The dictionary defines ‘loyalty’ as a “strong feeling of support or allegiance”, and for online businesses, eCommerce customer loyalty is as critical to long-term success as any business variable.
From the largest multinational company to a one-person business, it’s long been a given that ‘repeat customers’ are what defines the difference between successful and unsuccessful enterprises. However, in the era of online business—where customers can disappear at the click of a button—the critical importance of customer loyalty and online customer retention has never been more prominent.
Often referred to as ‘customer retention’, the ability of an ecommerce company to not only attract—but retain—its customer base requires a complex and challenging series of actions. And, after all, the very notion of eCommerce customer retention is just based on common sense: having worked so hard to attract a potential shopper to your ecommerce business, doesn’t it make sense that an online company would want to develop a long-term relationship that would ultimately result in multiple purchases?
As with every aspect of running a successful business, online customer retention requires the implementation of a thoughtful strategy. Of course, for new ecommerce companies, there may be more pressing, immediate issues than worrying about repeat customers (simply meeting the financial obligations of a new business, for example) but it’s never too soon to recognize the importance of online customer retention, and begin to take steps towards retaining existing customers.
Recognizing the Importance of Customer Lifetime Value (CLV)
One of the most important measurements as to how well a company is retaining its clients is the Customer Lifetime Value (CLV). Businesses that are most able to establish longer-term relationships with customers are those that will almost certainly have the highest CLVs. While establishing—and maintaining that relationship—requires a multitude of actions over a long period of time, there are certain metrics that can assist ecommerce companies with understanding the success of their online customer retention efforts.
These metrics include:
- Average Order Value— Dividing yearly revenue by the number of orders processed, an ecommerce business can calculate the average value of each order. There are also many tools available to assist companies with this metric, including Shopify’s Customer Reports.
- Repeat Customer Rate— This metric allows ecommerce companies to measure the percentage of customers who are returning to make another purchase; the higher rate, the more customers are returning to purchase a second time. Calculating this rate requires two pieces of data: the number of customers who have made a purchase more than once, and the number of individual customers who have made purchases during a specific time frame. Dividing the number of customers with more than one purchase by the number of unique customers provides the Repeat Customer Rate.
- Purchase Frequency— As its name implies, the ‘Purchase Frequency’ metric illustrates how often customers return to make additional purchases. It’s estimated that ‘repeat customers’ constitute as much as 40 percent of a traditional store’s revenue. Understanding how frequent repeat customers return is an important data point as businesses strive to better understand what ‘works’—and what doesn’t—in customer retention.
Customer Retention is the Goal, What Are the Best Options?
Once there is an understanding of the metrics required to measure online customer retention, the question then becomes: what actions can/should ecommerce businesses take in order to ensure eCommerce customer loyalty?
Here are just a few of the popular methods for customer retention that have a track record of success: Given the wide diversity of ecommerce companies, there is , of course, no singular ‘template’ that would be equally effective for all online businesses seeking to improve eCommerce customer loyalty. However, there are numerous tactics that have been proven effective in assisting ecommerce businesses in building lasting relationships with their customer base.
1. Develop a Customer Loyalty Program:
From auto rentals to airlines, many of America’s most successful companies have instituted loyalty reward programs designed to incentivize customers to keep coming back; in the fiercely competitive ecommerce space, a loyalty program could make the difference between a returning customer or a one-time purchaser.
2. Maintain Ongoing Communications/Emails:
As most professional marketers know, email marketing is a critical tool in maintaining ongoing communication with customers. However, it’s also important that email marketing adds value to the relationship, and is not seen as just a sales pitch. According to Shopify research, email marketing has the highest conversion rate, and that can definitely benefit an ecommerce business’ bottom line.
3. Offer ‘Specials’ for Returning Customers:
Separate and apart from a loyalty program, proffering a special or discount for returning customers is one additional method proven to be useful in giving customers a reason to make more than a one-time purchase. While discounts should be targeted, and used strategically, it’s human nature to be attracted to a ‘great deal’—and it can also help delineate an ecommerce business from its competitors.
4. Establish a Strong, Easily Identifiable Brand:
There’s a reason that successful companies spend so much time, effort and financial resources on defining their corporate ‘brand.’ Whether it’s an eye-catching logo, lettering or visual representation of the ecommerce product or service, establishing a clear ‘image’ of an ecommerce company in the mind of its actual—and potential—customers is critically important.
5. Develop a Solid Social Media Presence:
Perhaps more than any other businesses, ecommerce companies understand the opportunities—and potential pitfalls—offered by the Internet. Perhaps the best example of that dichotomy is the world of social media, the online world in which reputations can be made—or lost—very quickly.
Social media is an important information tool that provides not only companies the opportunity to communicate with customers, but perhaps more importantly, an easy method for customers to talk to each other about their purchasing experiences. And while it’s important to be aware of what is being said about a company on social media, it’a also important not to respond or communicate in a way that can elevate a relatively small business problem or complaint into a ‘viral’ social media interaction.
6. Never Over-Promise & Make Every Effort to Meet Expectations:
It’s understandable that an online business wants to offer customers an optimal shopping experience at a competitive price point. However, an ecommerce business can do irreparable damage to a company’s reputation if it is unable to make good on promises made to customers. It’s important to acknowledge the limitations of what can, or should, be offered to customers—and the company must always strive to meet customer expectations; doing so will help ensure customer retention.
7. Offer an Easy-to-Understand Return Policy:
It’s an established fact that ecommerce customers have come to expect return policies that are very liberal and have a ‘low bar’ for allowing a return of goods. It’s also important, however, that ecommerce companies make their customers aware of the parameters of their return policy; all it will often take is one negative ‘returns experience’ to lose a long-term customer.
8. Personalize the Customer Experience:
Customers like to feel as though they are more than just another invoice number; as a result, personalization of their purchasing experience—using their personal and shopping data to formulate a buying experience that reflects their individual traits and personality—can help ensure a long-term customer. Offering products that are more likely to interest a customer when they visit the website, in addition to personalized customer service, can go a long way to developing customer retention.
9. Simplify the Checkout Process:
It’s estimated that more than two-thirds of ecommerce customers abandon their shopping cart without a purchase; a report by the Baymard Institute also confirmed that complications relating to the ‘check out’ section of a website is the main cause of that abandonment. Therefore, it is critical for an ecommerce company to ensure that its checkout is simple, and requires as little time and effort as reasonably possible—each additional ‘step’ in the checkout process provides one more reason/opportunity for a customer to rethink his purchase.
Online Customer Retention— The Key to Long-Term Prosperity
The reality is that in the competitive world of ecommerce, there is a finite number of customers, and it’s likely many companies are actively competing for his or her purchase. That means that eCommerce customer loyalty—ensuring that ‘one-time purchases’ constitute as small a percentage of company sales as possible—has never been more important and vital to ensuring a business’ long-term prosperity.
As with all relationships, ensuring eCommerce customer loyalty takes time, effort, and a willingness to do whatever it takes to ensure that each first-time purchase eventually transitions into a repeat customer.