As far back as the 1990’s, studies in ecommerce were showing that a 5% increase in customer retention provided an average increase in revenue of more than 25%. These studies clearly showed that the efficiencies in retaining a customer online supported the dog-eared quotes of ‘finding a new customer is 11 times more expensive than keeping one’. Studies have shown that a new online customer costs, on average, $50 to acquire, a cost that may take multiple purchases to reclaim. Retaining a customer is the best way to recover the costs of gaining the customer, and with numerous ecommerce studies since 2000 showing that customers spend twice as much after the first year of a business relationship as they did in their purchases within the first six months. It is therefore essential to inspire customer loyalty online. Old business rules still apply online, but the tools of the trade have significantly changed.
A Google search will quickly show you that there is a proven connection of long-term customer loyalty to profitability. However, there is much less data on exactly how to foster these highly prized client relationships. Despite a raft of research arguing the contrary, it is often assumed that price is the leading factor in online loyalty. There is a link. There is a traceable relationship between price and customer loyalty, but it is weak, especially in comparison to relationship management. Relationship management means knowing and targeting your desired customers.
The key to finding loyal customers is to understand and target them. Trying to appeal to everyone rarely brings genuine benefits. Instead, web pages become endless sprawling product pages with un-engaging content. Web analytics provide a business with information on every single customer that comes ‘in-store’, through their navigation of the site and detailed demographics and buying habits on those that purchase goods or services. Yet unbelievably, many websites fail to fully utilise the wealth of customer information available to them. This is especially surprising when considered against the backdrop of studies proving that targeted marketing, with services, deals and contracts aimed directly at a particular segment or demographic is the best way of engaging the segment of potential customers that are most likely to build a profitable loyalty.
Many e-commerce sites have tried to gain profitability through appealing to everyone. Blanket marketing, usually focussing on price, can bring in short-term profits. They rarely bring in the kind of loyal, profitable customer that encourages brand success. If a customer is attracted to your site by a price point banner advert, it is likely that the next attractive banner placed on their browser will lead them away from you just as quickly. Lynch & Ariely (2000) concluded that price was used as a loyalty inducer only when the business provided little other information, with the topic nicely summed up in a paper by Reichheld & Schafer the same year; “Price does not rule the internet. Trust does”.
Dell has identified the three pillars of customer satisfaction;
The third of these may be a surprise to those that view the world of e-commerce as a ruthless, price driven market for highly conspicuous customers. Upon consideration, in the faceless nature of e-commerce, the perceived requirement for trust and reassurance is possibly not a surprise. This can be built into a website, especially in payment pages. Secure servers for payment are absolutely essential as a minimum.
It is trust in the brand, and in the service provided that will encourage loyalty in online customers. Whilst unprofessional sites will certainly drive custom away, by contrast, professional looking websites will not automatically inspire trust. There needs to be more. In an online world where site visits are often about information as much as commerce, provide the customer with a valued source of information, a source of information that is not available to other people apart from those “in” with your brand. For example; a holiday home management service could provide their owners with up to date information regarding all parts of their business, from legal and political debates on upcoming property law, transport patterns or even long-term weather forecasts. Providing this sort of information creates a trusted ‘community’. It both means that customers with a genuine interest in the field repeatedly visit the site, reinforcing their brand loyalty, as well as an increased trust in the brand as industry professionals.
Too often, the customer process is designed for the benefit of the provider. When thinking of the customer experience, it is always best to think from the customer’s perspective. What would make me buy again? What do I want from the experience? The most obvious answer to these questions is simple; deliver on promises. If promises are not delivered on, gaining customer loyalty online is impossible. Zendesk found that 88% of online customers stated product quality as the most important aspect of a positive online purchase experience, with a further 72% stating the importance of customer service, findings which support the work of Dell.
Delivering every time will build reputation; but may not inspire loyalty. That comes from going the extra mile. Throughout the academic papers on customer experience online is the idea of follow-up communications, usually in the guise of emails. These are easy, automatic and generic emails that say ‘Thank you, please come again’.
There is much scope for improving these generic emails. Time spent by a named employee sending a personal message to a customer, especially on high value transactions or potentially lucrative long-term business relationships go a long way. The further that the email can be personalised, perhaps suggesting future improvements or analysis to the customer’s use of the product, especially if a free service, can convince the customer that there is a genuine desire to engage in the business relationship on a personal level, tailoring service and products towards a genuine need. If the customer believes that there is an accessible individual with knowledge of the customer’s requirements, loyalty takes a leap forward. Why go elsewhere when there is an ‘account manager’ with inside knowledge readily available on the other end of an email?
The financial benefit of keeping a customer is well documented. By returning some of this profit to the customer, either through financial loyalty schemes (‘points for purchases’ or returning customer discounts being the most famous) or through the extra service of a personal account manager, encourages repeat custom. Many businesses have saved costs by removing the ability for customers to speak directly to a customer service representative, but the negative impacts of doing this are clear. If a customer cannot speak to someone, then how valuable do they feel? Not valuable enough to remain loyal.
It has been shown that in order to increase customer loyalty, a good product, excellent customer service and delivering on promises are the three key factors in increasing loyalty – and by association, long-term spend. In order to provide a quality product and appreciated customer service, it is essential to understand the client and their experience. Rather than spend budget on advertising and promotions to attract new customers, if that budget were spent on customer data capture and seeking quality feedback, the whole experience can be tailored to a ensure that customers get exactly what they need, and never look elsewhere. Does a customer look to brand or price? Are their purchases systematic or sporadic? Do they use loyalty schemes/points? Do they respond to targeted email campaigns or are they an in-box filling annoyance?
In knowing your customers, you can tailor the service to them. At least, you can highlight aspects of a generic service that will most suit the client, providing at least the illusion of a personalised, customer led product. By always delivering on promises, providing a little personal care and through providing industry leading, easily accessible content, customers will become loyal.
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