What's the main driver behind any successful eCommerce business?
If you answered conversions, you're only partially correct. But it's customer experience that drives those conversions.
What was true for customer experience before the pandemic will remain true after the pandemic: it's a question of customer orientation, not brand orientation. It might seem like a given that a brand who understands their customers will ultimately retain those customers. Yet in an eCommerce landscape typified by both shifting consumer habits and intensifying competition, customer retention can seem like a tug of war with no clear winner.
Attracting new customers was challenging enough prior to the pandemic. But are eCommerce brands facing an uphill battle retaining existing customers in 2023?
Building eCommerce Customer Loyalty: Allegiance or Convenience?
Building customer loyalty can be one of the greatest challenges for any small business. But the drive which motivates the most loyal customers isn't always based on brand allegiance. It's based on a sense of brand identity.
That's particularly true in the digital marketplace, which saw an estimated 10.8 percent year over year increase in Q3 of 2022 compared to a total retail increase of 9.1 percent.
Despite the predictions from some analysts that brick and mortar's comeback would have ultimately dwarfed the sales spike eCommerce enjoyed during the pandemic, not all consumers are returning to their previous shopping habits. That's largely because the pandemic has fostered new delivery models (including curbside pick-up and BOPIS) that integrate the convenience of online shopping with physical retail. The result is an estimated 59 percent of total US retail sales being heavily influenced, if not directed, by digital commerce.
Brand loyalty may seem like a perpetual unicorn. But in the post-digital world, customers are just as apt to shop from a brand that can provide convenience, personalization, price advantage and a seamless interaction as they are from a brand that promises an innovative solution and a marketing campaign.
eCommerce is here to stay. As even formerly hesitant consumers continue to adapt comfortably to online shopping, the need for small businesses to differentiate themselves from their competitors and maintain customer loyalty is a critical one. But are small businesses doing enough?
Customer Loyalty Programs and Consumer Adoption
Recent data suggests an estimated 57 percent of consumers actually desire a locally-based customer loyalty program. Yet at the same time, 25 percent have indicated a lack of inherent value in a rewards program.
But the gap can be even greater with eCommerce loyalty programs. A 2020 poll from McKinsey found that 73 percent of American consumers were alternating their shopping habits, with 65 percent expecting they'll continue to do so after the pandemic. At the same time, as many as 80 percent of US consumers have indicated that their own trust in a company is what drives their devotion to a brand, regardless of the value of a customer loyalty program.
Consumer habits aren't necessarily becoming more divergent as a result of the pandemic. They're becoming more divergent out of necessity.
Incentivizing loyalty might seem like an ideal way to maintain your current volume. But online customers are becoming increasingly more discerning towards whom they choose to do business with.
eCommerce businesses can sometimes fail to meet consumer expectations when offering customer loyalty programs, particularly during a time in which inflation fears are at the top of most shopper's concerns, both on or offline. Historically, both convenience and price have been two of the stronger drivers that attract customer loyalty. And that's not likely to change in 2023. In fact, it's more likely to increase.
But if neither your product line nor your service meets increasingly demanding consumer standards, no amount of incentivization will be likely to maintain their attention.
That includes an eCommerce loyalty program.
Customer Acquisition Costs
It may not have taken a pandemic to cement the need for customer acquisition as a chief priority for the vast majority of small businesses. But there's been a much greater shift from customer acquisition costs towards customer retention since the pandemic.
An analysis from Forrester Research predicted an increase of 30 percent in customer loyalty and retention marketing by 2022, citing the need for control over an increasingly tenuous customer lifecycle.
The cost of that lifecycle seems to have been largely immune to the budget costs affecting other marketing segments. A 2020 survey from Gartner found that nearly 80 percent of CMOs were relying on existing customer retention strategies to ensure the continuing stability of a business.
One reason for the renewed focus on customer retention is the sheer sense of uncertainty fostered by the pandemic. While the eCommerce surge of 2020 was born out of necessity, few could have predicted both the subsequent product glut it enabled—a glut which resulted in a global supply chain crisis we're only now slowly starting to climb out of.
It's a hard reality to face. But in times of economic uncertainty, customers will be just as likely to seek out alternate products which can provide both superior service and a greater price point advantage as they are to express brand loyalty.
But while the latter can provide a sense of security in the face of unease, the former can actually be a learning experience. If your seeing a significant drop in existing customers, ask yourself some of the following questions:
Which elements of your customer experience provide a greater competitive advantage?
What incentives are you providing for existing customers?
How closely does your business vision align with your current customer experience?
Can new customers relate to your marketing?
Is your product fulfilling a solution or simply competing in a market?
These questions won't necessarily have a benchmark answer. By default, they can't. Both consumer habits and customer expectations are constantly evolving. But by reevaluating both your own expectations as well as your current customer experience, you'll gain an insight into both your product line as well as your own business growth which can be worth more than you might expect.
Measuring the Customer Experience
A one time conversion does not equal a long term convert. And it's not just low prices that drive sales. In fact, it's the opposite.
A recent survey from Capgemini found that 81 percent of consumers are willing to pay more for a superior online customer experience.
While personalization may be critical to providing a memorable customer experience, what metrics actually result in long term returns?
Average order value
An average order value (AOV) can be one of the trickier metrics to define for many online businesses, since seasonality and optimal time frames can have a tremendous influence.
Amazon sellers may seem to have an advantage due to built-in metrics (in Amazon's case, anywhere from 30 to 120 days), but off Amazon businesses can also utilize AOV based on their own custom windows.
To calculate your AOV, simply divide your revenue by the number of orders in any given time period. New businesses should try to estimate their AOV no earlier than a 90 day time frame.
To increase your AOV, consider both seasonal and off season promotions, including product bundling—which can be an ideal strategy for liquidating overstock while exposing newer, unproven product lines.
Repeat purchase rates
If you think investing in your digital experience won't bring repeat purchases and returning customers, think again. As recently as 2010, an estimated 88 percent of consumers refused to return to a site due to poor user experience. And with over 68 percent of online traffic coming from mobile in 2020, a fast loading site isn't just an advantage in maintaining loyalty. It's a necessity.
A climbing repeat rate is synonymous with eCommerce customer retention. To calculate your repeat purchase rate, divide the existing customers who have purchased multiple times over any given time frame by the total number of customers. A good rule of thumb would be between 60 to 90 days, with a minor leeway for holiday overlapping.
Customer lifetime value
Even more than AOV, Customer lifetime value (CLTV) can be a frustrating metric for newer businesses.
That's because it's defined by the average value of a customer over your entire lifecycle. And a dip in either repeat purchase rates as well as AOV can affect it.
To calculate CLTV, multiply AOV by the number of purchases in a given time frame. Multiply the result by the average lifespan of your customer relationships, and subtract acquisition costs.
If you're seeing a significant dip in your CLTV, look for factors why. Is your product recognizable? Is your niche too crowded? Is your service consistent? Are you seeing any significant ROI from digital advertising? If so, in what areas?
None of these metrics have ever been static. Neither has customer loyalty.
Consumer Behavior and the New Normal
What defines consumer behavior in 2023 will be the new normal. And providing a seamless digital experience will continue to be fundamental to your business in a post-pandemic world, no matter what your size.
You might have a potential bestseller on your hands. But ensuring it meets increasingly changing customer expectations may be trickier than you expected.
The message for 2023 is simple. Brands need to be more than just their product. And a better customer experience = more loyal customers. Shoppers aren't just looking for a brand to meet customer expectations. They're looking for a brand that exceeds them.
The only thing you can expect is that maximizing their experience means maximizing their attention—and their loyalty.
Color More Lines provides white glove, global account management of your eCommerce platforms so mission-driven companies can focus on new product development, branding and growth strategies. Find out more at Color More Lines.