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Retention marketing in e-commerce: Essential but often underestimated

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Bernhard Egger
Retail Community Manager bei BSI
#cx#retail#loyalty#retentionmarketing

Retention marketing is worth it. Winning one new customer is five times as expensive as retaining an existing customer. Still, 44% of companies primarily invest in customer acquisition, while only 18% focus on customer loyalty through marketing (Invesp, 2015).

The evolution from single-channel to omnichannel and the digital transformation that is moving faster than ever before trigger big changes. Retailers are finding that customer loyalty is becoming more difficult to cultivate. Customers are more willing to switch brands and providers (W&V, 2018). Yet retention marketing can be successful today, too: with high-quality loyalty programs. By pushing the right buttons, you can convert prospects into true fans and brand ambassadors. Find out here what is important.

Key points

  • Customer loyalty is a continuously growing challenge.
  • While retention marketing has huge potential in retail and e-commerce, it is rarely used to its fullest potential.
  • Financial incentives and bonus programs only have a limited effect. Loyalty comes from delighting customers and exceeding expectations in the customer experience (CX).
  • The key to cultivating customer loyalty successfully is offering personalized incentives on the right channel at the right time.

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Whitepaper: Retention marketing

Investing in customer loyalty programs has a higher pay-off than acquiring new customers. Find out how to build customer loyalty in the long term with personalized loyalty programs.

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New opportunities and challenges in e-commerce

The move to online channels causes barriers to change to lower. In e-commerce, customers can easily and directly compare many providers in the market and switch to competitors with just a few clicks.

Yet, that is no reason to give up on the great potential retention marketing has. Far from it, if you manage to build a loyal fan community today, you will gain a tremendous competitive advantage.

On average, retailers get 80% of their sales from 20% of their customers (tractionwise, 2017). Your sales and returns will increase if you are successful at retaining your best customers sustainably instead of acquiring new ones with great effort.

Build loyalty campaigns strategically

Satisfaction is a necessary prerequisite to achieving loyalty, but it is not a sufficient one. What you must do is spark your customers’ delight. Loyalty coach Anne M. Schüller describes delight as the “elixir of customer loyalty.”

Effective incentives offer customers a convincing added value. The surprise factor is important if you want to exceed their expectations. Therefore, make sure you make attractive value propositions in your marketing communication, but also keep a few tricks up your sleeve.

The experience is key

Many loyalty programs are one-dimensional and built on collecting and redeeming bonus points. They are also known as Earn & Burn programs. Today’s customers are used to receiving monetary benefits from bonus programs and even expect them. That does not create delight, though.

What matters is the experience. The Earn & Burn factor affects customers’ satisfaction in loyalty programs at only 25%, while the customer experience accounts for 75% (Bond Loyalty Report, 2019). This indicates that the experience customers have with a brand is four times more important for their willingness to recommend a business than the price-performance ratio is (KPMG, 2020).

The KPMG study identifies the following six main drivers of satisfaction with the customer experience:

  1. Integrity
  2. Problem-solving skills
  3. Expectations
  4. Time & effort
  5. Empathy
  6. Personalization

Companies must use these drivers equally for their brands since they all work together. Marketers should be careful not to pare down any of the categories to a large degree (KPMG, 2020).

You can support your customers effectively in their decision-making process by catching their eye at every touchpoint. The omnichannel approach offers a wide range of options to enrich the customer journey with factors of delight (etailment, 2015).

Cultivate loyalty with personalized CX

Personalization has a special place among the six drivers. While all of the drivers indicated above are connected, personalization has an enormous effect on all of them. At 19.9%, personalization is the most important driver of loyalty, and at 18.9%, behind integrity, it is the second most important factor that drives customers to recommend a brand to others (KPMG, 2020).

Simply put, there is more your customers want besides valuable and surprising offers. Delight is generated by offering the right incentive at the right time.

We can distinguish between five basic types with different needs priorities:

  1. Saving money
  2. Saving time and effort
  3. Fun and experiences
  4. Status increase
  5. integrity and responsibility

(Harvard Business Manager, 2002; PwC, 2019)

Creating profiles of your preferred customers provides a good starting point for placing effective incentives along the customer journey. To do so, segment your best customers into focus groups in the CRM and create detailed, person-specific needs profiles.

Analyze why customers leave: You will effectively reduce your churn rate if, at those times, you manage to offer re-engagement campaigns and loyalty benefits tailored to specific needs and desires.

Loyalty programs perfectly tailored to your target groups

Loyalty programs can have highly individualized designs. The most successful programs are those that optimally adapt to the brand identity and to customer needs. You can combine different types for different target groups with specific needs:

  1. Point-based bonus programs for frugal bargain hunters
  2. Spend-based programs for financially strong top customers
  3. Tier-based programs for long-term planners
  4. Gamification programs for experience-oriented GenXers and Millennials
  5. Value-based programs for ethically oriented target groups
  6. Solution-oriented programs for pragmatic, benefit-oriented customers

Develop the right mixture that perfectly encompasses your preferred customer profiles. With the right technology, you can then deliver the best personalized incentives on the right channel and at the right time (Milesahead, 2020).

The conclusion

Loyalty programs have tremendous potential that is often underestimated in the retail sector. With an omnichannel approach, sophisticated loyalty programs can enrich the customer experience at every touchpoint. The key to turning your top customers into avid brand ambassadors is the needs-based personalization of incentives. With the right technology, you can easily implement the different types of loyalty programs in an optimal mix.

Have we piqued your interest in retention marketing and loyalty programs? The team at BSI has many years of experience in retail and e-commerce and would be happy to assist and advise you. We look forward to hearing from you.

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Bernhard Egger, Creator of Customer Delight

+41 58 255 96 85

bernhard.egger@bsi-software.com