There’s a reason why I prefer Starbucks to Cafe Coffee Day. To me, it’s a choice, a preference. But to Starbucks, it’s customer retention.
And research has it that Starbucks boasts a whopping 75% customer retention rate.
But what is it that keeps me and others coming to Starbucks for more? Well, that’s what we call the science of customer retention. And in this guide, I’m going to help you understand just that.
And here's what we'll cover in this customer retention guide.
Part 1: What is customer retention?
Part 2: Benefits of customer retention
Part 3: Customer retention models
Part 4: Customer retention metrics
Part 5: Customer retention strategies
Part 6: Customer retention example
Part 7: Ace customer retention with Ingage!
Shopify defines customer retention as the practice of business activities that retailers use to increase the number of repeat customers, and thereby, increase the profitability of existing customers.
Your profitable customers aren’t those who merely buy one product or avail of your service once. They are those who come to you over and over for more. Bain & Company has discovered that if you could increase your customer retention rate by 5% then you could increase your profits by at least 25%. This way, a customer retention strategy can help you increase your customers’ lifetime value and augment your profits.
Besides the fiscal benefits, customer retention also helps you build a wonderful rapport with your customers. This will help in differentiating your brand from the competition out there. Customers would trust you with their money because you give value in exchange!
Let’s explore in detail what other benefits customer retention can fetch for your retail business.
The Harvard Business Review mentioned in its article way back in 2014 that it can cost you anywhere from 5 to 25 times to acquire a new customer than to retain one.
Though time has passed the basic principle is spot-on: It is more cost-effective to keep customers in the fold than attract new customers.
Augmenting customer loyalty is not just economical but it can yield you better returns.
Rosetta’s study, polling 4,800 US consumers on their experiences with 83 leading brands gives us an insight into this. According to the survey, loyal customers buy 90% more frequently. They even spend 60% more per transaction and are five times more likely to affirm that it is the only brand they’d make a purchase in the future.
Another research shows that loyal customers are 23% more profitable than the average customer.
Having relayed these data points to you, I’m sure you appreciate the value of customer loyalty. But don’t take it for granted!
Although your loyal customers might be more open to price increases, don’t do that to simply monitor how long they’d continue to buy from you. Your end goal is lifetime revenue and just today’s.
For if you manage to get these loyal customers to become actively disengaged or already have a segment of this sort, it can cost your brand 13% of your revenue.
Your loyal customers are who we refer to as brand ambassadors. They have the power to influence your novel potential leads and accelerate their sales cycle by their word-of-mouth referrals.
And research has it that despite all your mobile, social media, and online marketing efforts, referrals from friends and family influence people to buy from you.
And you definitely have to look out for the millennials, for 86% of them share their brand preferences online and that can make a huge impact on your business!
Today, businesses are built on the back of customer feedback. The feedback loop is what allows businesses to be successful. Without a feedback loop, there is no growth in any business - physical or online.
The "feedback" in question is the instruction from customers to provide more value for their money or service. This is an opportunity that you give your customers to tell you how you could earn their business repeatedly.
And from the feedback that you’ve gained, if you’ve succeeded in resolving complaints, those customers would be 84% less likely to decrease their basket value.
If customers explore your brand more, there is a chance for you to sell them more stuff. Once you’ve proven the genuineness of your products and services, your customers would be six times more likely to try out a new product from you.
A study by Accenture shows that businesses suffer over $1.6 trillion each year on account of losing customers to a poor service experience. They even say that appalling customer service is the top reason for customers to abandon a brand.
But your loyal customers might throw your flaws under the rug - just ensure to not disappoint too often.
Honestly, I don’t like being marketed to by some faceless brand - one with which I’ve shopped maybe once or twice.
But I don’t mind it if it’s from a brand to whom I’m loyal. That’s why research suggests that loyal customers are four times more likely to say they appreciate a brand reaching out to them.
Into the bargain, they are seven times more likely to always respond to the brand's offers, promotions, and campaigns.
Customer loyalty is truly capricious. If you make too many changes in the way you interact or offer your products and services, you may risk chasing folks away.
But once you have established a sect of proven loyal customers, there’s more room for you to expand your boundaries. Maybe, it’s a new logo that you want to test. Or it could be a new way of marketing messages. Or it could be introducing a new set of products.
The key takeaway here is that as long as you are customer-centric in the changes you make, they’ll journey with you through the highs and the lows.
And here’s a little encouragement for you. A study by Forbes shows that existing customers are 50% more likely to test and try out new products.
Just like how your loyal customers would try out new products from you more likely as opposed to a new one, it’s easier to up-sell and cross-sell to your existing customers.
This, in turn, can increase your customer’s average order value (AOV) and drive you more profits.
Customer acquisition is bound by a variety of factors. You would have to constantly upgrade your products and services to stay competitive. And here’s where your loyal customers would come to their aid by giving you valuable feedback.
So, be free and talk to your existing customers. Ask them what they appreciate and depreciate about your brand. Inquire how you could enhance their shopping experience with you.
Then, put it into practice. See what’s feasible and start acting upon it. Automatically you’ll see tangible growth in your business.
A customer retention model is a tool that helps businesses target their existing customers more effectively based on the desired goal. And there are various retention models out there. But I’ll walk you through the most common ones that you can build for your retail business.
A next purchase customer retention model can help you predict the likelihood of an existing customer to purchase from you again within a given timeline. Your marketing team always strives to target the right customer for a return purchase. And with a next purchase model, your team can identify the right segment of customers along with when or when not to target them. With this, marketers can craft the best communication with strong calls-to-action or other incentives that’ll maximize the returns.
A response model is used to predict which of your customers are likely to respond to your marketing campaigns. The so-called response can be a coupon redemption, or purchase, or anything that translates into doing business with you.
To get this model to work across all your marketing channels, do ensure that the model collects cross-channel data samples.
You can use an uplift model to predict which of your customers need a nudge to purchase from you. Unlike the response model wherein we score customers based on their likelihood to purchase, the uplift model detects customers who need incentives to make a purchase.
You must note that an uplift model would deprioritize customers who are likely to purchase sans incentives and prioritize those who are likely to be influenced by bait.
We looked into the benefits of customer retention and even implored some of the retention models for your business. Now, as you try to execute retention strategies, it’s vital that you are able to keep an eye on some of the important performance metrics. Here are eleven of those metrics that you must be aware of while running a retention campaign.
The customer churn rate refers to the percentage of customers you have lost over a specific time period. This rate gives you an estimate of customers who have stopped purchasing from your brand.
Note that the lower your customer churn rate is the better is your retention strategy. So, ensure to assess the CCR on a semi-regular basis, such as monthly or quarterly.
CCR = (Number of customers at the beginning of a timeline- Number of customers at the end of a timeline)/Number of customers at the beginning of a timeline
To keep your churn rates low, try creating a customer-centric loyalty program. When there are significant incentives, customers will think twice before switching to your competition. And ensure to always give your customers the best experience possible, irrespective of whether they shop in-store or online. Because nine upon ten customers would shop with a competitor owing to a bad experience.
The repeat purchase probability forecasts the likelihood of an existing customer making another purchase. Now the RPP is closely associated with the CCR. For, the lesser the RPP the higher would be the CCR.
Repeat Purchase Probability = [Number of customers who have purchased x No of times they have purchased (in a year)] / Total number of customers (in a year)
If you see your RPP dwindling, it’s time to give your customers a reason to come back and purchase from you. Try gamifying your loyalty programs, elevating the in-store experiences by introducing AR kiosks and other interactive elements.
The repeat purchase rate gives the percentage of customers who have purchased from your retail store more than once. Although your repeat customers may be as little as 8% of your entire customer base, remember that they account for 40% of your annual revenue (Inc42).
So measuring your RPR helps you understand which of your retention strategies are working and which are not.
Repeat Purchase Rate = Number of customers who have purchased more than once (in a year) / Total number of customers (in a year)
The repeat customer rate gives you in-depth insights into how your customer segments are different in their purchase patterns. To augment the RPR do try a blend of rewards and incentives that’ll make sense to your customer segments and their cohorts.
The average order value of a customer shows you how much a customer spends on one purchase. By calculating the AOV of your customers, you’ll know how much each one is worth. So, the more a customer spends on his purchase, the less you need to invest in customer acquisition.
Average Order Value = Total revenue (in a year) / Total number of orders (in a year)
While calculating the AOV retention metric, do remember that it does not reflect the margin you garner per order. For getting accurate AOV results, ensure to subtract the expenses and the costs of the sold items.
Is the AOV per customer low? Try giving product bundles to get your customer to spend more.
With an AOV you understand how much an average customer spends per order, and here in profitability per order, you calculate the profit you make on each purchase. So, the higher your PPO, the higher will be your profit margin.
Profitability per order = Total revenue x Average profit margin (in a year) / Number of orders (in a year)
To increase your PPO, get customer reviews and share them with your customer base. Since research has it that 71% of shoppers make a purchase boldly if it has reviews. Ensure those are positive reviews, though!
The purchase frequency helps you understand how often an average shopper purchases at your store. Note that the more frequently your customers shop with you, the better is your retention strategy!
Purchase frequency = number of orders (in a year) / Number of unique customers (in a year)
Do note that we are using the number of unique customers here. If you get the data point wrong here, you would end up skewing your results.
Personalized retention email campaigns are a great way to encourage your customers to purchase from you frequently.
As you might have guessed, the time between purchases retention metric shows you the number of times a customer makes a purchase with you in a year. If you know how long a customer takes to make the next purchase, it will help you curate your retention strategy according to their buying pattern. This bit of knowledge and timely execution of the campaign can maximize your revenue.
Time Between Purchases = Time period / Purchase frequency
Note that you have to determine the purchase frequency before calculating the time between purchases.
The customer lifetime value is a retention metric that helps you gauge the revenue that an average customer brings to your business over the course of their relationship with you. To get the most accurate result, we calculate this metric by considering the customers’ previous shopping behavior.
Of all the retention metrics we discussed above, the customer lifetime value is a crucial one. The greater a customer’s lifetime value, the lesser is the cost for acquisition activities.
Customer lifetime value = Customer value x Store’s average lifespan
Customers will more likely choose to buy from you as long as you are easy and quick to access. So, go omnichannel. In fact, Statista forecasts that over 2.14 billion people will buy online in 2021. So, having an eCommerce store and making your site mobile friendly are great ways to render a seamless customer experience and thereby increase customer lifetime value with your brand.
Ah, here comes the king of the customer retention metrics. This will give you the percentage of customers who stay with you over time. Why is it important? Well, the higher your retention rate is, the more successful our retention strategy is.
Customer retention rate = [Number of customers (end of the time period) - Number of acquired customers (throughout a time period)] / Number of customers (beginning of period)
While you might be a retail business owner, at some point you are also a customer. And tell me, we both want to feel like individuals, right? For I sure don’t like to be treated like one unit of a target group.
And to give your customers that individualized treatment, you need to collect and store a ton of information about them. That is why having sturdy customer relationship management software is mandatory. This will help you keep a record of all the interactions that a customer makes with your brand and it will assist you in building those long-lasting customer relationships.
So, if you have CRM software you can start executing the retention strategies that I’m about to discuss below. If not, do check our blog post discussing the best CRM for the eCommerce business.
Only by actively listening to what your customers are saying about their shopping experience with you, will help you tackle churn. Unfortunately, research shows that there is a massive gap here. While 80% of businesses perceive they are rendering a superior customer experience, only 8% of customers feel so.
Also, a report from Oracle reveals that of the customers surveyed, 89% of them switch to a competitor after having a bad experience. So, don’t live in perceptions. Ask your customers for feedback. Then use it to restructure your systems for a better customer experience.
Here are some questions you might want to ask your customers.
Just ask and you’ll receive crucial feedback that will help you level up your retention game.
Don’t let your customers leave you (churn), then you would succeed at customer retention. But unfortunately, most often than not, you understand that a customer has churned only when your profits start dwindling.
If you’d pay attention, however, you’ll be able to capture those warning signs signaling towards churn. You could track them by identifying customer purchase patterns, history of customer inquiries, negative reviews, and feedback.
The best part is, with an AI-driven CRM like Ingage, you can identity churn before it actually happens. For instance, with its customer segmentation feature, you can rinse out customers who haven’t purchased from you for more than a quarter. Then you could engage them by sending personalized reactivation emails and win them.
The more you understand customers on a 360-degree aspect, the better are your chances to tailor custom marketing campaigns. With CRM software, you can view a customer’s purchase history. This way, you will be able to figure out the kind of offer or incentive that will be most appealing to each of your customers.
As your marketing campaign has high relevance to a customer’s preferences and needs, your brand will stay on top of their minds. So, by offering these perks, you find new opportunities to revive their interest and convert it into a purchase.
Let’s consider an example to understand this better. Say you wish to follow up on customers who haven't made a purchase but have shown an active interest in your goods and services. You can easily create a list of these customers in Ingage using its intelligent customer segmentation feature.
Take these contacts and send them a special offer and make them feel cared for, valued, and remembered.
Before making a purchase, your customers undergo different phases. If you could send the right email in the right phase of time, you can monetize on opportunities and reduce churn. And did you know that automated emails get 5x higher open rates and 15x better click-through rates?
So, embrace automation for each phase of the customer journey. To give you a case in point, consider you own an eCommerce store. Let’s say that a customer adds a product to the cart, but fails to complete the purchase. In such a scenario, using Ingage’s eCommerce events capture feature you could easily record this action of the customer. What’s more, you can create an automation journey saying that upon a cart abandonment, a reminder mail has to follow up with the customer in 24 hours.
You can even trigger emails for other occasions too with Ingage. You can send birthday and anniversary emails. You can create a promotional or a referral campaign and send it out to your customer base using automation. The opportunities are endless with Ingage :)
If you want, try Ingage for yourself!
When you maintain data properly on your CRM, you will be able to line up your most profitable customers. Now, these are customers you really never want to lose. That’s why we call them your VIP customers.
So, by knowing who these VIP customers are, you can reward them with timely yet personalized incentives to help them understand your appreciation of their business. This will increase your chances of cross-selling and up-selling to them.
Have a number of incentives to give away? Use them as rewards for your VIPs to augment their loyalty further. Always remember the Pareto principle. 80% of your profits come from just 20% of your customers.
You need to make a bond with your customers. It is this relationship that helps them look at you beyond a range of products and services. And if you are wondering how you are ever going to master this art of personalization for your customers, don’t worry, Ingage CRM has you covered.
By gleaning the much necessary data into your customers’ preferences and past purchase history you could personalize your follow-up strategies. For instance, if a person has bought perishable goods, then obviously you’d know the timeframe when the customer has to come for a refill. Use this time as a standard and the purchased goods as your context while sending a promotional message.
While this personalization technique does require some effort from your end, its effects cannot be understated. In fact, BloomReach promises high ROI for personalization that is based on purchase history, user preferences, and other relevant data typically stored in a CRM software.
It’s easy to make promises, and easier to break them, but really hard to keep them. If and only if you’d keep up your promises of follow-ups, you could win customer trust.
While it’s natural to forget about the follow-ups, there is a sturdy way to remediate this human flaw.
Enter CRM. The scheduling features in your CRM software give you the resources you need to schedule your emails and follow-up calls in advance. This way, you’d be able to keep track of your appointments, and also if you have any tasks assigned to you, you’d be able to complete them within the stipulated time.
Let’s see an example to understand this better. Say, you have a list of customer contacts you have recently purchased a television from you. At the point of sale, you might have promised to send assistance for wall mounting the television in two days. And you get busy with your chores…
Here is where you can schedule this follow-up on your CRM software and make your word good. This way, you’d not only delight your customers with exceptional customer service but also make a name for your brand and keep your customers coming back to you for more.
By now, you’d agree with me that customer retention is the holy grail for your retail business. Let us look at one of the best customer retention strategies that Al-Ghurair Retail implemented, and succeeded in.
Al-Ghurair Retail is one of the world's finest clothing, personal care, and F&B retail brands. It manages two global ventures - Springfield and The Face Shop.
In their effort to delight their existing customers and increase their retention rates, Al Ghurair Retail launched its loyalty program, Hadiya. It was a loyalty program where customers earn 10% back for every dirham spent.
Unfortunately, the following challenges as listed below led Al Ghurair on a rickety road.
It was at this point that Al Ghurair leveraged Ingage CRM software to fix all the loopholes in its retention strategy.
With Ingage’s Loyalty Program module, Al Ghurair was able to automate the program configuration and points redemption. So, it was able to make the loyalty program easy to avail for its customers. As a result, it saw a 50 basis points increase in the monthly points redemption ratio. What’s more, AGR also witnessed a 20 basis points increase in loyalty sales in a year.
If you remember, we discussed in the earlier section that you need to personalize your marketing campaigns. And one of the challenges that AGR faced was minimal ability to do just that. Here again, Ingage came to AGR’s rescue with its Product Recommendation and Automation Journey modules.
In fact, the product recommendation campaign yielded a 16.4% response rate. And this held a positive impact on AGR’s entire customer base that it garnered a 13x increase in loyalty app downloads.
Customer retention is a crucial marketing strategy for any retail store. It comes with a whole lot of benefits, right from lowering acquisition costs to increasing the customer lifetime value. Also, by implementing the three important retention models - the next purchase retention model, response retention model, and uplift retention model, you can design the right strategy to reach your business goals.
But do keep in mind that to execute the customer retention strategies and witness growth for your retail store, you need a tool. You saw how Al Ghurair leveraged Ingage to ace its retention marketing. If you want your business story to be the next success story, follow AGR’s footsteps and try Ingage!
Ingage is an omnichannel AI-driven customer relationship management (CRM) software. With advanced features such as customer segmentation, loyalty program, journey builder, and others, Ingage naturally becomes the modern retailer’s number one choice of retail CRM.
Get started today! Schedule your personalized demo with Ingage here. It’s time Ingage increased your customer retention rates.