Retention: Your DTC BFF
We see many of the brands we work with investing heavily in new customer acquisition and less on repeat purchases. The trap is this: a young company — well-funded or bootstrapped, profitable or not — needs new customers. New customers are how you grow and take up available market share. However, focusing on acquisition without paying attention to post-purchase retention leads to basically leaving money on the table. Think of retention as the compound interest of the retail world. With a small up-front investment it can pay off many times over.
Why so important?
Every company’s objective is to generate revenue. The path to revenue inherently requires taking up market share, i.e. if we assume there are a finite number of purchases in your category that are going to be made, you want some portion of those purchases to happen with you. Market share is revenue, revenue is market share.
I defined market share as a number of purchases, not a number of unique customers. This is an important distinction. If ten people each make three purchases per month in a given category, is it better for your company to get one purchase from each, or three purchases from two people and one purchase from a third?
Scenario 1
Scenario 2
In one scenario you get ten new customers who don’t come back, in the second scenario you get two devoted customers. You get the same revenue in each situation, so in the short term either approach evens out, but what about next month? In the first scenario you need to find ten new customers to meet your previous months’ performance; to grow you’ll need to invest more into advertising.
The value of loyalty
The answer should be clear: two devoted customers are better than ten one-offs. Return customers, by virtue of having made more than one purchase, have a higher lifetime value and allow you to spend less on acquisition for the same amount of revenue. In the scenario with ten one-offs, the next month you have to start the game over. Your revenue stream is reliant on constantly finding new customers, which you have to pay for. It’s not a good return on investment. Whereas in the scenario with two devoted customers, if you can count on those clients to return each month, you can build momentum towards explosive growth.
There is a lot of buzz in the ecommerce world these days about creating monthly recurring revenue. The most obvious way to do this is to create a subscription model, which we’re seeing more and more of. But we think subscriptions are going to get old quickly (and didn’t we already learn that people get tired of subscriptions after the faltering of Blue Apron?) Retention is another way to create recurring revenue; build strong relationships with your customers and bring them back month after month.
More powerful than the logic of these numbers is the why: why do people become loyal repeat purchasers? It’s because they like you, they trust you, they want more. These are people who are more likely to give you positive reviews and tell their friends about your brand. These are the people who will turn your brand into a cult phenomenon.
Building a strategy
If you’re not already excited about retention, let me add one more benefit to the mix: it’s not that hard to get a retention strategy up and running. Large parts of the strategy can and should run themselves like relevant and on brand post-purchase emails. Other elements of the post-purchase strategy can be a higher investment up front but pay off in the long term: easy returns, great customer service, a special unboxing experience. Depending on your category you can prioritize what feels right for your product and your customer, but the overall goal is to build a relationship.
Your strategy should cover all post-purchase touchpoints for the customer. It starts the moment your customer clicks the “place order” button. Everything beyond that moment is what you should focus on with your retention strategy.
Order confirmation email
Shipping experience
Delivery and unboxing
Customer service and returns process
Requesting a product review
Post-purchase email series
These are your opportunities to make an impression that will bring the user back again and again.
The retention strategy is going to look different for every brand - some categories allow for more frequent purchasing than others (think toothpaste vs. an area rug). If you understand what events trigger the desire or need to purchase your wares you can align your retention strategy with those moments. For this reason, retention is going to be on a different timeline and at a different frequency for each brand. But there are some key concepts to guide you:
Identify triggers: When a customer makes a purchase on your site, what triggers that purchase? Identify those triggers and align your strategy accordingly. Triggers can be seasonal, product-based, or cultural. If there’s no clear external trigger, can you use data from the user themselves? If they visit the site they’re likely considering a purchase, craft a campaign around that trigger.
Use data: You can also use data to show you know your customer - what have they purchased in the past? If they already bought a couch from you they probably don’t need another couch, but they may need the right pillows and throws to go with it. Build a relationship.
Get specific: Use the data available to you to create meaningful and resonant content. If you know what the user has browsed, added to cart, or clicked in from - use it to your advantage by creating user segments with content relevant to them.
When it comes time to buy in your category again, you want your customers to think of you first and have a positive association with your brand, your products, and their last experience. The more you can show your brand provides value and truly understands them and their needs, the better.