Updated: May 18, 2022
Did you know that it costs five times more to acquire a customer than to retain one? The fact that 76% of ecommerce businesses acknowledge Customer Lifetime Value as an important concept would suggest that retention is a key business objective. Yet only 18% focus on retention, loyalty and rewards, and 44% focus on acquisition.¹
One of the main reasons why ecommerce businesses have this paradoxical focus is because retention is assumed to be difficult, which is understandable. You have figured out how to acquire customers, so you keep doing that, the business is growing, all is good in the world...
Here are some stats to show you how much money you may be leaving on the table by not optimising your retention strategy.
A 2% increase in customer retention has the same effect as a 10% decrease in costs.
Existing customers are 60-70% likely to buy, whereas with new customers, it's just 5-20%.
80% of your future profit could come from just 20% of your existing customers (Pareto strikes again!)
Customer profitability tends to increase over the life of a retained customer.
It's 350% more profitable to sell to an existing customer than a new
A 10% increase in customer retention results in 30% increase in company value.²
But how do I increase customer retention?
Excellent question, and your time is precious, so I'll be blunt. Increase customer loyalty.
Okay... But how do I increase customer loyalty?
Another good question with another clear answer. Loyalty & Reward programs.
Loyalty and Reward Programs
Yes like the ones that Starbucks has. You may be thinking, 'but where would I start?', 'How do I make it effective?', 'do I need to hire a developer for my online store?'
All fair questions that I will answer below, en route to customer retention.
Where to Start
Most ecommerce platforms have loyalty apps available to download. This is where you can create your program. The best ones are very simple to setup, and fair on price. To get you started here are some examples for each platform.
Shopify - ShopHub: Loyalty & Rewards
ShopHub stands out on Shopify for three main reasons. Firstly is its simplicity for both store owners an customers. It's stamp based design means the customers know what they're getting, so are more likely to join. It was built with store owners experience in mind, so the setup is made as quick as possible for busy owners. Second is its appearance, probably the most attractive loyalty app on the market. Finally, it's 100% risk-free pricing model. ShopHub is the only app that only charges commission on its standard tier. So you don't pay anything unless you make sales from loyalty sales - even then it is a market-low 3%.
Wix - Smile
Smile offers a points based system and is one of the most popular loyalty apps on Wix. Smile claims to take under 1 day to setup and has some 160 reviews at the point of writing. This program allows points in exchange for referrals, and lets you call 'points' whatever you would like that fits in with your brand.
How to Make it Effective
These tools make it easy to install, but where do you go from there? Below are some instructions on how to turn your tool into a retention building engine. The keep it simple, we'll start with the 3 C's, then go onto the 3 E's, lets get started.
The 3 C's - Set the Foundation
You may come up with the most enticing and valuable rewards for your customers, but if its not clear, then all that effort will be for nothing. Firstly, make sure they know it exists, what it is, and what its for (to win their hearts), and secondly, once you've drafted up a selection of rewards, double check, and even better, check with someone else, as to whether its really obvious what it is, and why it benefits them. It's rule #1 for a reason!
Only when a loyalty program offers compelling benefits are customers willing to invest in the relationship.³ The challenge here is to find that perfect mix of exciting and tangible rewards, both equally important elements in the structure of the loyalty program. The best programs are both emotional and functional in their benefits that customers understand and appreciate. Give them great reasons to join and their response will be measurably improved. Spend a bit of time on this one, it is the creative spark for the project.
Basically, make the communication with those you're trying to connect with consistent and ongoing. i.e. Make sure you send thank you communications, and remind them that these rewards exist. If something changes on the program, let them know. Customers love to see valuable offers.
Sugarnoms built their ShopHub loyalty program to be clear, compelling, consistent, easy, empowering and engaging. It adds more brand personality and encourages repeat use of a store through its list of enticing rewards.
The 3 E's - Be Brilliant
Now that you have the basics sorted, its time to optimise.
"Don't make me think" - Steve Krug⁴
The golden rule of user experience, minimise friction. Convoluted loyalty programs which are not obvious in their structure are a sure fire way to put customers off. Follow the advice of Daniel Krug in his best-selling UX book - "Don't make me think". Options like ShopHub cater for this and make it impossible to have friction.
Customers want to be able to be generous, and share with friends and family, as well as do right for the earth. This is often more enticing than a 10% off coupon. So empower them, let them make a difference, because they want to. A quick win to empower customers is to let them help the environment. Sustainable rewards are among the most effective rewards to get buy in. Read the full breakdown of it in Tom Poyner's post, and Naomi Fallon's.
The best word to summarise this one is one I'm sure you're familiar with. Gamification. People like to play games. Karl Kapp put it best when he said "Games and gamification both can lead to high levels of engagement and motivation."⁶ Use a stamp based rewards system to show your customers what their targets are and how far they are from getting them, bringing back memories of childhood board and video games. Done well, this can be extremely effective.
So there you have it. The tools and framework for an effective loyalty program. Putting this into action will improve customer retention. So let's quickly remind ourselves of some of those seemingly impossible stats about retention:
It's 350% more profitable to sell to an existing customer than a new one.
A 10% increase in customer retention results in 30% increase in company value.
What's stopping you from starting up your own win-win loyalty program? if you have questions on the topic, feel free to message me on LinkedIn, otherwise, checkout ShopHub's website to see what good looks like.
¹Saleh, K. (2021) Customer Acquisition Vs.Retention Costs – Statistics And Trends. Investpcro
²Your tech diet. Acquisition vs Retention: Where Should Brands Focus?
³Thomas, P. (2019) Driving Loyalty in Convenience Retail
⁴Krug, S. (2006) Don't Make Me Think! CA: Berkeley
⁶Kapp, K (2006) The Gamification of Learning and Instruction. CA: San Francisco
Looking for something else? Check out more content from ShopHub: