“If customers feel seen and understood, they’re likely to be loyal”, a recent article from Entrepreneur states. “Data powers the future of customer engagement”, reads another

Open another random business news website and there’s a big chance you’ll come across another article stating the competitive power of data to boost retention amongst customers.

But even though this awareness is growing, the genuine belief in marketing remains: growth equals new customers.

And while this is true, new customers aren’t the only gateway to growth. Companies that want to be profitable in the long run, shouldn’t just focus on acquiring new customers, but also prioritize investment in existing customers and learn how to master the art of retention. To back this up, let’s have a closer look at 3 macro trends that influence this. 

 

1 . The numbers to back this up don’t lie:

  • Attracting new customers costs on average 5 x more than keeping an existing customer.  (Bain & Company
  • Companies that increase their customer retention by just 5% experience a profit increase of 95%. (Bain & Company)
  • In general, 40% of an e-commerce website’s revenue is generated by only 8% (repeat buyers) of its customer base (Adobe)
  • The top 3% of customers spend 3x more on average than other customers. (RJ Metrics)

So it is not surprising that a growing number of successful companies resort more to retention strategies these days as the marketing landscape is changing at lightning speed. 

 

2 . Increased Competition

One thing that is changing is the budget companies allocate to online. According to research firm Forrester, the average companyn allocated an average of 42% of their marketing budget to online in 2018. This percentage is set to grow to 45% by 2020 (Forrester, 2018). As large advertising platforms are basically open auctions, an increase in demand for ad clicks increases CPC costs and thus ‘Customer Acquisition Costs’. 

In layman’s terms, investing your money online to find new customers is no longer as cheap it once was and every acquisition is more expensive than the previous one. This makes that maximizing average customer lifetime value with the help of retention strategies has become increasingly more relevant.

 

3 . Age of the Spoiled Customer

Thirdly, customers have regained control: as the internet provides easy access to tremendous amounts of information, people have been taking advantage of that to become smarter shoppers. They’re used to getting what they want, when they want it. They’ll switch providers/companies within the flip of a switch when a discount code passes. As this is a trend that is here to stay, the importance of being able to preserve the attention of a customer in the long run, and thus the importance of having a well thought through retention strategy, grows. 

 

Use cases of companies nailing retention tactics

 

The introduction of this article covered statistics, studies and macro-economic trends like increased competition and ‘spoiled’ customers that make the case for retention strategies. 

While there are enough data and studies to endorse the long term financial impact of loyal customers, there are also plenty of successful new & old business cases that provide evidence that loyalty/retention tactics pay off big time. 

 

Amazon Prime

A common ‘loyalty-building/retention-increasing tool’ for companies is the subscription model. Already in 2005 (!), Amazon introduced  Prime subscription, which then included an all-you-can-eat two-day delivery on their orders. That service throughout the years has been expanded with other perks, including free shipping and access to their movie streaming service

The way they lured customers into the benefits of having an Amazon Prime membership was savvy:  once customers placed their first Amazon Prime order, they’re locked in for a full year’s subscription contract ($99). Which then leaved the shopper with one option: keep buying stuff from Amazon until the expiry date. These days you can cancel at any time. 

Amazon has become a poster child for many e-commerce companies. Many companies are closely monitoring how the unicorn continues to grow its retention percentages.  

That however doesn’t mean they’re able to copy paste Amazon’s strategies themselves, because the subscription model as a retention strategy isn’t suitable for every type of product. Other companies feel like their inventory is not suitable for this type of strategy and therefore abandon the idea. 

 

MUD Jeans & Project Wren

There are companies that think out of the box though – literally. Especially up-and-coming companies do not let their product inventory stand in the way of opening up a subscription-based business. They discover all kinds of ways to turn an original business idea into a subscription-based business that leverages ‘sweet recurring revenue’.

 

One such company is MUD jeans, which implements an out-of-the-box retention strategy for a product you’d think people only buy once: jeans. MUD Jeans,  uses 40% recycled cotton for its jeans production. The brand gives customers the option to lease jeans for a small fee per month, promoting usage over ownership. If the pair wears out, they can send in their jeans and change it for a new one. 

Another good example of not letting your product stand in the way of retention tactics is  Project Wren. A service that offsets your carbon footprint through a monthly subscription. 

 

Coolblue

While integrating a subscription model is a great way to increase your recurring revenue and improve average customer lifetime value, the impact of good old-fashioned customer service as a tool to generate loyal customers is not to be underestimated. An example of a company that truly masters this art is Coolblue, the Dutch e-commerce giant. It understands that -instead of pricing-  customer service is an excellent way to distinguish yourself from other webshops. Video in Dutch below showcases Coolblue’s CEO Pieter Zwart convincing his audience why customer service was crucial to becoming market leader in washing machines in the Netherlands. 

 

IKEA

The company has linked the business of meatballs to the business of sofas, by making sure every furniture store has a food court. That food court can only be reached after having gone through the showroom area. Once inside, customers are exposed to all sorts of products on sale for bottom prices. How is this improving loyalty / retention? IKEA understands that people do not buy new furniture every few weeks but that they do need to eat. Besides earning a lot on the restaurant itself , they expose everyone to their newest product inventory. Win-Win. 

 

Also, the food court customers can get quick service food for bottom prices, which helps to implement the belief that furniture of IKEA is a bargain. They’re incentivized to buy stuff they weren’t planning on buying when coming in.

 

 

While writing this article, we quickly came up with the 4 retention & loyalty building brands mentioned above. But we have more up our sleeves. That is why we published a new whitepaper that shares 23 real life examples of companies tackling retention & loyalty.

CLICK THE BANNER BELOW AND DOWNLOAD THE ENTIRE WHITEPAPER (32 PAGES)