According to research by Harvard Business School, acquiring new customers is costly for businesses. But over the customer lifecycle, as the cost of serving an existing customer falls and they also spend more, the relationship becomes more profitable. Consequently, the researchers found that increasing customer retention rates by just 5 per cent can increase profits by 25–95 per cent, depending on the industry.
Customer loyalty expert Adam Posner from Directivity, says that the principles of retaining customers and building customer loyalty are the same, regardless of whether you’re a bricks-and-mortar business, a “bricks and clicks” retailer or a pure-play e-commerce business. Here are his top three tips.
1. Deliver on the four moments that matter.
There are four moments in the customer life cycle when a business can help turn existing customers into loyal customers.
- Buying for the first time. Retailers need to be Excellent at what’s Expected (E2) – from having items in stock, to the website user experience, to streamlined checkout, payment and delivery.
- Buying more, more often. Retailers need to build relationships, using buying behaviour data to present relevant and personalised offers to a customer (often driven by what’s known as trigger marketing). Alternatively, you can recognise and reward their frequent purchases and / or higher spend with a customer loyalty and rewards program or other relationship-enhancing programs, such as exclusive content or special offers.
- Action advocacy. Retailers should always aim for customers to be so delighted that they refer their friends or tell others. A Net Promoter Score survey is one methodology to identify advocates (promoters). However, to keep it simple, once you have identified your loyal customers, motivate them to tell others through random acts of kindness. For example, you might select five customers to receive free delivery or their items for free.
- Re-engagement opportunity. Retailers can use their data to see when a customer’s behaviour has changed – have they lapsed or left you, or maybe they have complained? If handled well, it’s a great opportunity to rescue them. For instance, with subscriptions, you know if a customer doesn’t want to renew or calls to cancel. If so, there may be an opportunity to use rescue strategies (from outstanding customer service, to a special deal) to re-engage “lost” or disappointed customers.
2. Treat customer loyalty as a business growth strategy, not a marketing campaign.
Enhancing customer loyalty is a business growth strategy, not a marketing initiative. If it’s considered marketing, then when times get tough, businesses may slash and burn loyalty tactics, disenfranchising loyal customers.
Businesses need to have a clear idea of what loyalty means to you and what you want to get out of it. Set objectives for your loyalty activity, know which metrics you are going to use to measure success, then measure and report on results regularly so you can see what’s working and what isn’t.
For instance, do you want customers to buy more frequently or check out with a higher basket value? Or do you want greater brand awareness or referrals, for example? Whatever your objectives are, the loyalty strategy must be profitable for the business and meaningful for the customer.
3. Choose a loyalty strategy that works for your business type and the customer behaviour you want to motivate.
Not all loyalty strategies end in a points program. A loyalty program with points is more relevant to high-frequency buying behaviour, such as fashion apparel, travel and pet products. Points are a collecting mechanism to build towards rewards, so you need to give members a real opportunity to be rewarded, based on how often or how much they spend.
For seasonal or infrequent purchases – such as white goods or furniture – points programs don’t work as well. In this instance, you may use sales and service offers, special content like recipes or even a surprise-and-delight program to retain customers’ future business.
If you have a broad range of goods on sale with a mix of infrequent and frequently purchased items, you might link rewards to spending across your whole website.