In last week’s post I shared some alarming stats on the decline in consumer loyalty today. In a recent research study conducted by ICLP, a global loyalty consultancy, only 3% of consumers felt devoted to their preferred retail brands.
Are we surprised by this statistic given the state of the world today? A recent Gallup poll found that 55% of married Americans have had extramarital affairs. How loyal would you expect consumers to be when more than 50% of them aren’t even loyal to their own spouses? Consumers today are faced with more choices than ever they are bombarded with discount offers, and are quite adept at using price comparison shopping apps and affiliate marketing channels.
So, in our hyper-competitive, uber-distracted world, should we just give up on trying to build loyalty with our customers? How much money should we spend on a losing proposition? Should we just accept the fact that fewer and fewer of our customers will become loyal Lucys and most will be one-time Terrys?
We posed these questions at a dinner we hosted last week in San Francisco toa room full of marketing leaders from some of the best retail brands in the Bay Area. After over an hour of heated debate we came up with six interesting ideas and examples worth sharing.
1. You MUST find a way to build retention and improve purchase frequency.
One of the most important KPIs in retail is the CLV:CAC ratio. CLV stands for customer lifetime value, and .CAC stands for customer acquisition cost. Businesses that can reduce their cost of acquisition while improving the lifetime value of their customers will be profitable, thriving enterprises. Businesses that face ever increasing acquisition costs and declining lifetime revenue from their customer base find themselves in a death spiral. Venture capital firms have known this for quite some time and use this metric as one of their key measures of health in a technology start-up. You simply must find ways to build customer loyalty to combat the rising costs of acquisition in today’s marketplace.
2. Launch a loyalty program tailored to customers’ purchase habits
According to the 2015 Colloquy Customer Loyalty Census, American households hold memberships in an average of 29 loyalty programs, but are active in only 12 of them. The programs that customers actually use tend to offer rewards that are tailored to their purchase habits (CVS offers coupons based on a detailed analysis of each customer’s purchase history), rewards that scale with usage and offer a value that is compelling (like hotel or airlines programs gold tier status), or rewards with flexible redemption benefits.
Strategic partnerships for customer loyalty can be super effective for retaining customers and growing your company. The American Express Plenti program is a good example. Launched in May 2015, it lets consumers pool their rewards from various retailers like Macy’s, AT&T, Rite Aid, Enterprise Rent a Car, Hulu, and more. Plenti members earn points shopping at these stores and can redeem points at any participating retailer. Tapping into the broader customer base of partners can bring in new shoppers, save on program costs, and lift sales by offering a more appealing program to customers.
3. Structure non-monetary rewards that cater to your customers’ values
One of the knocks on rewards programs is that they just train your customers to purchase on discount, they don’t actually build loyalty. Rather than offer financial incentives for purchase, consider tapping into the unique values and intrinsic motivators of your customers.
A great example here is Toms. For each customer purchase, Toms donates one pair of shoes to a person in need. Toms customers are incredibly loyal and feel good about helping people in need every time they buy shoes or accessories from their favorite store.
4. Charge a fee for VIP benefits
According to a 2015 study of 500 leading global brands, cart abandonment rates reached 75.6% across retail, travel, and fashion. This abandonment is often caused by sticker shock from tax and shipping costs. Amazon tackled this problem by offering their Prime membership. This approach works best for brands that rely on frequent, repeat purchases.
For 99 dollars a year, Amazon Prime users get free, two-day shipping on millions of products with no minimum purchase, among other benefits. Analysts estimate that Amazon loses $1-2 billion per year on Prime. But the company makes up for it in increased transaction frequency: According to a 2015 report from Consumer Intelligence Research Partners, Prime members spend an average of $1,500 per year on Amazon.com, compared with $625 per year spent by Amazon customers who aren't Prime members.
5. Identify your VIP customers before they cross the purchase threshold
What if you could identify your best customers before they made enough purchases to cross the VIP threshold? How would you treat these customers? Eloquii, a leader in plus-sized fashion, is using predictive analytics to identify pre-VIP customers and providing these customers with special recognition and early access to limited supply designer collections and sales. You can see a video here of Kelly Goldston, VP of Marketing at Eloquii, explaining how her program works.
6. Forget loyalty and promote purchasing as a habit
Walmart, at the prodding of new executives from the Jet acquisition, is re-thinking their e-commerce model. Today a loyal Walmart shopper visits a store over 50 times a year, but only makes a handful of visits to the website. Walmart wants to begin pushing consumables on their ecommerce channel, getting shoppers to make smaller more frequent purchases. Rather than building loyalty, they want to build habits, the habit of shopping at Walmart.com. When the habit is ingrained shoppers will come back for other purchases outside of consumables.
What if you don’t have a lineup as broad as Walmart and can’t expect to entice your customers to shop weekly? The next best thing is to anticipate when they will be in the market for your goods and reach them at the right moment with the right message. Anticipating customer needs and making it easy for them to purchase again from you can build the habit of shopping in your store. Is it loyalty? Who cares – they are making repeat purchases with you and not your competitor!
Predictive analytics makes it easy to identify customers’ purchasing patterns and predict when they will be ready to make their next purchase. Communicating at that exact moment with the right product and offer will keep them purchasing with you. And if they begin to fade – deviating from their expected purchase pattern – you can win them back before it is too late.
Crocs has been using predictive analytics to predict and prevent customer churn and are seeing 2x improvements in revenue per user.
The bottom line is that you must find ways to increase purchase frequency and AOV from your existing customer base. And whether you are Walmart or Wally’s corner store, there are steps you can take to improve loyalty and reduce customer churn. Let us know your thoughts—have any other great examples or lessons to share?