What is the best way to maximize customer retention in e-commerce?

Let's dive into the importance of customer retention in e-commerce, its directly impact on repeat purchases. The important thing is each brand should find the most suitable strategy for their brand.

Nov 21, 2023

What is the best way to maximize customer retention in e-commerce?

Contents

1. What is customer retention in e-commerce?-How to calculate e-commerce retention rate 2. Why is Customer Retention important in e-commerce?3. How to Boost Repeat Purchase in e-commerce 4. Understanding customer retention rate in e-commerce -What is the average customer retention rate for E-commerce?5. The top strategies of retention in e-commerce Understand Your Retention Rate Leverage Zero-Party and First-Party Data Hyper-personalized email marketing

1. What is customer retention in e-commerce?

Customer retention refers to the strategies and tactics businesses employ to encourage their existing customer base to continue buying from them. It's a measure of a company's ability to retain customers over a specified period. High customer retention means customers of the product or service tend to return to, continue to buy or in some way not defect to another product or service, or to non-use entirely.

-How to calculate e-commerce retention rate

Retention rate means the trend of customer retention. In simple terms, customer retention means that customers who made a purchase this time will make a repurchase next time. If we look at customer retention on a monthly basis,

"The amount of last month customers - The amount of this month churn customers = The amount of this month retained customers"

If we then divide by the amount of last month customers, we get the customer retention rate. This concept is easier to understand when visualized with a waterfall chart.

Customer:Those are who purchased in October.

New: Those are who made their first purchase between October and November

Reactive: Those are who repurchased in November after buying in October

Churn: Those are who purchased in October, but didn’t purchase in November

2. Why is Customer Retention important in e-commerce?

In the e-commerce world, customer retention is crucial for several reasons. For starters, it's much less expensive to retain an existing customer than it is to acquire a new one. Studies have found that it can cost 5 to 25 times more to attract a new customer than to keep an existing one.

Moreover, repeat customers are more likely to become brand advocates and spread positive word-of-mouth about your business. They also tend to spend more, boosting your revenue significantly over time. In fact, a mere 5% increase in customer retention can lead to an increase in profits of 25% to 95%.

As regulations on third-party data become stricter, businesses are likely to experience the limitations of online advertising. This means that they may need to spend more on advertising to attract new customers, making the optimization of return of investment (ROI) or return on ad spend(ROAS) an increasingly challenging task for marketers.

On the other hand, reactivating existing customers can be using the data we already have. Figure out when customer need our products based on our customers life cycle, and then we just recommend the products to them using the most appropriate channel for their situation, whether it's email, messages, or another channel. Consider the cost of sending an email or a message - it's relatively low.

Therefore, in an environment where customer acquisition becomes more competitive and costly, focusing on reactivating and retaining existing customers using cost-effective communication methods can be a highly feasible and efficient strategy.

3. How to Boost Repeat Purchase in e-commerce

A. Personalization:

Tailoring your offerings to the individual needs and preferences of your customers can significantly enhance their shopping experience. For instance, Amazon's recommendation engine suggests products based on a customer's browsing and purchasing history, leading to increased repeat purchases.

While big company like Amazon have sufficient resources to develop recommendation engines, it may be challenging for small businesses to develop Artificial Intelligence recommendation. However, this doesn't mean they can't provide personalized recommendations to their customers. It can be replaced by SaaS(Software as a Service) to leverage the customer purchase data and browsing history they already possess. These tools analyze the collected data to understand customer preferences and behavior, which can then be used to offer personalized product recommendations. You have to check how their Artificial Intelligence work.

B. Loyalty Programs:

Rewarding customers for their loyalty is a surefire way to encourage repeat purchases. Sephora's Beauty Insider program, which offers members exclusive rewards, discounts, and early access to products, is a great example of this.

C. Excellent Customer Service:

Providing quick and effective customer support can greatly improve customer satisfaction and loyalty. Zappos is famously known for its outstanding customer service, which has resulted in a high customer retention rate.

D. Seamless User Experience:

A user-friendly and intuitive website can significantly affect a customer's decision to make repeat purchases. Apple's online store, known for its clean design and easy navigation, is a testament to this.

E. Engaging Email Marketing:

Regularly updating your customers about new products, discounts, and company news via email can keep your brand at the top of their minds. These days, there is a trend towards using various automated email marketing strategies to continuously build relationships with customers.

For instance, in cases where a customer has added items to their cart but has not completed the purchase, automated reminder emails are sent to encourage checkout. Similarly, when a new customer signs up, a welcome email is sent out immediately, fostering a sense of connection right from the start.

4. Understanding customer retention rate in e-commerce

Customer retention rate is a vital metric that measures the percentage of customers a company retains over a specific period. A high retention rate indicates your shop has a great life cycle that customers continue to buy from your e-commerce shop, signaling customer satisfaction and loyalty.

If you're operating an e-commerce brand or managing customer experiences, ‘retention rate’ is likely not unfamiliar to you. You may check the reports to track on a campaign-by retention, or may have a dedicated dashboard made by other tools(ex. Google Analytics, Amplitude … )

However, if your retention rate remains relatively stable, it is difficult to know your company’s retention rate goes well or not. Understanding the industry standard for customer retention rate will help you to compare performance.

-What is the average customer retention rate for E-commerce?

As of 2023 data, the average customer retention rate in e-commerce is estimated to be between 30% to 40%. Comparing this average rate to Retentics’ customer in e-commerce industry, it appears to be a high benchmark.

It means if you were to acquire 100 new customers, a retention rate within this range means that about 30 of these customers would repeat purchase next month. In the e-commerce environment which is very competitive for customer acquisition, is this possible?

Even within the field of e-commerce, the type of product can significantly influence the retention rate. For instance, businesses selling consumable goods, such as groceries or beauty products, may see higher retention rates as these items require regular repurchasing. In contrast, companies offering high-value, infrequently purchased items like furniture or electronics might experience a lower retention rate due to the nature of the purchasing cycle.

Additionally, We need to check the retention rate that aligns with our business's purchase cycle. For instance, if the product's purchase cycle is a month, not repurchasing within that month can be seen as churn. But if the cycle is quarterly, would not purchasing within a month be considered churn?

Let’s imagine the situation if we don't set a customer retention period standard that aligns with our customer’ purchase cycle. Consider a customer who made their first purchase in September, didn't buy in October, but made another purchase in November.

ㅤ	Sep	Oct	Nov
Monthly	Active	Churned	Reactive
Quaterly	Active	Retained	Retained

5. The top strategies of retention in e-commerce

In the fast-paced world of e-commerce, managing the customer retention is one of the essential strategy. We should find and apply the strategy that is most fit for our brand among the various strategies available.Here are the top retention strategies that successful e-commerce brand.

Understand Your Retention Rate

The first step in building customer loyalty is understanding your retention rate. By analyzing this metric, businesses can gain insights into customer behavior and loyalty trends.

For example, an e-commerce business selling skincare products may have a monthly purchase cycle. If a customer who bought a product in September does not repurchase in October but does in November, the business needs to understand this pattern and adjust their retention strategies accordingly.

Leverage Zero-Party and First-Party Data

In the era of privacy concerns and data regulations, zero-party data (information that customers willingly share with brands) and first-party data (information collected directly from customers) are invaluable.

These data types allow businesses to understand customers on a deeper level – their preferences, behaviors, and needs. This understanding then forms the basis for personalized marketing strategies that further strength the relationship with customer and loyalty as well.

In case of fashion shop, they can ask its customers about their preferred styles, sizes, and brands during sign-up or through surveys. With this zero-party data, the business can tailor its product recommendations and marketing messages to the individual customer’s preferences.

Hyper-personalized email marketing

Email marketing remains one of the most effective channels for customer retention. But in today's digital age, generic, one-size-fits-all emails no longer cut it. Instead, businesses need to carry out hyper-personalized email marketing strategies.

These involve using the data collected about customers to tailor email content to their individual needs and preferences. Personalized product recommendations, special offers, and relevant content can significantly boost engagement and drive repeat purchases.

One of Retentics' clients, Rael, has been regularly sending newsletters to build long-term relationships with its D2C customers. They automatically selected customers with high purchase potential and sent emails recommending the items they were most likely to buy next through Retentics. As a result, the purchase conversion rate through emails increased by more than three times! (If you want to read full article of Rael’s use case, Please move to here)

We explored the top strategies for customer retention in e-commerce, centering on understanding retention rates, leveraging zero-party and first-party data, and implementing hyper-personalized email marketing. We noted that each brand should identify and apply the most suitable strategy for their business. Ultimately, these strategies pave the way for increased sales and long-term customer relationships in the competitive e-commerce space.

written by. Ssong Kim