What can retailers learn from the growth in active customer retention?
The latest IMRG Quarterly Benchmark Report found an average customer retention rate (1) of 35.5% in Q3 2016. The previous quarter saw a record high of 36.2%, which was almost five percentage points higher than Q2 2015’s 31.5%.
We’ve seen a 67% increase in online retail customer retention rates in the last 6 years. This trend, while remarkable, is perhaps not surprising. The cost of retaining customers as compared to the cost of acquiring customers has always been favourable. If a retailer can persuade existing customers to keep buying, the purchases that follow don’t come with the margin-eating cost-per-acquisition of new customers.
The cost of acquiring cross-border customers has also become even greater after the Brexit referendum vote. The devalued sterling hurts profits, and it won’t go as far towards any marketing efforts overseas.
So the general trend toward greater customer-retention efforts is intuitive. Though, as with many things, some qualifiers are required.
Part of the change will have come as a symptom of greater market maturity. As the online retail space grew and grew, more and more new companies emerged. There was a healthy proportion of new brands, or new online presences, whose customers could only be new. Things may be settling somewhat after the explosion of online retail, and there’s less of a frantic scramble to win custom.
The other caveat is that greater customer retention does not necessarily mean better margins. A customer may only be returning to a retailer’s website with the promise of discounts. They might have waited for a sales event like Black Friday, or may have been enticed back with an offer code that the retailer emailed to them. If the returning customer checks out with low and discounted basket values – perhaps only responding to deals and not buying anything else at full (or less discounted price) in the process – strategies may need to be developed to work out how to increase their overall value to the business in the long-term.
Then there’s the fact that retailers can not only get new customers, but also protect their profits. They just need efficient and cost-effective acquisition.
Obviously there’s a balance to strike. An online retailer knows that they ignore customer acquisition at their peril. If the pipeline of new business dries up, it spells doom. Naturally the right approach will be particular to the retailer in question. A plucky online startup will be all about customer acquisition at first, whereas a long-established multichannel retailer with decades of brand recognition can more safely count on the cache of its name to attract sales.
It’s clearly a matter of remaining sensitive your own (and the world’s) circumstances.
Saima Alibhai, practice manager – professional services, Bronto Software: “Personalisation lies at the heart of successful customer acquisition and retention strategies, but simply using a customer’s first name in your emails isn’t enough. Consumers expect retailers to recognise and meet their needs by paying attention to their purchase and shopping behaviour. If commerce marketers can capture such data, they have a real opportunity to deliver powerful, relevant messages that will help move shoppers along the purchase path, close sales and build customer loyalty.”
Find out more
You can find out more about the latest data on customer retention and acquisition in the IMRG Capgemini Quarterly Benchmarking for Q3 2016
1. Active customer retention rate is calculated by the number of customers who have transacted once or more both in the last 12 months and in the previous 12 months, divided by the total number of customers who have transacted in the previous 12 months.