The science of attracting and retaining loyal customers

The science of attracting and retaining loyal customers

Lenia Karallus
Retail Consultant

Lenia works very closely with our clients, helping them to define their eCommerce strategy and identify performance improvements within their current eCommerce set-up.

Lenia has a strong background in strategy and analytics, working for a wide range of retailers including Selfridges, Harvey Nichols, Belstaff and Anya Hindmarch. Prior to joining eCommera, she worked as a strategy consultant at Javelin Group, a retail-focused consultancy based in London. She has extensive international experience, including in China, Germany, Turkey and India, and speaks German fluently.

Industry analysts agree that acquisition costs are 5-10 times higher than retention costs. This is down to several factors - not only are marketing costs much lower for repeat customers, but spend typically increases over the course of a customer's lifecycle and retained customers also spend more frequently.

So the lesson is simple – retailers must retain customers. But in a highly competitive market, this is easier said than done. There are hundreds of reasons why a customer might not return to make that second purchase. The good news is that there is a science to customer acquisition and retention – one that allows you to understand both your current dynamics and where you need to focus to boost growth.

The science

A cohort analysis, leveraging historic data, as well as market data and industry benchmarks, enables you to see your historic patterns of acquisition and retention. It looks something like this:

At a high level, the cohort analysis shows you the extent to which your business is reliant on newly acquired customer spend. This may provide the first indication of a limit to growth, especially if your market is relatively finite.

You can then drill down further into the drivers of historic acquisition and retention performance, to help you answer questions like how many loyal customers you have, and what the average time is between first and second purchases, and so on.

All of this begs the question – what does loyalty mean? Most businesses talk of the need to recruit “loyal” customers, but often they do not have a clear, shared understanding of what loyalty really means. Loyalty is ultimately about customers being highly likely to shop with a particular retailer again. At eCommera, we define this as a customer having a 90% likelihood of returning to purchase again.

Retailers should then look at how many purchases a customer needs to make before they can be considered "loyal", how long this process takes, and what the associated average order value is. These metrics will have implications for various business decisions – such as your retargeting campaign and the personalisation of your CRM messaging. Of course, this will vary greatly by category; a sofa retailer will have a much longer time to loyalty than a fast fashion retailer, but the same basic principles apply.

So how can you get more loyal customers? Once your cohort analysis is complete, there are several areas you can look at to help increase your number of loyal customers, as well as reducing the time to loyalty, such as:

  • Customer experience - Do you survey customers regularly to get first-hand feedback on the customer experience? Do you monitor delivery against customer promise?
  • Email - What is your current method of email collection? Do customers have to opt in or opt out? Do you have a calendar of email activity set up?
  • Retargeting - Do you have a lifecycle campaign in place? Do you target customer groups?

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