In the changing retail landscape, customer acquisition costs are soaring, customer loyalty is plummeting, and margins are disappearing. It’s clear what retailers must do: retain, retain, retain!
Ten years ago, e-commerce represented a new frontier for savvy retailers. Everywhere you looked in the digital wilderness, another brand was looking to stake their claim and connect with customers beyond the brick-and-mortar format. Growth was the name of the game: GET NEW CUSTOMERS, AND GET THEM QUICKLY AND CHEAPLY!
But in 2019, the digital retail landscape is more war zone than wilderness. Discounts are up, profit margins are down, and each new customer acquisition is more time-consuming and expensive than the one before.
Attracting new customers might require a huge advertising push and/or a hefty discount, but they’ll be gone again as soon as a competitor offers a slightly better price.
We call these consumers one-time buyers, one-and-dones, one-buy stands, onesies, one-der-where-they-wents… You get the idea. They’re not coming back.
That’s why we propose that retailers downshift their customer acquisition priorities in favor of customer retention. While bringing in a new shopper is great, it’s making them stay that counts in the long run.
Increasing retention by 5% can increase profits by 125%.
Customer Acquisition vs. Customer Retention
In the crowded online retail marketplace, it’s becoming more expensive to acquire new customers and less likely that they’ll stick around after the first purchase—which means that return on investment (ROI) is taking a big hit.
If the cost of bringing in a new customer is higher than the amount that a new customer is predicted to spend with your company over time—well, you can do the math. That’s why many marketers have come to realize that customer retention is critical for long-term growth.
Focusing on acquiring new customers is unsustainable. Cultivating existing buyers into long-term, repeat buyers is a much more cost-effective way to contribute to your brand’s overall health.
Furthermore, marketers can offset slow customer acquisition by retaining and nurturing high-value customers. A purchase from a new buyer looks an awful lot like a purchase from a repeat buyer, but it’s almost 7x more expensive to acquire a new customer than to keep an existing one—so, that repeat purchase is actually better for your bottom line.
In fact, no matter which way you look at it, turning existing customers into repeat customers is a good investment. Here are a few impressive numbers to prove it:
- Increasing retention by 5% can increase profits by 125% (Bain).
- 80% of a brand’s future revenue will come from 20% of its existing customers (Forbes)
- The top 5% of a customer base can account for 30 to 40% of revenue (Us...i.e, Custora, not Us Weekly).
Clearly, a rock-solid customer retention strategy is a vital element of any brand’s marketing stack—but creating one is easier said than done.
Optimizing Your Customer Retention Strategy
Customer retention begins with understanding each customer’s journey, from the limo to the final rose ceremony. The one (and only one) difference between retail and The Bachelor? The roses never have to stop coming—as long as marketers play their cards right.
Customers want personalization, and personalized communication begins by speaking effectively to customers at every stage of the marketing lifecycle: with a welcome series when they first come in contact with your brand, and by using consistent, relevant communication following purchases, you can successfully speak to customers when they’re fading or at-risk, and even when they’re presumed lost or “churned.”
An in-depth customer data platform can help you pinpoint exactly where each customer is in this process and set you up for success in attracting them, retaining them, and winning them back.
We’re going to take a deeper dive into lifecycle marketing in our next blog, so stay tuned. If you can’t take the anticipation, you can download our full book, One and (Not) Done: Leveraging Customer Analytics to Address the One-Time Buyer Problem, here.