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Customer retention: What it is and why you need to focus on it

There’s an old saying among businesspeople: “It’s more valuable to hold onto a customer than to acquire a new one.” In other words, keeping your current customers happy is more important than getting new ones. This is why you should focus on customer retention: it helps keep your business profitable. In this blog post, I will show you how to keep your customers coming back for more and how you can avoid the pitfalls that make people never want to do business with you again.

Customer retention definition

At first, let’s talk about what customer retention is, so we make sure everyone is on the same page here.

Customer retention is the process of building and maintaining a long-term relationship with customers. It’s important because satisfied customers are more likely to buy from you again and refer others to your business. You can measure customer retention by calculating how many customers who purchased something from you return for another purchase within a specific period of time. How long that period is depends on many things, including customer lifetime value and average order size. But a good rule of thumb is 6 months.

But how can you then improve customer retention for your e-commerce store? Here are a few ways to do it:

  • Optimize your website so it is easy for users to find what they want on it quickly.
  • Aim for clear navigation, fast page loads, simple forms, and effective search functionality.
  • Collect, consolidate and analyze data about your visitors’ behavior on the site so you can tailor and personalize their experience better in future visits or email communications.
  • Use A/B testing techniques (which compare two versions of a page) to see which version delivers better conversions before making any changes permanent on the live site.

Benefits of customer retention

Retaining existing customers is easier and much more cost-effective than acquiring new customers. In fact, retaining customers can cost seven times less than acquiring new ones. Customers have already used your product or service and may have interacted with your customer support or shopped with you before. This means, that convincing them to stay can be easier than trying to reel in new customers. And if you have been able to properly manage their customer data, you can even provide a better, more personalized experience than last time. This way, you can keep them coming back. Customer retention is the key to growth. The longer you can keep a customer, the more profitable your business will become.

Customer retention is the key to profitability. If your profit margin is higher on new sales than it is on repeat purchases, then you will have less cash flow and far fewer resources available for reinvestment in marketing and promotion.

Customer retention is an important part of customer loyalty. When customers return, again and again, they’re showing their willingness to support businesses that provide them with what they want and expect from them. That is why nailing the personalized experience is key. You want to make it an easy and enjoyable experience every time they shop with you.

Customer retention helps build brand loyalty because people tend to favor brands whose products they’ve tried before. People are more reserved with trying products they haven’t heard of yet. This naturally goes hand-in-hand with being able to offer consistent quality across different categories or product lines. Think: “I trust this brand because I know how good their shoes and shipping services are”.

How to do customer retention

The good news is that there are plenty of ways you can keep your customers happy. One of the keys is a consistent experience across all platforms and devices. Show the customers that you know what they prefer.

  • Be consistent across channels: Customers are going to interact with you in a variety of different ways; use this knowledge to ensure that each experience is equally pleasant as the last.
    It should not matter if you interact with them via email, through advertisements, on the website, or through customer service. The experience should always be top-notch. And to do that you need to personalize the experience for them. Show them that you care and that you go out of the bare standard to do what you can for them.
  • Another way is to understand which group your customer belongs to, so you can identify how to approach them. This is done through customer segmentation. And doing that with a Customer Data Platform to drive the insights will take yours to the next level.

Understanding your customers drives retention

Understanding your customers is crucial to the success of any brand. What you need to do here is:

  • Understand the customer journey – how they make decisions and what makes them decide.
  • Understand how customers like to buy – what are their pain points in the process? How can you make it easier for them?
  • Understand where your customers hang out – what do they read, watch and listen to? What sites do they browse regularly (social media or otherwise)

Once you’ve collected data about your customers, you’ll want to create segments. Segmentation allows you to sort your customers by common characteristics, which makes it easier for you to communicate with them in an effective way

Segmentation can be done on many dimensions: demographics, psychographics, behavior, and geography are some of the most common.

A demographic segmentation could look at age, gender, or marital status. A psychographic segmentation might focus a bit deeper on personality traits and lifestyle habits such as hobbies and interests. Geographic segmentation groups contacts based on where they live or work (such as country or city). A behavioral segmentation could include purchase history, job title, or industry — whatever fits your e-commerce business best!

Customer segmentation is a way to identify groups of customers based on similar characteristics. For example, you might have a segmentation of customers that are interested in gardening and another one for people who love football.

Check out this guide and learn more on how a CDP can help your segmentation

What are the benefits of customer segmentation?

Segmentation can help you achieve the following:

  • Increase sales. You are in a better position to offer them the products and services they want if you understand who they are.
  • Improve customer service. Once again, by understanding your different types of customers, you will be able to develop better relationships with them. This could include the way your customer service teams approach people, both in regards to channel and offers.
  • Communicate more effectively. You can craft marketing campaigns that clearly address each segment’s wants and needs, which will make them more effective overall – rather than using a scattergun approach that may only connect with fragments of each market segment. By understanding when they are likely to buy, you can even avoid spending money on people who won’t be interested anyway.
  • Customer-focused marketing. Segmentation is all about learning more about who your customers are and what they want from you. Customers appreciate this kind of personalized engagement and it helps build trust between you and your audience; it also helps to create long-term value through loyalty and repeat business.

This is key if you want to retain your current customers. And as we explained earlier, with how much cheaper that is, you really should want that.

How a CDP can help customer retention

A Customer Data Platform brings some clear advantages to working with customer retention. By having a unified view of each customer, you will be able to cater your marketing, product, and customer service team efforts to give them the best possible experience.

This includes making sure you present them with the right message, on the right channel, with the right products, for the right price, every time. With a CDP this is possible, because the data collected is coming from multiple sources, and provides you with a realistic overview of how your customers are interacting with your business. And more importantly how you can retain them through actions.

Let me give you an example.
Let’s say a customer is buying t-shirts. They typically buy them 3 times a year. With around 120 days between purchases.
You know this because of the historical data on their behavior.

At the same time, you are aware of what price level they buy at. An action you could take to make sure you retain them when they are ready to buy t-shirts again goes as follows.
You send them an email with products within their price level. You know this is the time they are most likely to buy a t-shirt. So the email contains an offer of a 10% discount for their next purchase.

If you time it right, you might just trigger their behavior and make them buy their next set of t-shirts with your company rather than another one.

At the same time, you know, that 3 weeks later, they are not very likely to buy any new t-shirts. So instead of spamming them with new offers, you focus your messaging with them on other products, or just creating an even stronger relationship with them.

Customer data

Conclusion

Customer retention is a key metric for any successful business. It should be treated as an important part of your marketing strategy and included in your KPIs to measure whether you are improving or not. By focusing on customer retention, you will have happier customers who buy more from you — and that’s good for everyone!

Good customer retention is done through better customer experiences. And to get there you need to understand your customers on a deeper level. Granted, we might be biased, but working with an e-commerce customer data platform is the best way to gain the insights needed to reach the level of understanding required.

Learn more about here, and sign up for a free demo to learn what you can do with a CDP

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