Increasing Customer Retention in Retail: The Why and How

| November 21, 2019

In part one of our 2019 Holiday Shopping Series, we delved into some statistics around first-time shoppers and why the holiday shopping season is a great time to begin connecting with them. As we stated in that blog post, the ultimate goal of retailers is to turn as many first-time shoppers into returning customers as possible to increase sales. But is this truly the best use of time? Or is it actually better for retailers to focus their efforts on customer acquisition? Let’s take a look.

Stats show increasing customer retention in retail pays off

By definition, a returning customer cannot be classified as such if they didn’t make a purchase with a business previously. This alone seems to indicate that the focus should be on customer acquisition rather than increasing customer retention in retail, right? This is certainly an oversimplification of things, but this simplified approach may be the one winning out among today’s retailers.

A recent study by CommerceNext found that 81% of e-commerce marketers (a mix of retail and direct-to-consumer) surveyed classified “acquisition marketing” as a top investment priority at their company, while only 43% placed “retention and loyalty marketing” in this same category. But statistics show that returning customers spend nearly three-times more than one-time shoppers and that it costs five-times less to retain a customer than to acquire a new one.

But what does this all mean for retailers, exactly? Well, it means that many of them are likely over-allocating resources into customer acquisition and under-allocating resources into customer retention, the combined result being a shortcoming in both ROI and profitability. Given today’s volatile retail climate, a way for retailers to potentially cut costs while increasing both short- and long-term sales definitely warrants attention.

Three tips for increasing customer retention in the retail sector

To circle back to the question of which is better, acquisition or retention, the extremely anticlimactic conclusion is that both are important customer journey areas for retailers to focus on. It’s very clear, though, that many retailers need to create a healthier balance between the two areas in their overarching customer journey strategies.

Moreover, simply shifting this balance more to the center won’t guarantee increased sales without a solid strategy in place to reach and connect with shoppers. Unfortunately, there’s no one-size-fits-all method for increasing customer retention in retail, as factors such as target audience and industry vary from business-to-business. There are, however, a number of best practices retailers can follow to ensure their customer retention efforts aren’t being done in vain. Here’s are a few that we feel are the most critical to focus on when solidifying a customer retention strategy.

Send timely, personalized follow-up communications

Being proactive and staying on the mind of new customers is critical when trying to generate repeat business with them, particularly because 50% of repeat shoppers will make a second purchase with a company within 16 days of their initial one. Sending a timely post-purchase thank you email with a personalized touch helps demonstrate that their business matters, as do additional follow-ups alerting them to any upcoming sales or special offers. During this time of the year, it could be as simple as wishing them a happy holiday season.

Maintain a customer loyalty/rewards program, and offer incentives

Customer loyalty and rewards programs are an extremely effective way to turn first-time shoppers into lifelong ones. A Forrester study found that retail customers in a loyalty program spent $42.33 more on average than shoppers not in a program. Interestingly, that same Forrester report found that only 40% of consumers who were part of a loyalty program belonged to one offered by a retailers, so retailers must make sure to provide rewards and incentives that truly make customers feel appreciated.

Prioritize positive customer experiences across all channels

Across all industries (not just retail), organizations have embraced customer experience management as the preferred method to drive sales and grow their customer bases.

But a truly customer-centric business approach requires that every facet of an organization – marketing, sales, customer service and support, etc. – operate with the customer at the center of the universe, so to speak. Retailers must also ensure their customers are having positive experiences across all of their business channels (in-store, online, on social media, etc.) as shopping preferences continue to shift. This is a challenge no doubt, but one that’s absolutely worth investing resource into.

According to a report from PWC, 17% of all American shoppers will stop doing business with a company or brand after just one bad experience. Given that the same report found that 54% of American shoppers believe customer experience at the companies they do business with needs improvement, the message is clear: provide a positive experience or risk losing customers permanently.

The bottom line

Converting first-time shoppers into loyal customers is a sound time and resource investment for retailers that can both cut costs and increase sales profits, and more retailers should prioritize customer retention in their customer journey efforts. There’s no universal method retailers can use to increase customer retention, but they can up their chances of successfully retaining shoppers by using customer data to identify consumer habits and preferences and engage the right buyer with the right messaging at the right time.

In part three of our series, we’ll delve into the link between customer data insights and customer retention.

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