 3.5x faster than their competition.
Clearly, the case has been made for focusing on retention.
Before we dive in, we all need to internalize one very simple concept; if they’re buying more from you, they’re buying less from someone else, and quite possibly ending a long-term buying relationship.
So often the discussion around retention devolves to quick and simple tactics to “get people to make their second purchase faster” but it can be more complicated than that.
For all you know, there could be long established personal narratives as to “why” a person buys one brand over another. Through this lens, the simple act of switching laundry detergents could represent a falling out with one’s mother, which is why you have to pay careful attention to your retention gameplan.
You’re not just “getting to the second purchase,” you’re trying to change your customer’s buying habits and connect to them on a deeper level. Essentially you must understand your potential customer’s perspective, biases, needs and concerns and then use that knowledge to create a better customer journey that will lead to higher retention rate.
So, What Makes Customers Buy More?
At the end of the day, we are creatures of habit.
Psychologically our brains prefer the constant and tend to repeat our previous actions.
In fact, a good deal of purchases are made as we sleep-walk through the aisles. We gravitate to our default websites just the same as you grab your brand of milk, toilet paper and paper towels without giving the others so much as a glance.
This is most commonly known as the Status quo bias. Offline or online, if you’ve previously purchased something at an online store, you know it works and how long it takes and over time, you come to trust this service and prefer to keep with it, even if you know there’s a better bargain elsewhere.
If you want to retain customers, you need to understand the habits people have constructed around other brands, so that you can break them and use them in your favor.
For example, slowly but surely ‘Dollar Tree’ has become a huge competitor to Wal-Mart. For a long while, Wal-Mart was known as the cheapest and most cost effective option, which made up for their extremely bad reputation in terms of hygiene and unpleasant shopping experience.
However, now that Wal-Mart is far from being the cheapest option and is unable to compete with Dollar-Tree’s prices, Wal-Mart is losing customers and is forced to start competing with other larger brands using a different strategy. Cost is no longer the name of the game, now Wal-Mart must go after customers with higher disposable incomes and MUST change their reputation.
In 2015, Wal-Mart spent a lot of money cleaning up their stores and creating a better shopping experience. They also started offering inexpensive shipping passes online. These steps have started changing people’s perception of Wal-Mart and now with lower prices than the high-end competitors, customers who previously chose other high-end brands will choose Wal-Mart.
By understanding their new target audience’s shopping habits, needs and expectations they have been able to overcome a huge potential threat to the company and come out as winners. Wal-Mart still has a lot of work cut out for it, but it is definitely heading in the right direction; forming new habits for their customers.
In his book ‘Hooked’, Nir Eyal defines habits as behaviors done with little or no conscious thought.
Habits are those little things we do without noticing, like picking our phones up when we have no one to talk to. It’s an action that is now rooted into our behavior and has become a habit.
To form a habit within our customers, we must understand our customer’s pain and ingrain in their minds that we are the immediate solution, the medicine.
“In order to win the loyalty of their users and create a product that’s regularly used, companies must learn not only what compels users to click but also what makes them tick.”
The 4 steps of the ‘Hook Model’ by Nir Eyal:
- Trigger - Grabbing a customer’s attention through an email, a notification on their phone or an interesting image on their social feeds.
- Action - The simple action that follows the trigger and the anticipation for its reward. This is where design, UX and UI come in, the easier it is to perform the action and the more motivation they have the higher the chances of a customer repeating that action.
- Variable Reward - The heart of the ‘Hooked’ model - variable rewards increase anticipation, want and desire and key for getting your customers hooked.
- Investment - This is where the customer takes an action and starts investing back into your product. Their investment isn’t necessarily to do with paying, it’s about taking an action that will improve the service next time they use it - inviting friends, completing their profile or earning points for certain actions. Each time they take an action they become more committed and the excitement towards the reward grows.
Creating a habit-forming product is the way for increasing retention and growing your business.
In fact, there is a 27% chance of a customer repeating a purchase at a store that they have purchased in before, there is a 45% chance for a third purchase and a whopping 54% chance for a fourth purchase. Surprisingly, although new visitors generate the most site visits and have the majority of the marketing budgets, on average they only generate 41% of a site’s revenue.
With all this in mind, it is clear that retention is key for business growth and where the money is, yet only 18% of companies focus on retention rather than acquisition (invespro).
So how can you take the next step to optimize your returning customers? Here are a few basic tactics we’ve been testing.
Getting Started with Retention
As we discussed, trust is one of the most important parts of increasing sales and retention. If customers feel secure, they are more prone to come back and continue shopping.
- Start by showing customers their friends who have also shopped on your site (facebook widget)
- Continue with recommendations from past customers and reviews of products in which they have shown interest.
- Personalization is a great way to increase trust and enhance the sense of familiarity to customers: use localization and show customers you know them by showing them content according to their geographical location - local currency, shipping to their town, local phone number and local office address. All these contribute to a sense of saftiness and the “wellknown." More on this later on.
Returning customers expect you to remember them, whether it’s via a cookie or the fact they signed up, when they re-enter your site they want to quickly login (using social logins or email and password) or see their previous items in their cart, even if they haven’t signed up.
Though I haven’t logged into my Skreened account (and wasn’t logged in while adding the item to the cart), days later they still know I have an item in my cart and have saved it for me.
The offline world has been using gamification methods for years, from girl scouts trying to earn their next badge to grown men and women working hard to lose weight and gain points for it. Every element of gamification addresses the 4th step of the ‘Hooked’ model - getting them invested in your product.
Engage your customers; allow them to set goals for themselves, earn points for reviewing items, writing recommendations or sharing their purchases. You can either reciprocate immediately (a coupon for the current purchase) or build a point system that allows customers to reach a certain amount of points and get a discount on their next purchase or a free gift.
You can even launch a VIP loyalty program allowing customers to earn and redeem points to shop their favorite sales early, get discounts, free shipping, and attend exclusive events.
To get users engaged and hooked on the app, Snapchat offers trophies triggered by the actions people take within the app. To gain additional trophies, you have to continuously try new things, spend more time on the app which in return means - investing time in it. People spend weeks trying to figure out how to gain additional trophies. Note the use of padlocks to generate curiosity and remind you, there are many more to discover. Unfortunately I only have 8... :(
Increasing Retention Using Email Marketing
The most common and effective way to increase retention is with email marketing.
As of March 2015, email marketing accounts for 17% of marketing spend and contributes 24% of revenue.
Email marketing can drive great uplifts in conversions and convert more one-time customers into returning ones.
To get started with email marketing, you must first grow your email marketing subscriptions and optimize the quality of those signing up. You may already be using an entry pop-up with a coupon or utilizing exit pop-ups, however there are many ways to optimize the quality of the registrations by identifying the right time and the right content to prompt.
For example, doing some extensive testing with TheNextWeb, we found that the best time to ask visitors to sign up to the newsletter was once they had scrolled over 30% of an article. By setting the pop-up to be triggered by scroll, we saw a 32% uplift in newsletter registrations on desktop.
Furthermore, using Banana-Splash’s mobile personalization capabilities, we actually saw higher conversion rates on mobile web than on desktop. The call-to-action was set to appear only once a visitor scrolled 30% of the page, was viewing an article and was a returning visitor.
Once you have the right people signing up to your newsletter, you can then start optimizing the content of your newsletters to increase retention and further create a connection with your customers.
7 Ways to Optimize Email Marketing for Retention
After making a purchase we’re are at the peak of excitement and anticipation towards receiving our product. This is why sending an email detailing your customer’s purchase, saying “thank you for buying” and offering a way for customers to stay engaged with your brand and gain more can go a long way. For example. CheapOAir uses their Thank You email to offer 20% off a customer’s next flight:
Following my recent purchase at “Forever Lazy” (purchased yet another onesie), I received an email asking for my review of the product in return for 10% off my next purchase. These kind of emails are perfect for keeping me engaged and getting more out of me after my purchase. Since I’ve already taken one step forward, there’s no reason I won’t do this one:
As we’ve established, increasing retention is all about building trust and enhancing the connection with your customer. In addition to letting your customer know their shipping status, there are many other updates you can send; regarding the production of the product, packaging updates and pictures of your smiling staff happy to be working on their product. These types of emails can benefit you on many levels:
- Increase the sense of trust and set customers at ease - “This is a reliable company and my package is on its way.”
- Create a stronger connection with your customers by introducing them to your staff and process and increase the sense of loyalty to your brand.
- Keep excitement and anticipation at peak. There is a timeframe between buying a product and receiving it that consumers start second-guessing their purchase decision. Many times this happens with products that are purchased online and are not received immediately. Sending customers pictures of the team at work or even just waving “their” package off, keeps customers excited and happy with their purchase.
The One Dollar Shave Club offers customers a chance to add additional items to their package before being shipped. A simple email notifying customers of the shipping date plus additional products customers may want to add in their bag before it’s too late:
Leverage ‘Loss Aversion’
There’s just something about emails that say “24 hours only sale” that make people (including myself) stop what they’re doing and open that email.
We may not need these products and we probably weren’t even thinking about buying anything, however somehow they’ve grabbed our attention. Limited time sales create a sense of urgency in customers and trigger ‘Loss Aversion.' “Loss Aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains.” In fact most studies suggest that the discomfort we feel with loss is twice as powerful as the pleasure in gain which is why we try to avoid loss at all costs.
You can utilize this trigger by sending weekly reminders to your customers of your sales and special offers. Don’t forget to highlight the timeframe and importance of completing a certain action at a certain time:
Build Brand Ambassadors Using Hyperbolic Discounting
As “Hooked” explains, in order to form habits within our customers, they need to make an investment. A great way to do this is by rewarding customers for spreading the word and turning them into brand ambassadors.
In the example below ‘theSkimm’, a daily email subscription service engages their community, turning them into brand ambassadors by offering “Swag” in return for promotion and sharing their service with friends.
Another common way of turning customers into brand ambassadors is by offering special coupons for customers who spread the word to their friends. However, while planning these rewards for your customers consider the fact that given two similar rewards, people show a preference for the one that arrives sooner rather than later. This is commonly referred to as the “Hyperbolic Discounting’ bias which means that it is crucial to offer customers realistic deals that seem close and easy to fulfill.
This is the name of the game. 86% of 18-34 years old say they find emails useful if they include recommendations based on previous purchases.
Get to know your customer’s habits, taste and desires to gain loyal customers. By simply tracking your customer’s purchase record, you can offer suggested items, new products from the same category or similar items. For example, one of our clients sent out a personal recommendation email to all their customers, once they clicked on the email they then landed on the product’s page and got a personal splash with 15% off their next purchase:
Other than sending customers personalized suggested items to their mailbox, One King’s Lane also uses the power of scarcity to increase sales. As presented back in 1984 by Cialdini in his book “Influence”, the thought that we may lose out on this nightstand will probably motivate us to purchase it.
Pinterest, sends personalized emails that connect you to other users who “pin” the same stuff, also enhancing the sense of community:
Leverage the Social Identity Theory
The Social Identity theory suggests that our self esteem and identity is derived from the social groups with which we identify. Being part of a group allows us to differentiate between “them” and “us” and allows us to identify with brands and groups. We define ourselves according to the social groups around us and stuff that we own. The higher a group ranks, the more we want to be a part of that group. Presenting yourself as a community in your emails, inviting people to join you on Facebook, Instagram and other social platforms enhances the sense of commitment to your brand.
In the example below Nextdoor establishes itself as a private community, only certain people get invited and can take part in the community:
Don’t forget ‘Offline’
An Ecommerce customer journey doesn’t end until the package has arrived safely in the customer’s hands.
Presentation matters. Add a personal letter to your customers and ask them to share their purchase on social media, consider the materials you pack with, the look and feel of the package.
Taking Your Next Steps
Similar to any aspect of marketing and optimization, retention is about understanding your customers better, their emotional connections to different brands and creating that connection with you. The key to retention is reaching out to customers on an emotional level and connecting with them to create better user journeys, a better product and grow your business.
Take a moment and ask yourself, are you doing everything you can to increase retention?