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10.Jul.2020 Mollie Woolnough-Rai - eCommerce
We’re always chasing the next shiny new customer, the next 1,000 social media followers, the next 100 subscriptions – but should we just be focussed on bringing new customers through the digital doors?
It turns out that acquiring a new customer can cost five times more than retaining an existing one. Focusing on existing customers instead could be far more profitable; in fact, increasing customer retention by just 5% can result in an increase in profits of anywhere from 25-95%. Furthermore, the success rate of selling to a customer who has engaged with you previously is 60-70%, while the success rate of selling to a new customer is a mere 5-20%.
Customers who have already shopped with you before also tend to re-convert faster – i.e they are more willing to spend with you again – with much less persuasion required on your part. They spend more per visit and are far more likely to tell their friends and family all about your brand.
One customer experience agency found loyal customers are five times as likely to repurchase, five times as likely to forgive, four times as likely to refer and seven times as likely to try a new offering. That’s a lot of extant trust that can be leveraged to both sell more and make it easier to bring in new customers for your business.
More than half of UK consumers are now shopping online and UK’s online spend is forecast to increase by 29.6% between 2019 and 2024. As a result, there are fewer opportunities to build trust through the traditional bricks and mortar shopping experience, with physical retail seeing a steady decline. This means the e-commerce experience you provide for your customers is both the first and last place they will interact with your brand, so it must be trustworthy and authentic. A successful loyalty program attracts the right kind of customers – who are likely to become vocal advocates for your brand – to engage with your business further.
This is because customers are on the lookout for brands that give them a personalized experience, that offer good value and welcome them into a community in return for their loyalty.
While demonstrating to your customers that your values are aligned with theirs is crucial, it’s also important to build a sense of engaged community through your loyalty program. 47% of customers say they are motivated to be loyal when they become part of a community of like-minded people. When shopping with a brand, the sense of having shared values with fellow like-minded customers is a valuable part of a good retail experience.
Once you have a loyalty program and customers signed up, you need to make them feel special. Humans are naturally wired to always strive for more and to demand better. As we get closer to achieving a result, we accelerate our behavior to reach our goals. Our minds are always racing ahead to what the next achievement will be. When asked what made customers loyal, 74% said they are motivated by working towards a goal or reward and 79% of customers said being able to unlock exclusive benefits made them loyal.
With the rise of personalized shopping experiences, customers have come to expect VIP treatment from the brands they show loyalty to. This can include exclusive perks, free gifts, discounts, or early access to new product drops. This sense of exclusivity gives loyal customers a feeling of elevated status and helps them to develop an emotional bond between themselves and the brand providing that experience. Emotionally connected customers are known to spend twice as much as those who are merely satisfied with a brand.
A great example of this is jewelry brand Astrid and Miyu, who reward their loyalty members for a whole host of actions such as account creation, newsletter signups, referrals, and purchases. Thanks to this drip-feed of regular loyalty points on offer, Astrid & Miyu have seen a significant increase in the number of customers looking for the loyalty program and signing up for future purchases. This has helped increase their repeat purchase rate by 10%, with the program generating £86k in revenue since it launched.
Another effective loyalty strategy is to offer loyalty members exclusive birthday gifts, helping members to feel appreciated and not just like another number on a spreadsheet. Zala hair salon does this by offering £10 off appointments and a free tangle tamer hairbrush, redeemable anytime within the month of that customers’ birthday.
Another company that offers free products to incentivize loyalty is beauty brand Farmacy, which sends customers loyalty emails to remind them when they have enough points to exchange for free miniatures. This both acts as a regular reminder of the benefits of engaging with the brand, but also provides a route for customers to discover new products without the pressure of having to purchase them first.
Imagery and videos posted by other shoppers (known as user-generated content, or UGC) feel more trustworthy because it offers an authentic, unpolished window into how a product looks in real life, rather than seeing a product through the glamourous, filtered lens of a marketing campaign.
84% of millennials say that UGC influences what they buy while 85% of users find visual UGC is more influential than brand photos or videos. This content is generally more engaging and trustworthy than sales collateral put out by the brand as it’s posted by real customers without an agenda.
You can start to generate more UGC by engaging your followers with conversations that encourage them to start talking about your brand on social media. Additionally, you can use your loyalty program to offer customers loyalty points as a reward for following you on your social media channels or for using your specific Instagram hashtag when posting about your products.
You could even reward customers for generating UGC by giving them additional exposure. This could be using their content (with their permission) on your website, social media channels or newsletters. This is a win-win scenario, delighting the customer whose photo you’ve chosen to represent your brand, as well as providing social proof to new customers.
One company that employs both of these social strategies is skincare brand Averr Aglow. As a way to incentivize UGC and brand building on social media, they reward loyalty program members with points for social media follows, while also using UGC as content for their own social media feeds, rewarding customers for using the #averraglow hashtag.
The best way to build trust in your product is through online reviews. Using your loyalty program to reward customer advocates for leaving a product review is easy, and you can then also use these reviews on social media as genuine, unfiltered social proof for how great your products are and how customers are enjoying using them. Not only that, but you can give your SEO rankings a fantastic boost too. Lingerie brand Lively adopts this approach well by screenshotting reviews and posting them to their Instagram feed.
Those who have just left a positive review are also the most likely to then go on and advocate, so post-review is the perfect time to ask these customers to also refer their friends and family members.
Referral marketing – or word-of-mouth marketing – builds significant trust in your brand. When people have had a positive experience, they like to let their friends and family know about it. This creates a sense of trust between your business and your potential customers. In fact, 92% of customers trust recommendations from people they know, while 74% of consumers identify word of mouth as a key influencing factor in their purchasing decisions.
In reality, referral marketing doesn’t happen nearly as often as it should. That’s because it’s easy for your customers to love your brand, but then they will often forget to tell their friends about it. If they aren’t receiving any prompts to share their recommendation, it is more likely than not that it’ll slip their minds to do so. Rather than leaving it to luck, you should put in place specific strategies to encourage your customers to refer others.
You can make referral marketing a key part of your overall marketing strategy by incentivizing customers to make active referrals to their friends through a loyalty program.
The incentive to refer needs to hit the right note and must be meaningful for both the advocate and the friends they are referring to your brand. For example, lingerie brand Lively rewards their advocates with loyalty points, while the referred customers receive a $10 discount toward their first Lively purchase – a great outcome for both parties.
Flavored water brand Waterdrop also puts this dual reward effect into action. They reward customers 500 points for a referral and as a result, have acquired 10,000 new customers through referrals.
Crucially, it must be as easy as possible for customers to refer friends. This can be achieved through two steps – first by promoting your referral program effectively and then by making the process as simple as possible. Let existing customers know the benefits of the program through your email marketing and by setting up an automation email for customers who have already left a positive review, encouraging them to refer a friend in return for loyalty points.
You could also try targeting customers at the point where they’re most invested in your business (i.e. directly after they’ve made a purchase) by displaying a pop-up on checkout that prompts them to sign up to your referral program.
Providing an easy way for customers to copy and share their referral URL to earn loyalty points is vital. For example, hair brand Kurly Klips will email a customer once they’ve made a purchase to say thank you, with a request that they refer a friend. They make the process super simple – all the customer has to do is forward the email to a friend, who then clicks a URL in the email to shop. The friend receives a 10% discount on orders over $60 and the loyalty member gets 400 loyalty points.
It is more costly to focus on customer acquisition than it is to build on retention. Plus in the longer-term new customers have a lower impact on your bottom line as their lifetime value is lower. Instead of charging after a succession of new customers, double down on your efforts to increase your existing customer retention.
Merchants can use their current customers to acquire new ones with the following three strategies:
LoyaltyLion is a data-driven loyalty and engagement platform that powers e-commerce growth. A loyalty program is about more than points and rewards. It is about unlocking real insights to increase customer lifetime value. With LoyaltyLion, you can build a better understanding of what drives longer-lasting customer relationships, and use those insights to connect and accelerate your existing marketing efforts. Proven to increase retention and spend, LoyaltyLion is trusted by thousands of fast-growth e-commerce merchants worldwide.
Mollie is a Senior Content Marketing Executive at LoyaltyLion. After graduating from UCL in 2016, she has worked both in-house and at marketing agencies providing expertise in content for both B2B and B2C clients. At LoyaltyLion, Mollie manages our content, making sure our readers get the best quality resources about customer loyalty and retention.
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