My parents have followed the same Saturday morning routine for decades. They drive to the local Walmart to pick up their weekly shopping, but they don’t buy fruit or vegetables here. Instead, they drive another couple of miles to a small family-owned grocery store to finish their shopping. Why?
The products on sale at the smaller stores are no better. They’re no cheaper. My parents are loyal to this one store for less tangible reasons. They feel comfortable with the store owner, who greets them by name. They feel they can trust the produce in a way no amount of marketing and brand-building could influence them to trust larger stores. I’d guess that this local produce store has remained in business because of the loyalty of customers like my parents.
The retail marketplace has changed beyond all recognition since my parents were married and began their Saturday routine. Many of us prefer to shop online, sitting in an armchair with an iPad rather than driving to the store. But some things haven’t changed: customer loyalty remains vital to the success of retail businesses.
Retaining customers is less expensive than attracting new customers, and to retain customers retailers must give them reasons to be loyal. A study from Harvard Business School showed that an increase in customer retention rates of 5% can increase profits by 25–95%.
“The combination of all these economic factors means that the value of loyalty is often greater on the Internet than in the physical world. For all companies doing business on the Web, the implication is clear: you cannot generate superior long-term profits unless you achieve superior customer loyalty.”
Healthy customer retention rates make your store more profitable and more resilient to a fluctuating marketplace.
How to Increase Your E-Commerce Customer Retention Rate
But how do successful e-commerce small businesses increase customer retention? It’s all about making it easy and pleasant to shop, providing rewards for repeat visits, and showing shoppers that you care about their business.
Here are five factors to consider.
Ungenerous return policies have a disastrous effect on customer loyalty. Online shopping is risky for shoppers: they can’t see or touch what they are buying. They want to be sure that if they end up with a product they don’t really want, they can return it for a refund.
Retailers don’t like returns, but don’t be tempted to offer a restrictive or inconvenient returns process. The first time a shopper runs up against it, any loyalty you have generated will evaporate. Make returns easy, convenient, and free from arbitrary restrictions.
Loyalty programs are not an original idea, but it’s surprising how many online retailers are resistant to a tried-and-tested strategy. Loyalty programs reward customers for loyalty, providing discounts and other incentives to come back to the same store.
Major e-commerce applications such as Magento and WooCommerce provide the tools retailers need to build loyalty programs. And, as we have already discussed, any loss of revenue associated with loyalty discounts is likely to be offset by increases in repeat business.
Subscriptions provide an ideal combination of convenience for customers and a stable revenue source for retailers. Subscription-based businesses such as Dollar Shave Club, Birchbox, and Loot Crate base their entire business model on subscriptions, but they are also an excellent option for retaining customers who might otherwise shop around for each purchase.
Customer support is challenging for smaller e-commerce retailers because it can be expensive. But customers value the ability to ask questions and receive a fast answer. Customer support can often make the difference between a happy customer and a lost sale. Customers who receive speedy and informative support feel a deeper connection to a retailer and are more likely to return in the future.
A Positive Shopping Experience
A fast, well-designed, responsive e-commerce application is table stakes for e-commerce success in the modern marketplace. Shoppers are less tolerant of slow online stores than they once were, and as more customers choose to shop on mobile, it is increasingly important to provide a fast and responsive shopping experience.
Pitney Bowes' 2018 Global e-commerce Study showed that one bad shopping experience is enough to discourage customers from returning to a store and those who do return spend less. Retailers should pay particular attention to e-commerce performance optimization and mobile friendliness.
Balancing Customer Retention and Customer Acquisition
Two basic ingredients combine in a successful e-commerce store: a constant stream of new customers and a loyal core of regular customers. Businesses that focus entirely on customer acquisition lack the stability a loyal customer base provides. Those that focus entirely on keeping their current customers happy lose business to competitors and eventually to customer attrition over time — even the most loyal customers can be tempted away by a better deal. The most profitable businesses find a balance between the two.
Graeme Caldwell is a writer and content marketer at Nexcess, a global provider of hosting services, who has a knack for making tech-heavy topics interesting and engaging to all readers. His articles have been featured on top publications across the net, from TechCrunch to TemplateMonster and the Nexcess blog. Reach him on Twitter @nexcess.