By Barley Laing, UK Managing Director at Melissa

Opportunities occur for retailers when big life events happen, and there’s nothing much bigger today than the current Covid-19 health crisis the world is embroiled in.

It has and continues to have an enormous impact on consumer shopping behaviour, which in turn, opens the door for savvy retailers to not only gain new customers, but establish long term profitable customer relationships that help to drive growth.

It’s e-tailers that have and will continue to benefit the most from the pandemic, with the lockdown and many consumers still worried about safety on the high street. It’s why Covid-19 is predicted to add an extra £5.3 billion to UK ecommerce sales in 2020 and ecommerce sales at Walmart jumped 74% as tens of millions of people around the world switch to ordering online.

While it’s all very well obtaining new customers, the big question is how encourage them to become frequent purchasers, ideally of your higher value products and services.

Find your most profitable customers

Before you attempt to put steps in place to drive customer retention, it’s important to focus time and investment on those that bring in the most money. There are three ways to determine who these customers are:

  1. Begin with the 80/20 Pareto principle which recognises that there’s no equality or balance in the marketplace or life. It’s a principle that highlights only a small percentage, usually around 20% of customers, create the vast majority of revenue. This makes it vital for retailers to identify these valuable customers and focus their retention efforts on them.
  2. Allocate a RFM (Recency, Frequency and Monetary) value to every customer using a five-point scale (one to five) related to recency, frequency of purchase, and money spent. The best customers would receive a top score of five across these three areas. The insight gathered will effectively inform where to allocate valuable marketing spend for customer retention activity.
  3. While the RFM score is important, it’s critical to look beyond it at other factors that might make a customer especially valuable. For example, it could be a customer only has RFM scores of three, three, and two, based on their activity. However, when you discover they are a social media influencer in your sector, and an important potential advocate for your brand, they should be treated as though they were in the top 20%, and assigned appropriate marketing resources.

Happy Customer

Six retention actions

Once you have taken steps to identify your most profitable customers, it’s time to undertake these six important retention actions:

  1. Put customer retention at the heart of your organisation with new business rules. For example, there may be a company-wide directive stating customer service can spend up to £100 to solve any shopper problem. Alternatively, the directive may require the money allocated to solve such issues is graded at a level related to the customer’s value to your business.
  2. Always think about creating and communicating useful content, such as informative and entertaining articles and videos. Doing so encourages customers to become emotionally attached to your business and develop a sense of reciprocity. Additionally, content doesn’t only play a role in keeping existing customers engaged, but also helps to attract new ones.
  3. To further drive customer engagement and retention contemplate putting processes in place to automate customer communications. Therefore, once a new customer has made a purchase initiate a series of automated welcome emails which, if done well, should encourage the customer to come back and spend more.
  4. Use RFM scores to inform automated and manual actions when targeting customers. This should involve retailers identifying, testing, and evaluating automated customer notifications based on their RFM scores. For example, if the RFM score highlights that a customer has not purchased from you recently, but they have bought several low value items in quick succession, it’s probably not worth spending a lot of money on retention. A better approach might be an automated series of ‘win back’ emails. Also, it’s worthwhile to set up automatic RFM score-based triggers that require a manual action. For instance, someone who has low RFM scores for recency and frequency of purchase, but a maximum five for the amount they spend, probably deserves a special retention focus.
  5. Manual actions will be required in unique circumstances. This typically means being able to react quickly based on new information. For example, a negative review of your business on Google might require you to rapidly contact the customer directly to resolve the issue. 
  6. Always ensure you have clean and accurate customer data to instil trust and loyalty amongst those who shop with you. Misspelled names, postal addresses and email addresses will lead to mis-deliveries of products and delayed customer communications. This will deliver a poor customer experience, and can seriously damage retention efforts. Data that’s simply incorrect, such as a customer name, address, email or telephone number, is easy to fix. All retailers need to put procedures in place to ensure their customer data is clean, which often requires only straightforward and cost-effective changes as part of their data quality routine. This should not only involve cleansing and standardising held customer data to deliver data quality in batch, but extend to new data, in real time as it is collected, for a standout customer experience at the point of sale.

Those in ecommerce are well-placed to attract new customers during the pandemic who might not have thought about shopping with them before. However, the challenge for retailers serious about growth is to keep them coming back regularly, and to spend more. The best way forward is to identify those customers who are the most profitable and then investing time and money on effectively targeting them. Ecommerce businesses that take this approach will see their revenues increase strongly during and post-pandemic.

By Barley Laing, UK Managing Director at Melissa

Published 13/10/2020

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