How to Overhaul Your Retention Strategy and Develop More Profitable Repeat Customers

How to Overhaul Your Retention Strategy and Develop More Profitable Repeat Customers

So the visitor has checked out. They’ve officially bought something from you. They’re a buyer.

And of course, new buyers deserve (and require) a great experience after checking out. That’s where many merchants stop. And by the time they realize it, they’re out of the buyer’s mind. 

You’re not going to do that, though. You’re going to strike while the iron is hot. You want to turn that buyer into a return buyer, and eventually a consistent customer.

You do this not only because you love your customers, but because that’s how you’re going to win.

To do this, you need a program to retain these new buyers and turn them into loyal customers. You’ll also need to keep your existing customers engaged. As Neil Patel and Bronson Taylor write:

“If your retention is low then all of the ingenious growth hacks that you apply to your product are basically meaningless. Your members will leave your product at the 11th hour (the very end of your funnel). Leaky buckets don’t need more water. They need their holes fixed.”

 

You can consider retention as any activity that “a store uses to increase the amount of repeat customers and increase the profitability of each existing customer.”

A lot of companies think of growth and marketing as acquiring new visitors, buyers, and customers, but an equally important (if not more) part of these activities is keeping existing ones happy and increasing customer lifetime value. These strategies need to be planned from day one, and arguably even before your company invests in growth.

Amazon Prime is the most obvious example of a successful retention program. According to RBC, Amazon Prime subscribers spend $538 per year, almost twice as much as a non-Prime subscriber ($320 per year).

You can call Prime a “loyalty” program, but retention has little to do with loyalty in the emotional sense of the word. As written in the Wall Street Journal:

“...a very large percentage of loyal customers—often more than 50%—are not profitable for most companies, because their loyalty is driven largely by expectations of great deals. In one case, a company mispriced a product, which led many of its loyal customers to buy the product in large quantities—making some of them the firm’s largest customers in the process. We suppose you can call them loyal customers if you want, but they aren’t good for the bottom line.”

The writers of that article explain later that when it comes to the bottom line, your target audience should be:

“customers who are not only loyal in both attitude and action, but also profitable. But research consistently finds that profitable customers tend to make up only around 20% of a company’s customers. Break-even customers represent around 60%, and unprofitable customers around 20%.”
A retention program is designed to align that loyalty with profitability.

What Does a Good Retention Program Look Like?

A lot of companies have effective retention programs. We’d already talked about Amazon’s Prime program, but there’s also Starbucks’ Rewards program (most famous for their very pretty personalized Gold cards), Sephora’s VIB programs, Walgreens’ Balance Rewards, and Zappos’ Rewards program — amongst many others.

And while we’re here, let’s draw a line in the sand:

A retention program is not just a program where people get points, free shipping, or some other reward. Retention programs have these elements. But when we talk about retention, we’re talking about a system of ideologies designed to bring buyers back to your store.

That might sound as overwhelming as it is inspiring. But your retention program can be simple. It doesn’t have to start off as grand as Prime, VIB, or anything else. It just has to matter to your customers.

Starbucks sources customer ideas through its ”My Starbucks Idea” website.

Image source: Starbucks

As you consider positioning and breathing life into a retention program, consider how Amazon promotes Prime’s benefits:

“Amazon’s program at its core is a subscription to get cheaper expedited shipping and access Amazon’s multimedia outlets. It can be boiled down to two main benefits, but Amazon does a really good job of making it look much more expansive. They break those two benefits into many “sub-benefits” and show you why each is important. They make the program look much more expansive than it really is.”

Your retention program needs to matter to your customers. Part of that means positioning it to connect it with their needs and curiosities.

Play to your strengths and the reasons why they choose to shop with you. Prime plays to Amazon’s advantage over every other ecommerce store — shipping and fast delivery. If you plan on doing the same, consider also how much you want to invest in those logistics. According to Fortune, Prime costs Amazon quite a bit of money, and didn’t pay for itself as of 2015.

Comparatively, Sephora’s VIB program is much likelier to be profitable because shoppers don’t just go with them for fast shipping or selection. Sure, their VIB program offers free shipping and makeovers, as well as exclusive savings, but it also comes with value-added services like a private hotline, exclusive events, and handpicked gifts.

It’s also much pricier. The highest tier of Sephora’s VIB program costs $1,000 per year, and the middle one is $350. Both are much pricier than Amazon Prime at $99 per year.

What Should You Include in Your Retention Program?

Here are the essential elements of a ecommerce retention program, and ones you can consider as you put yours together. They’re not necessarily best practices, but I highly encourage you use them as starting points for creating something that your buyers and customers will appreciate:

Keep It Simple: Free Faster Shipping

We’ve covered how free shipping reduces cart abandonment, and how to calculate free shipping thresholds for buyers. Naturally, it makes sense for you to excite more of your customers by removing the price barrier of shipping — and making their wait shorter.

Amazon Prime positions their accelerated delivery with a series of options. The main one is “FREE Two-Day Shipping” with the subtitle “Over 50 million items available.” Again, Prime plays to Amazon’s strengths — fast shipping and selection.

Prime also offers an array of other options, including “FREE Same-Day Delivery,” “FREE 2-Hour Delivery,” and “FREE Release-Date Delivery.” Notice how each offer targets a certain audience.

The idea for Prime, centered on free shipping, started in December 2004. According to Fortune:

Amazon CEO Jeff Bezos threw out a challenge to a small group of employees huddled in the boathouse behind his Medina, Wash. home, a sprawling 5-acre estate on the shore of Lake Washington. Find a way to expand and speed up free shipping, he told them, as a way to increase customer loyalty.Two months after that brainstorming session, Amazon unveiled Prime. Customers who paid $79 annually would get “free” two-day delivery nationwide for an unlimited number of orders.”

This very simple promise, a “discount” program with free 2-day shipping that started off costing $79/year, has now expanded into a much larger loyalty program. But the core promise is still built on discounted, faster, shipping.

Let’s walk through what this might look like for a hypothetical ecommerce dog accessory retailer. And let’s call this store Poocharium. (I wanted to call it Pooch Planet, but that’s the name of an actual business.)

Poocharium knows that their customers buy dog food regularly (and potentially other accessories like toys). So they figure they could provide free upgraded shipping, like Prime, but perhaps with a pricing threshold (like Prime’s “FREE 2-Hour Delivery” program).

Perhaps if Poocharium had a huge core customer base of people who take pet accessories as seriously as hypebeasts take sneaker releases, this retention program could offer free release-date delivery for limited edition pet accessories. Here's an example of a script that would enable free shipping for customers with a "VIP" tag. Which, coincidentally, neatly takes us to our next point…

Why People Love Flash Sales

At the core, flash sales are successful only half because of the discounts. Of course, there needs to be great deals and savings. But part of the key to flash sales is the sizzle — the excitement, the sensationalism, and the exclusivity. Think about Taylor Swift or Justin Bieber concert tickets released at regular price, and how quickly those get snagged!

American Express (Amex) capitalizes on this specific problem. They partner up with Ticketmaster in order to offer “Front of the Line” pre-order access for anyone with an Amex card.

And, as a concert purveyor, I can’t tell you how relieving (and refreshing) it is to browse at my convenience. Without “Front of the Line,” I would have to constantly refresh a few minutes prior to the release, praying to get seat selection (which happens maybe 25% of the time). Ugh, anyway, I won’t even get started…

Flash sales is a great retention strategy because it gets people shopping, but also because it creates a more visceral experience for customers. But depending on the products you sell, you could similarly offer early access to discounted items, or offer early access to rare items or colorways.

Ecommerce retailers like Evy’s Tree actually build flash sales limited quantity into their product release process, notifying VIPs of releases first. If you’re interested in experimenting with something like a limited quantity flash sale, try Frenzy.

Amazon Prime members get to access Amazon’s “Lightning Deals” 30 minutes before they become available to everyone. Similarly, Zappos Rewards offers tiered access to shoe releases (some of which are notorious for selling out quickly. Seriously, even “Supreme” branded Metrocards cause lines).

Let’s return to Poocharium. Building up a set of flash sales could mean early access to discounted weekly sales, or a flyer or codes (be careful, because codes are transmissible) sent out to an exclusive mailing list.

If Poocharium  has some leftover stock of rare dog accessories, perhaps the program could offer early access — or random access — to those.

How Referrals Play Into Your Retention Program

At first glance, referrals might seem more like a customer acquisition strategy than one of retention. And it is, but referrals enable you to build a better retention program. From a retention perspective, referrals work because of the network effect — your community will become more valuable as more people join.

The point is not to use the network effect enable your product to go viral (which sounds fun but may not be useful for your business), the point is to get your customers to promote to their friends so that their friends will eventually keep that customer on there.

The best way to position such a program is to look at the benefits. When Dropbox did their now famous referral program, they didn’t request that users “Send this to a friend,” or, “Share with a friend.” They wrote about how users would get, or receive, more free storage when they invited their friends. A more recent example would be Uber’s $10 off a first ride (and $10 to the referring user, obviously).

Make sure your users know what the reward is for referrals for themselves and their friends. And if your network is small and you want to take this method seriously, you might have to start off high, just like Paypal did (giving away $20 for free — and losing a ton of cash in the process), and eventually make it lower as you reach the number of users you think will help retain your customers.

Remember, friends help keep other friends engaged.

You can make your referral program’s rewards linear, like Paypal, or tiered — making prizes more valuable as the number of referrals go up.

Back to Poocharium — perhaps they could invite a fellow pet lover to try, and if that person checks something out over $25, both of them get $10 coupons on future purchases.

Or, if they sign a friend up, both of them and their friend get a free accessory in the mail after the friend’s first purchase.

Leverage Existing Alliances

Strategic alliances can be a beautiful thing. People like paying less. It’s why getting a discount on the original value of something else feels great. For example, if you were buying from my streetwear store, and I told you I partnered with Nike and could get you a pair of Air Force Ones for $60, you’d be pretty psyched, right?

Think about how Amazon offers unlimited music and video streaming, as well as Twitch and Audible perks, to to their Prime members.

And there’s the rub — Alliances work best only if you already have a strong business development team in your company, your brand is flexible enough to cover an ecosystem, and your partners have something that your existing customers want.

Position your alliance like you would a referral program — leading with the benefits. This could mean discounts, early access to things, and such. Amex’s “Front of the Line” partnership with Ticketmaster is a great example of how valuable early access can be.

Let’s say Poocharium, our hypothetical dog accessory retailer, had a really stellar business development team (they close deals — no doggin’ around!). Dog accessories means that your customer will most likely have a dog (or know someone who does). Working backwards, that’s still a pretty broad audience.

It’s safe to say that customers will have to spend a certain percentage of time at home to keep the dog company and walk them occasionally. So maybe the alliance could be with a partner that does walking shoes, or really cozy slippers (ahhh), or candles. Or, it could be much more functional, like discounts on a dogwalking service, or perhaps discounts on a pet care service while they travel or go on vacation.

Your Customers Are Important — Make Them Feel Like It

If you differentiate your store with customer service, or prestige (like many luxury and cosmetics retailers do to varying extents), you can create a VIP program. Your core customers — the most important ones — will appreciate being treated that way. Remember, not every customer is made equally! (See Kevin Kelly’s “1,000 True Fans”.)

VIP programs differ from a standard retention program in that they generally have a currency system, and tiers. Airlines and hotels use point systems based on spend, other companies purely look at total annual spend, and still other companies use a combination of both. Generally, the key is to incentivize greater overall spending per customer. Here’s an example of how you can tier your reward program.

VIP programs could offer benefits like:

  • Enhanced customer service
  • Gifts
  • Savings
  • Free “custom” stuff (like handwritten notes — see Bond if you’re worried about scaling)

With Poocharium, the possibilities are endless. They could offer a free dog grooming kit each month (called, “Poochpost!”), or a tailored “dog doctor” service or chatbot for people with pet problems. You could also share custom accessories with customers’ pets names engraved.

Think Deep About Retention

Retention isn’t just as important as acquisition — it’s arguably even more crucial to long-term ecommerce success. If you’ve kept busy with advertising and trying to grow your customer base, now’s your time to think about how to retain your customers and increase their lifetime value and order sizes.

Retention is about loyalty, friendliness, and changing customer behavior. But most importantly, it’s about building a relationship with customers because it’s good business. Remember that as you plan and set your retention program in motion.

About the Author

Herbert Lui is the creative director of Wonder Shuttle. He was a staff writer for Lifehacker, and his writing has appeared in The Globe and Mail, the New York Observer, and Fast Company.