The Tie Between Customer Retention and Customer Lifetime Value

Ramin: So tell me, why do e-commerce merchants need to make loyalty and retention a priority in their business?

Jack: There are so many reasons. Loyalty and retention are often overlooked in this landscape by necessity when you start an e-commerce business acquisition. But in all the e-commerce businesses that I’ve worked in, acquisition can be challenging.

And at times, it can be unreliable. So we have seen that recently in the form of iOS updates, in the A/B testability of campaigns. And also, the fact that you are often using paid spend at amounts which can fluctuate pretty crazily in contrast to all of that retention marketing which is relatively affordable.

On average, it’s five times less expensive to retain an existing customer than to engage a new customer, and often it’s overlooked. So there are many different brands in a huge variety of industries and sectors who have mailing lists and personal contact information for many clients or many potential customers, and they’re just not leveraging them.

So, the reason for me and why I am so fascinated by loyalty, and I recommend it to every single brand out there, is that there’s so much potential. And ultimately, the trigger that I want to focus on as a business owner is acquisition and customer LTV (lifetime value), which is so important.

Ramin: That’s great. And you lead right into my next question, but before we get to customer lifetime value: one of the stats you sent me, which I thought was fascinating, is that the top 20% of customers generate over 53% of total revenue for stores of all sizes. I mean, that’s a huge number.

Jack: When we’re talking about that 20%, there are a few key things there. Firstly, you need to be able to identify who they are.

That’s part of the puzzle, but also you want to be able to market to them uniquely. And the way that you do that is through segmentation, and that’s loyalty data. So on the backend of LoyaltyLion, for example, we have tons of data that you can leverage, and you can also push that data into your email marketing tools or your SMS marketing tools.

We always recommend having a completely unique way that you are marketing and communicating with that top 20% in contrast to everyone else that you’re emailing. So that’s just a little bit of the functionality we can do.

Increasing Customer Lifetime Value as They Move Through the Customer Journey

Ramin: Now, let’s dive into that customer lifetime value because it’s a key performance indicator that businesses should be paying attention to. So what impact do loyalty and retention have on CLTV or customer lifetime value?

Jack: So there are a few things that we know at LoyaltyLion. The first one is looking at the purchase frequency that members have versus non-members on average. I believe it’s about a 1.3 or 1.4 times minimum increase for members versus non-members of how much they’re coming to your store.

And we also know that loyalty members are going to increase the cart size as well, or they’re more likely to do so. So those are the two triggers that we look for when we’re trying to increase customer LTV. Ultimately we think a lot about the customer journey. That’s pivotal with retention.

How does a customer change over time? We attempt to create a roadmap that merchants can use to move a one-time customer into a multiple purchase customer, to a loyal advocate. There are different strategies and tactics for each step of that journey, and having data in the backend allows you to look at it.

So, when we think about customer LTV, it’s really about customer progression and how they move through their customer journey.

Strategies That Guide a New Customer Towards a Second Purchase

Ramin: So, you know, one thing that interests me is this one-time customer. We’ve spent money to get that customer. They’ve purchased from us one time. Tell me how LoyaltyLion helps retain that customer.

Jack: A few different strategies can be defined with different customer psychologies. When a customer makes a purchase with LoyaltyLion, even if they are not yet a member of the loyalty program, they earn points.

So one of the tactics we see a lot of our customers doing is after that first purchase has been made, they will set up an automated loyalty email, which sends an email to the customer and says, you’ve just unpacked, don’t forget to set up an account.

That’s a great way of convincing a customer to come back to make a second purchase.

There’s a step further that you can take it there. When you’re trying to convince them to purchase again, the other thing that can incentivize them is working towards points.

Our merchants use strategies to tell customers ways they can connect with the brand like following on social media, leaving a review, following the newsletter, and all of those different actions that can earn them points towards a second purchase.

So that can be a really powerful moment to move them to that second post.

Another example would be tiers. Tiers are something that can be set up on our platform in a few clicks. And it’s a way of incentivizing customers to move forward and spend more money in a year. And the way that you do this is to create a VIP experience, offer customers experiential rewards to come back to your store and be more loyal.

So an example of that could be early access to new stars. It could be being able to test new products. It could be any one of these things, free shipping; you name it. Ultimately, these don’t cost the brand very much money, but customers love them. And we know that if you can create this exclusive feeling, customers will be very receptive to it and want to come back and spend more money and become more loyal.

There’s a myriad of ways of really engaging with a customer. And a little bit of research is required at the beginning to find out what works best for your followers and play around with it.

Real-life Examples of Customer Loyalty Programs

Ramin: So tell me, which brands do you think are doing it very well?

Jack: That’s a great question. We have 10,000 plus merchants right now, so we have lots to choose from.

Firstly, a few of my favorites would be a pet food company here in the UK called Edgar and Cooper. They are fabulous because they show how far you can take LoyaltyLion customization. One thing that sets us apart in this space is that you can make it as on-brand as you would like.

They’ve focused on gamification in terms of earning points to progress to the next level. As a pet food company, they want to be a little bit fun and cute, so they’ve replaced points with belly rubs, which I think is very cute.

The other thing that they’ve done, which I think is a great strategy for conscious businesses, is that they have charitable rewards. So one option they have for customers who want to redeem points but don’t necessarily feel incentivized by a discount is to donate a meal to a shelter dog or plant a tree.

There’s a women’s swimwear and underwear company called Lively, which has one of the most beautiful loyalty pages I’ve come across. They originally came to LoyaltyLion because they were looking for a fully integrated webpage that was very on-brand.

They wanted everything to feel like an extension of their brand and very free-flowing. And it is absolutely beautiful. And we spoke a little bit about tiers; they have a wonderful example of tiers and the sort of customer experience you can create and how to incentivize your customers to push on it.

Integrating with Klaviyo to Build Customer Loyalty

Ramin: You guys are integrated with all the players out there. How important is that? How does it work?

Jack: We have always been focused on a best in class strategy. We’ve always wanted to work with the best technologies available for e-commerce retailers, and fortunately, that is reciprocated by the other technologies in the space. So a large portion of what we focus on are those integrations.

And really, what we’re trying to do is make them as functional as possible. So, for example, Klayvio is an ESP that we’ve had a long-standing relationship with. We’re constantly working with them to update it and make sure there’s more functionality there for merchants. So we’ve recently launched our second API with them or our second integration with them.

And on this, we are focusing on event triggers, which allow a degree more automation and a degree more functionality. So, we know that with a loyalty program, we are best utilized when you can leverage strong data into everything else, all the rest of your tech stack. And that’s been a big strategy.

Integrating Customer Retention into Your Omnichannel Strategy

Ramin: When we look at omnichannel and merchants with both an online presence and a POS, how do you make those two work well within the Loyaltylion infrastructure?

Jack: It’s very important for us to be everywhere that commerce is. So we started out being e-commerce focused, but we want to make sure that your business has touchpoints everywhere. So we do have an integration with Shopify POS.

We’re also open API. So on the premise that there are some longer-standing relationships with POS systems, you also have the possibility of creating an API or web to look into that.

But, when we are designing this, we’re thinking about one thing: the customer journey. Now more than ever, customers shop online, but they do not exclusively shop online.

We want to make sure we can support a brand and build loyalty wherever those customers are. Now that normality is beginning to return, if a brand or a company is investing in that retail space, we want to make sure that they have all of the loyalty solutions they would have online available at the POS.

With Shopify POS, for example, you can earn points right there and then, and you can be alerted to earning points as well.

Tools Business Owners Can Use to Boost Customer Retention

Ramin: If you were a fast-growth e-commerce company and didn’t have a loyalty program, what other tactics and processes would you put in place besides LoyaltyLion?

Jack: I would be thinking about having that connection to different marketing outlets such as email and SMS.

One of the things that you could think about doing right away if you are introducing a loyalty program is to do something cool and experiential that your customers may not forget. So something which we’ve been promoting a lot recently is the idea of double points days. So this is a time when customers can come, and they can spend more money.

This could even be aligned with something like Black Friday or Cyber Monday, which we can perhaps touch upon. But offering double points or even triple points, making it something that incentivizes customers to come in to start fulfilling those different actions that benefit the merchants, such as following on social media and making purchases, is the way that I would want to start a program.

You want customers to become familiarized with your loyalty program, and two, you want them to become incentivized to keep coming back. And the way to do that is to get a points balance in their account.

So that would be my first thought, but often it’s marketing it. If you are investing in loyalty, tell your customers about it and make sure that they’re aware because we know how well customers respond to a loyalty program.

So really market and make sure that they know it’s coming, what day it’s coming on and have something cool and quirky and interesting to get them through the door on that first day.

Turn a New Black Friday Customer Into a Returning Customer

Ramin: Let’s say the first time you get that customer is on Black Friday or Cyber Monday, and you need to turn them into a long-term customer. What are some of the processes that you recommend?

Jack: You touched on something really important: Black Friday, Cyber Monday, and the holiday period are huge acquisition moments for all brands.

You want to have customer retention and other marketing strategies for that, so you’re ready to collect that information when it comes in and incentivize those customers when they come in and make a purchase in terms of what we are recommending. And we recently released a marketing playbook available on our website, which talks all about different strategies for Black Friday and Cyber Monday (available here).

We’re noticing in this space that these percentage-off deals, which for so many years have been the status quo around Black Friday and Cyber Monday, aren’t as effective as you might think.

We did some research recently. It does appear that customers are quite tech-savvy, and they understand that it is a relatively short, non-individualized experience where you can get some percentage off an order.

It doesn’t resonate the way that some brands might think. So what we recommend doing is trying to think of alternatives. So that could be giveaways, for example. It could be loyalty points: saying, okay, we will do a double or triple day.

It could also be leveraging other assets such as offering a unique deal for customers in the top tier of your loyalty program and saying you have access to free shipping or next day shipping, or exclusive offers or exclusive products. So it’s thinking about incentivizing customers, which is different from just a percentage discount and more on-brand, is the way I would think about it.

Building Customer Loyalty in Brands with Short Buying Seasons

Ramin: I previously came from the wedding industry, and that’s an interesting one because the customer lifetime value is essentially small. The buying period is short. Right.

How do you guys work seasonal or short buying period brands to grow their business?

Jack: The way to think about loyalty is slightly different, but there’s definitely a use case.

Firstly, it may be one item that has been purchased, but ultimately there may be ways that

you can engage with the customer for a longer period of time. So I’d start thinking about that.

The other part of it is loyalty, and a big function of loyalty is the referral piece. So if you have customers who have enjoyed your service and are comfortable leaving a review, advise them to do so.

But you also want them to refer their friends or refer people within their circles to come and use a similar product. Then you can also use the loyalty program to incentivize that. So there is a use case for those very seasonal things. It’s slightly different, slightly more nuanced, but we have a few examples.

Customer Retention Strategies Help Set You Apart in a Growing Marketplace

Ramin: Where do you see loyalty going in five years? What happens to loyalty and retention? What does the software look like five years from now?

Jack: The current challenges in acquisition aren’t going away anytime soon. I think that acquisition is going to become more difficult. We see the marketplace growing 14% year on year, and COVID was like seven years all at once.

So we know that there’s going to be more businesses trying to acquire a finite amount of customers. That’s always going to be a challenge. So for me, retention is going to be a bigger piece of the puzzle for e-commerce merchants, and they’re going to have to prioritize it.

We’re hiring a lot. We’ve recently started hiring boots on the ground in North America to make sure that we are incentivizing and supporting North American businesses and they have all the customer support whenever they need it. The other thing that we’re working to do is make sure that we have that integration into the POS space.

As you mentioned, we aspire to be everywhere that commerce is. We want to continue building those best in class technology links with other tech companies and making sure that you can leverage data anywhere and everywhere you need to. And ultimately just continuing to refine our product so that it is as functional as possible.

We want to make sure that we offer leading data and insights so that all of these actionable, next-step things you can do and all these different strategies are clearly articulated. The merchants have a roadmap for success. So that’s really where we see it going.

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Work with LoyaltyLion to Build a Customer Retention Strategy

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If you’re ready to increase your customer lifetime value through a data-driven, refined customer loyalty strategy, reach out to Jack via the Contact page or onsite messenger at LoyaltyLion.com.

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