One of the most important, yet under-leveraged strategies to grow ecommerce revenue is focusing on customer retention–how often customers order from you, and over what period of time. Of course, the more customers order, the higher the customer lifetime value.
Alex McEachern is marketing manager at Loop Returns, and has spent years focusing on customer retention for ecommerce brands.
As the ecommerce landscape becomes more competitive (lower barriers to entry, global competition, and more options to purchase on marketplaces like Amazon), the importance of retaining existing customers will only magnify. Alex shares a lot of nuggets of wisdom on how to tactically approach retention marketing for ecommerce.
Some great resources that Alex creates:
Gen Furukawa: How do you actually go about calculating the lifetime value of a customer, especially when it may not be so obvious if there are not recurring orders?
Alex: McEachern
But pretty much like every, every brand is going to have its own unique way of calculating customer lifetime value and that’s what makes it so tricky.
If you think about what is customer lifetime value, it really breaks down to three things.
- your average order value
- purchase frequency
- number of purchases in a lifetime.
It’s going to be hard to know how long someone’s going to stick around with you. So what I always recommend is I just try to look at like customer value and try to look at it in a year timeframe to get a good idea and start to benchmark, so you can start to build that up over time
So if you scope it to like 12 months, and then you can start to think and plan in one year increments.
My customer value last year was this, every customer I acquired was worth this to my business.
Can I improve that next year? And when I start to expand that out into two years, like, how does that. How does it look at? Are they becoming more valuable to me over time, rather than just trying to do this crazy forecast into the future?
How do things change if you sell an expensive product, or something that is purchased infrequently?
If we go back to that LTV equation of AOV and purchase frequency. If my purchase frequency is super low, then how much value am I really going to build over time? So, I like to think of things in a retention marketing matrix.
In the matrix, there is purchase frequency and average order value along the axes. Try to place your item in the quadrant, in terms of value and frequency.
An expensive and infrequent product is probably the quadrant of the retention marketing matrix where people have the hardest time trying to build up what they’re going to do because people generally think of loyalty, email marketing, and things like that.
But the retention marketing play for an expensive desk, you have to think on the product level.
Once you purchased the desk, they never followed up with you because maybe they only sell standing desks and they don’t really have a reason to reach out to you.
But let’s turn that desk into something like a piano. And you buy a piano and then maybe that brand starts to sell key cleaners to replacement strings. All of a sudden they have a reason to be reaching out to you in the future. And you’re not going to come back and buy another piano in a year or two. Like that’s probably going to last, you like 10, 20 years. But if I can get that person to come back and buy some of those peripheral products, or can I introduce some sort of complementary product, that’s how you’re going to start to build up that lifetime value and basically build up on the retention side for a brand like that.
How do you quantify the success of a loyalty and rewards program?
Your loyalty redemption rate is basically the percentage of your points that you have issued that are actually coming back for a reward and that baseline of 20%.
It’s basically an indication of whether people are seeing value in your loyalty program at all. If there is less than a 20% loyalty rate, then they clearly don’t see value in your program.
This could mean a couple of different things, but one thing for sure is that people aren’t engaged with your program and actually getting to the point of value.
There’s a lot of programs out there that you look at and they’ll have like a redemption rate in like the 3% to 4%. They’re not being customer centric enough with that program is usually the problem. But if you’re at that 20% higher, it means that one in five people is redeeming their points for a reward.
And the rest of them is, might be savers. They might want to save up for a bigger reward, but making sure that that transaction is happening of earning into spending for a reward. That’s where you find the value in a loyalty
How does personalization play into retention marketing?
Personalization is huge in retention, but many times personalization can just be whether a customer’s first name is included. or what they purchased before. That is important, but from a retention standpoint, the personalization is more about how to be valuable.
There can be value that can be automated, like every few months sending a discount coupon. This may be personalized because it is based on the purchase frequency of the buyer.
But there is more value to capture–for example if I sell jewelry. And I know that someone’s silver jewelry starts to tarnish after three months. If I start recommending cleaners or cloths at this point to address the problem, that is significant value that plays into retention marketing.
Now I’m putting purchases in front of you where I’m automating someone coming back to make a purchase, but I’m being personal with how I approach it. I didn’t have to go with like, do all this like crazy data personalization. All I had to do was give a good reason to reach out and suggest a relevant purchase.
Ultimately that’s what different retention plays are all about: how do I be valuable to that customer in a way where I’m speaking to their needs and not just my needs as a brand, which is come buy something from me
How do you see brands do an effective job capturing relevant data about their customers?
I think quizzes are one of the best ways to do this and quizzes where you ask the right type of questions. For example, with a skincare quiz, if I have a quiz where I’m asking “what is the biggest problem that you’re facing right now?…. Is it acne is a dry skin, etc”.
I can start to figure out what some of those problems are and then I can tailor absolutely everything I’m doing to the problem you trying to solve.
Or maybe if you’re selling protein powder and you’re not asking necessarily questions about like what type of type of protein powder do you prefer, but instead what their goals are–become a bodybuilder, run a marathon, etc?
Understanding your customer’s goals is a fantastic way to start to personalize.
This allows you to personalize both product recommendations and the content you produce to help customers achieve that goal.
The value proposition of Loop Returns is basically that a return policy is actually a marketing opportunity, but can you describe what Loop does and how you’re adding value to merchants?
Loop automate the return process and where we introduce all of our value is reducing the amount of refunds that happen and increasing the amount of exchanges. So a traditional return online is a customer sending an order back, getting a refund and credit on their credit card, and then buying something else. Loop helps merchants keep more revenue by making it easier to exchange a product, instead of a full refund.
A lot of brands view the returns policy as a cost center or an operations and logistics play. But it’s actually part of the customer journey. If I buy something and I don’t like it and I have to go return it. That’s still part of that first purchase journey.
Helping customers get to the right product more often is how you build up customer lifetime value. That’s how you increase retention. Customers will often buy something, not love it, but also not want to return it due to the hassle. And it kind of just like sits in your house, but you will never buy from that brand again because I’m holding something I don’t hate, but I also don’t love.
What are the benchmarks for return rate?
The average return rate that we’re seeing, and we just did a lot of research into this, is that it’s around 19%.
Obviously that is going to fluctuate quite a bit with what you sell. We have all those benchmarks broken up by industry. So you can see like, Hey, when I look at footwear versus apparel, like how does it, how does it change?
What’s the most effective way to help merchants reduce that 19% of returns?
I would actually challenge that statement and say, you don’t necessarily need to reduce your return rate. Returns aren’t necessarily a bad thing. It’s part of doing business online, but just making sure that you’re keeping tabs on what your refund rate is. So of those items that are coming back, how do we keep less of them as refunds and more of them as exchanges.
This means make the exchange more appealing and you can do that by making the refund less appealing.
One way you can do that is put a more generous return window on an exchange. Hey, you have 90 days to exchange this and 30 days on a refund offering something like a bonus credit for choosing to go the exchange route rather than a refund route.
You have to create a difference between those two outcomes or else you’re not going to be able to influence the composition of your returns.