A guide to boost retention and in turn profitability


How important is Retention?

According to a study by Bain, an average online shopper isn't profitable for the business until he or she has shopped at the site four times. This means that the retailer has to retain the customer for 12 months just to break even! In the case of online grocers, who spend upwards of $80 to acquire a customer, they would have to retain that customer for 18 months to break even. In fact, except for high-ticket items, in almost no instance can an online retailer break even on a one time shopper.

Businesses approach achieving growth by aggressively trying to acquire as many customers as possible. However a high rate of acquisition does not correlate with a high retention rate. In fact it might even contribute to poor retention as overspending on customer acquisition would lead to not enough being spent on keeping existing customers happy. Aggressive acquisition strategies can also shift focus from selective targeting and lead to acquiring a large number of new customers who might not be the ‘right’ customers for your business. It’s quite similar to paying for a large list of emails or ‘leads’ for your business. If they aren’t relevant to your business, they will simply mark your communications as spam and you’ve lost money and time on trying to funnel these irrelevant leads.


How do I know my Retention rate?

Here's an explanation from one of our previous blogs:

"One of the ways to figure out how to calculate retention for your product/service is to figure out it’s average purchase frequency. Classify users with a purchase frequency lower than this value as churned or at a high risk of churn. If your average purchase frequency is much lower than the product’s natural usage frequency, then you’ve got some product level changes to consider before you invest time and money into offer marketing.

Here’s a simple example: You are a milk delivery business. You analyse your user data and figure out that on average, your customers order milk once in 3 days on average. So customers who have at least one order in every 3 day interval are retained customers, and those who don’t, have probably churned. So if you wanted to increase your retention rates, your marketing campaign goal would be to try to get every user within your campaign to place at least one order in the next 3 days"

What affects Retention?

With the number of channels used in marketing today, and customers being more informed than ever, achieving elite retention rates seems almost impossible for a growing business.

Customer retention largely depends on pre-purchase expectations - a reason why some attractive marketing campaigns don't reap the rewards they expect. Businesses that set false expectations  in the form of deceitful marketing to acquire customers are setting themselves up for low customer satisfaction and ultimately a high churn rate.

The other factors which are proven to directly impact customer retention are the quality of the relationship and switching cost. It’s close to impossible to know the exact reasons why every customer churns. But there are certain factors which definitely result in poor retention - and we must aim to control these at top priority.

Here are 5 areas that are key to improving retention:

1. Create a smooth acquisition/onboarding process

There are various channels through which customers sign up on your platform. These could be through inbound marketing channels (social media, blogs etc), organic search or a referral. Customers entering in from different channels have different expectations. A customer who organically found your product from a search result most likely has a genuine need for your offering (provided your landing page copy or app description is clear.) If a customer signed up as a result of your inbound marketing efforts, the next crucial step is to set up an airtight funnel to guide the customer towards experiencing immediate value from your product. Another point to remember is this funnel process works only if your product is relevant to your acquired sign ups. If your marketing copy involves a ton of buzzwords not relevant to your product with an aim to be appealing to more people, its likely that you will have a large number of people entering your funnel accompanied by a large number of drop offs early on as soon as they realize the product isn’t relevant to them.

2. Build brand credibility

Humans crave validation for their decisions. By focusing on building brand awareness and credibility you’re not only improving chances of more organic customers but also reassuring your current customers that they made the right decision by choosing your business. Social media re-targeting tools are a great way to keep your company and brand fresh in your customers minds, which subconsciously helps increase brand loyalty.

3. Get users to repeat the critical action

The process of keeping a customer satisfied and retained by definition is a continuous process which begins immediately when a customer signs up. Most businesses have well defined acquisition funnels and touch points driving leads to become customers. After that however, the acquired customer is taken for granted. The next cycle must begin immediately and businesses must make use of the various available marketing channels to craft a strategy guiding a customer to discover value again, and again. This process can take subtler forms with time but must never end. Why do some businesses have extremely loyal customers? They make every customer feel valued, and reward customer loyalty. Once you have yourself a loyal customer, they can get you more customers - sometimes via the referral programs set up by you and sometimes even without you asking them to. When your customer helps you in acquiring new customers, you know you’ve kept them satisfied.


4. Focus on switching costs

This doesn’t necessarily mean lowering the price of your product. It involves creating a seamless process for your customers to switch from another product to yours. Let's look at an example of an online grocery delivery service. When a new user signs up it's a bad idea to immediately ask for whole bunch of their details. Customers will be hesitant to give out information before having actually experienced value in the product. A smoother process is setting up a one click sign up process via Google or any other social media. There should be no hurdles stopping the user from browsing and proceeding to the check out page after which all the other necessary details can be asked for. This is where check out page optimization becomes crucial. A hassle free way of getting a customer's delivery address is enabling a GPS integration that auto detects the customers location so they only have to type in their house number. The faster and smoother you make your user flow, you reduce the number of opportunities they have to drop off and increase the probability and speed of completing a purchase. Along with minimizing the switching cost to your product, it's also important to maximise the switching cost from your product. This is achieved by incorporating an in-app credit system or a loyalty program, or could also be the customers loss of a personalised experience that you've created for them based on collected data.

5. Use incentives to nudge customers

At every stage of the retention funnel, it becomes imperative to gauge a customers' context and take appropriate actions to lead them further along the customer journey path. In many cases, especially for users who are relatively new to your business, it becomes necessary to incentivize customers to nudge them towards experiencing true value of your product. This is where discounts come in. Use your retention marketing budget wisely by sending out discounts to get customers to increase the value and frequency of their purchases. These discounts shouldn't be confused with the deep discounting strategies used by many large businesses to undercut competitors. The discount must not be the sole reason for a purchase, but must serve as a catalyst for a customer to buy more than what they were already going to purchase, or make a purchase sooner than they had planned to. Your discount marketing strategy can be optimized by MARS which learns from past user data and figures out the best amount of discount that must be sent to every individual customer to get them to complete a purchase while also staying within your allocated budget and preventing your customers from getting addicted to discounts.

Want to maximize retention at minimum cost? Try out MARS.