What Is Retention Marketing and Why It’s Important?
Retention marketing is one of the fastest and most profitable ways for eCommerce businesses to grow. But it sadly it is one of the most misunderstood/undervalued growth opportunities for many businesses. So we decided to unpack everything retention marketing and what makes it so powerful for maximizing customer lifetime value!
Repeat customers make a business able to skyrocket its sales and stay profitable in the long run, especially when we talk about eCommerce businesses.
The traditional digital marketing practices are all good and fine for acquiring customers, but retaining them is equally essential and helps a business fuel up its most effective acquisition channel.
Here at MKTG Rhythm, we focus most of our attention on retention because it’s such a unique space. We feel like it’s pretty overlooked or undervalued for many e-commerce businesses. However, it represents one of their largest growth opportunities.
We get all kinds of questions about retention, from…
“What is retention marketing exactly?”
“What role does retention marketing play in the success of a business?”
“Why should my business focus on retention?”
So we decided to unpack all of these for you so you could feel like a retention pro!
Questions we’ll answer:
- What is retention marketing?
- Why should you start retention marketing?
- Acquisition Vs. Retention marketing
- Benefits of retention marketing for eCommerce
- What are retention marketing strategies?
Retention marketing focuses on maximizing the lifetime value of existing customers and getting them to purchase from your business again and again.
It’s extremely effective because retention marketing does not have the same high acquisition cost that creating a first-time customer does.
Moreover, retention marketing looks through the lens of the customer experience, and it relates to good services, memberships, and anything else you’re going to provide.
Once you’ve sold a product to your customers and they’ve had a good experience, the likelihood of them purchasing again is a lot higher. So with retention marketing, all you need to focus on is providing your customers with the utmost value to keep them coming over and over again. In short, make the customer experience as seamless and as valuable as possible.
A simple answer to this question is that retention marketing is one of the most profitable ways to grow your business.
The most profitable way to grow a business is to get people to purchase from you multiple times. And again, having repeat customers is way more beneficial than spending on acquiring new or one-time customers every time.
This is why the direct-to-consumer experience is so powerful because you can certainly drive purchase and loyalty and get that person to come back in. You can foster a strong relationship that encourages people to purchase from you and not from somebody else.
For example, if you’re selling products on Amazon, the customers buying from you are not technically your customers. They’re Amazon’s customers.
And you don’t really have a way of connecting with them outside of Amazon. That’s why in my opinion, direct-to-consumer is so powerful because you own that relationship and can extend it and expand it from there by creating the best experience possible.
If you are providing a good customer experience along with a quality product, your customers are going to want to purchase from you again and again. Why? Because they will feel safe and think that they’re making the right decision to buy from you.
Moreover, businesses that sell services on a recurring basis tend to focus most of their attention on retaining their existing customers.
For example, SaaS businesses put all their efforts into retaining customers to prevent them from leaving their subscription.
Furthermore, ads are becoming a bit less cost-effective, and the third-party data that we’ve historically relied on for acquisition are becoming less reliable and more expensive.
So we don’t have that same access to data. And as ad costs are going up, businesses need to drive more revenue out of their stores without endlessly investing in ads or data.
And this is where the retention component plays a significant role.
If you know that you’re going to see a large enough lifetime value on the other side, then it will be profitable because if you know that lifetime value is going to be high enough, it will compensate for that a lot more.
So it gives us a little more flexibility and freedom to know that you’re not maximizing ROAS all the time.
Also, if you can get people to purchase more frequently and consistently, it opens the door for you to be able to drive a higher average order value each time.
Retention or Acquisition? Where do you need to focus more, and should you spend more time on?
So if you’re a newly established business or just getting your feet on the ground, you should pay more attention to the acquisition side of things.
Retention only becomes possible after acquisition. If you don’t have any customers, how can you retain them?
However, once you have your customers in the door, then you need to shift your focus to the retention side.
So how can we look at this through the strategic lens of a marketer?
This is where I always like to go back to fundamentals.
There are three ways to geometrically grow a business:
- You can increase the number of customers
- Increase the average order value (AOV)
- Or you can increase the number of purchases
If you can double any of these three growth multipliers, you are actually going to double the revenue of your business.
But which of these three does not come with an acquisition cost? Yes, you guessed it right! The average order value and the number of purchases have no acquisition cost.
So instead of spending a greater chunk of your budget on bringing in new customers, you can simply increase the AOVs and number of purchases from the existing customers to grow your business.
Email and SMS are highly effective tools for customer retention, as they facilitate consistent communication and help build lasting relationships. By leveraging these channels, you can nurture customer loyalty and establish a strong connection with your audience.
As retention is yielding results and becoming a hotter topic in marketing, we are starting to see more businesses spend time and attention on this because they know it’s essential to thrive in the modern business/eCommerce landscape.
This, in turn, develops the need to understand the customer’s lifetime value because we don’t have a never-ending supply of cheap ads anymore.
Therefore, you have to be a lot more strategic in the way you look at your marketing and how you look at growing your business.
This means that you will need both acquisition and retention to thrive. You can’t have one without the other.
However, building a system that complements both is the smartest move because a good marketing strategy does not happen in a vacuum.
You should focus on your best customers, the ones that drive the highest LTV. You can understand a fair deal about higher LTV customers by retaining them. And then you should try to acquire more of such customers. So aligning both retention and acquisition sides are equally imperative.
However, retention does not always get the attention it deserves in eCommerce because it’s not as sexy as acquisition.
I sometimes joke about retention that retention is like the person your parents want you to date in high school. They’re stable, they’re reliable, and they’re smart. And they’re probably going to grow up to be a doctor, a lawyer, or an engineer, but they’re not sexy.
They do not own a cool leather jacket or drive a motorcycle the same way the acquisition does. That’s why you do not pay much attention to retention.
I don’t always think that the focus on acquisition is the healthiest place to be looking in terms of e-commerce businesses because it can get very transactional and hurt businesses in the long term.
So focusing on the retention side and spending a good amount of time and attention on retention really helps businesses grow in a long-term holistic way.
Benefits of Retention Marketing for E-Commerce
Again, the retention of a customer comes without the acquisition cost. So you’ll not be spending your budget on retaining customers. Rather they will keep coming back if their experience with your business is good.
And if you’re a DTC brand, you’re going to make better margins on every transaction by a retained customer because you own that relationship and are not paying the fee associated with a marketplace channel.
The first-party data that you will collect also allows you to scale and grow your business in ways that are unique and different.
This is how you create that differentiated experience and you are not beholden to another platform to reach your audience.
Having customers’ first-party data by your side, you can serve them in better ways each time because you know more about them. Leveraging customer data allows you to gain insights into their pain points, purchasing habits, and behaviors. With this knowledge, you can deliver tailored solutions and offerings that address their specific needs at the right time, maximizing customer satisfaction.
Every profitable business needs to scale at some point in time. And customer retention helps a lot in the scalability of a business.
This is an area where you can build a retention system through a strong email ecosystem, good customer interactions, and experience.
And again, when you bring more customers in the door that email automation system is going to scale up with them at each level because you’ve built out an understanding of what the customer life cycle looks like.
If you have an understanding of “how much money am I going to bring in from repeat customers every month?” your business is going to have a stronger and more stable foundation.
We always measure this in terms of your retention, like how much repeat revenue are you driving each month. What is your repurchase rate on Shopify.
The retention increases predictability to build a good understanding of how much bottom-line revenue you are actually driving. How you are currently operating and what do you need to tweak.
All in all, predictability is extremely powerful.
Building on Owned Land/Building an Owned Audience
You are building your house on owned land as opposed to rented land.
You are not beholden to another platform to reach/communicate with your customers.
Suppose Amazon, Google, or Facebook changes something. In that case, you’re going to have less volatility in your marketing because you know that you ideally have people coming through. You will have a stable foundation of revenue that you will depend on.
Creating a Passionate Audience and a Community
Customers are retained if they find value in your product or service. And when you retain customers, you create an audience of your own and turn that audience into a passionate community for long-term success.
Establishing a strong relationship with repeat customers allows brands to differentiate themselves from competitors and escape the commodity space. By prioritizing customer retention, businesses can create a unique value proposition that sets them apart and fosters long-term loyalty.
Customer Lifecycle Optimization
Retention also allows you to optimize a customer’s lifecycle effectively.
Customer life cycle optimization helps us understand how we get our hands around. What behaviors do we want to see, and how do we use email and use different nudges to drive that or create the behaviors we want to see.
The commodity brand is easily switchable. And that’s why strong brands thrive here because they’re not playing the commodity game. They’re not worried about who’s at the lowest cost or who’s got the fastest fulfillment.
They’re playing their own game here. And that’s where the strong brands are really winning.
Greater Life Time Value (LTV)
Another prominent benefit of customer retention marketing for eCommerce is that it helps in increasing customer LTV.
Now that we have understood the benefits of retention marketing, it’s time to understand different retention marketing strategies that can help an e-commerce business grow.
Customer experience is what makes people remember a brand or a company.
If you provide an exceptional customer experience, people will remember you and keep coming back to buy from you.
And one of the best ways to drive that customer experience is to create or align content that has value beyond the transaction.
Through content, you can again build a drumbeat of good quality, consistent email campaigns and add value contextually to engage your customers.
You can help them better use the product that you’re selling and add value through educating, empowering, and informing them.
Build a Community That Gives Members a Place to Belong and Engage
When you create helpful content that adds value to your customer’s life, they look up to your brand.
In this way, you’ll build a loyal audience that is going to miss you if you’re not around, like if you didn’t send an email for a month.
This will, in turn, form a community associated with your brand, and that community will look forward to your content.
The community aspect of things gives people a place to belong and engage. This is where this can be really unique, exciting, and different.
I think a lot of small businesses have a unique position and an opportunity here because we have democratized resources to do this.
If I’m an expert on a particular topic, I can build a community of people around the world around that topic.
Similarly, businesses can do the same here and educate, empower, and inform their communities to use their products better.
- How do we help them ride horses better?
- How do we help them ride their bikes better?
- How do we help them find different cycling groups or different groups to connect with?
This is another part of the retention marketing strategy that is significant.
If you understand the customer journey well, you can align different automation around different parts of the lifecycle to see what creates the behaviors you want to see at each one of those stages.
Your Onboarding Should Be Strong
Good retention starts with the first email you send or your first email welcome sequence. Because from the first touchpoint, you’re creating a customer you want to see.
So strong onboarding is one of the extremely vital retention marketing strategies, and it helps you retain customers long term.
Build a Strong Brand
Building a strong brand is far from easy and comes after a long hard road of travel.
However, as hard as it may be, if you have a strong brand, it will separate you from the commodity space and help to differentiate a business.
A strong brand enhances the effectiveness of your customer retention system, as customers perceive it as a value-added aspect. When your brand exudes trust and resonates with customers, it reinforces their loyalty and encourages them to stay engaged.
Have a Loyalty Program
A loyalty program greatly aids in retention efforts by incentivizing customers to make additional purchases. By rewarding their loyalty, you encourage increased engagement and foster a stronger connection with your brand.
And if your customers know that you run a loyalty program, they will most likely come back to buy stuff and redeem their rewards.
In your loyalty program, you can offer earning points, or exclusive access to things upon a purchase, etc. So all of those are going to feed into that process.
For marketers, customer retention is one of the strongest ways to grow a business.
It will be coming without the acquisition costs on the front end. And also, you’re going to be able to develop relationships and create experiences for your customers on the other side.
Retention marketing is like investing in a 401k. You’re not going to see the benefits right away, but you’ll thank yourself when you’re 65 (perhaps younger).
All in all, building a strong retention system is crucial for the long-term growth of any e-commerce business.
So that’s it for today’s blog. If I missed something or if you would like to add something, do let me know in the comments below.
Interested in learning more? Here’s a link to a recent episode of the Flowium Email Einstein podcast I was on, where we dive into retention a lot more –> LISTEN HERE