Customer Loyalty and Retention 101: The Complete Guide
Customer Loyalty and Retention
Customer loyalty and retention involve all the activities that a business implements to encourage customers to make additional purchases. As a result, customer lifetime value increases, and so does brand advocacy. In this guide, we’re covering key elements to building a successful retention strategy and loyalty program.
The Customer Lifecycle
Mapping out the customer lifecycle is a critical strategy to accelerate the purchase decision process and retain existing customers. Outline this journey to identify areas where customers experience friction, recognize emotions at various stages and better understand how customers engage with your brand.
Here’s a quick infographic into the customer experience lifecycle from Blake Morgan. It’s a great example of a customer journey process that we believe helps all businesses regardless of industry.
When mapping out this journey, be sure to identify the customer’s experience at each sales process stage. This will help to identify any points of friction where customers tend to trip up. No matter the product or service that’s being purchased, all customers go through the same process to a degree:
- The pre-purchase process
- Normal use of the product
- The period of renewal or returning to make another purchase
We also encourage you to become familiar with the Flywheel Model. This model represents how companies attract, engage, and delight their customers throughout the entire customer lifecycle. The driving power to keep a business spinning is its happy customers, who drive repeat purchases and referrals.
Before prospects and leads become customers, they go through a pre-purchase process where they’re still in the awareness and/or consideration stages of the buyer’s journey. To push them into the decision stage, create valuable inbound content to prove your company’s value. Show customers the value that they will receive from working with or purchasing from your brand. Sharing client success stories and customer testimonials throughout social media and your site is a great tactic to show prospects what success looks like if they purchase from you.
Though this does not work for all companies in the eCommerce space, some will benefit from having a dedicated team of people who are educated on the company’s products and services. Leveraging a consultative sales process really helps some teams convert more prospects into leads and leads into customers.
Onboarding & Adoption
Though this is very specific to SaaS and eCommerce, it’s critical for brands to track the successful adoption of a product or service. In other words, show what short-term and long-term success looks like for your customers.
When the onboarding process moves from one team to the next, be sure to collect notes so that information does not get lost between teams. Leveraging teammates (and automation) helps to drive adoption and ensure customer success.
Normal Use & Renewal
Deliver value of a product or service during your weekly/monthly/quarterly check-ins with customers. Proactively seek ways to cross-sell and up-sell other products or services to increase customer growth. When it becomes time for a renewal of a product or service, reassess the customer’s use of the platform. What value is the customer currently getting from the product? What other products or new features can they get at this point in their unique customer journey? Be proactive at this stage by answering these questions before the customer explains that they have an issue.
Building a Customer Loyalty Management Strategy
Set Your Baseline
Similar to any marketing or business strategy, it’s important to set a baseline to understand how your company is currently performing in terms of customer retention. You have to know where you started in order to measure future success. Setting a baseline also helps businesses establish SMART goals and set a benchmark against which to judge future performance.
Provide An Incredible Customer Experience
Of course, all businesses strive to provide their customers with the best experience possible. This goes back to the customer lifecycle; it’s imperative that brands cater to their customers’ needs throughout all stages of the customer journey. A lifecycle encompasses all actions — from when a prospective customer first engages with your brand and follows your account on social media to the time they make a purchase and refer your brand to a friend months later. Capitalize on all touch points during the customer lifecycle to continue to build loyalty and brand advocacy.
Build A Personalized Email Marketing Strategy
Nowadays, businesses have access to more customer data than ever before. Since this data is so readily available for eCommerce businesses, there really is zero excuse as to why emails are not personalized. Such data includes information about orders like the most frequently purchased product, average spend per order and more. It also includes personal information like phone numbers, email addresses, shipping addresses and more.
Retain more customers by taking advantage of this information. Improve your email marketing strategy by leveraging a tool like HubSpot or Klaviyo to trigger automated (yet personalized) emails. Segment lists by VIP tier, spend amount, demographics and much more for further personalization.
Email marketing can be an entire blog post of its own, and we definitely encourage all eCommerce businesses to follow best practices to engage customers at every stage of the lifecycle.
Offer Multi-Channel Support
Offering multi-channel support options is a key piece to retaining existing customers. Keep communication open and available in a way that makes sense for your customers. Let customers contact your sales team through a phone call, text, email, live chat and more. The more options that there are for customers, the better! People are all different, and the way in which they prefer to engage with your brand may contradict one another. That’s why it’s important to make their preferences readily available, so you can meet customers on their terms.
Customer Retention For B2B & Service-Based Companies
B2B companies must ensure continuity between the expectations of sales representatives and customer success teams. We mention this because it’s common for sales teams to overpromise certain aspects of a product or service. This overpromising tends to set unrealistic customer expectations that customer success teams must later deal with. The misset of expectations is probably one of the biggest reasons that customers become dissatisfied with a brand. That’s why it is so critical for internal teams to be in alignment with each other.
Additionally, it’s a sales best practice to deal with bad news immediately. Prioritize customers by their pain points. Those that are having serious troubles tend to need the most help. Many customers will forgive a brand when they screw up, but many customers won’t forgive a brand when they ignore or brush off their inquiries.
Last, it’s vital for salespeople to lead with their customers’ goals in mind. Rather than talking about the features of their company’s product or service, ask the customer what their goals are and how they’d like to accomplish those goals. Then, recommend a product or service that best meets their needs, and share how it can help them achieve their goals. This helps to build rapport and make customers feel like they’re speaking with real human beings rather than just a support team.
Types of Customer Loyalty Programs
There are a few different types of customer loyalty programs that benefit both customers and businesses. The standard points program is the most familiar rewards program. This is where customers are rewarded for micro-interactions such as creating an account for purchases, engaging on social media, subscribing to a newsletter, leaving a product review, etc. Rewards in this program come in the form of points that customers can redeem once they reach a certain threshold (this number varies by company).
VIP customer loyalty programs consist of various tiers that each customer falls into based on the amount that they spend, the number of points they have, or other parameters. As customers engage more, they progress to the next tier. This benefits both customers and merchants; customers earn better perks at higher tiers, while merchants can easily segment the customers who are most engaged with their brand. Rather than having to dig into the customer data, merchants can see the highest-spending customers just by looking at who is in the highest tier.
Referral programs are a great way to increase customer loyalty and retention because they incentivize existing customers to refer new customers. This program also benefits both the consumer and merchant. The customer who refers the new customer can be rewarded in a variety of ways, like dollars off their next purchase, a gift card, a free service and much more. This reward is up to the merchant’s discretion. On the other hand, businesses benefit from referrals because they’re acquiring new customers that are spending money at their store.
Benefits of a Customer Loyalty Program
There are many benefits of utilizing customer loyalty programs. Though some benefits depend on how much money a business makes, a company’s size or what stage their customers are at in their journey, there are quite a few universal benefits that apply to both customers and businesses.
Prevents Brands From Competing On Price Alone
Most loyalty programs let customers build up a points balance with a brand, which offers great value to customers. The incentive of continuing to earn points with future purchases is often enough for customers with point balances to stick with one brand and not jump ship to the competitor based on price alone.
Retains Existing Customers & Increase Lifetime Value
Forbes reports that, on average, loyal customers spend 67% more than new customers. This is because customer relationships compound with time. As customer loyalty and retention increases with one brand, the likelihood that they’ll spend more money per purchase also increases because they’ve grown to trust in your brand and appreciate the rewards.
Builds Personal Relationships
Strengthening relationships with existing customers is fundamental when it comes to customer retention. Companies have access to valuable customer data, including purchase history, average order value, birthdays, date of last purchase and so much more. Leverage this data by making it part of your email marketing strategy to really personalize the experience that each individual customer has with your brand.
Saves Businesses Money
Companies often feel that they must discount products to keep customers coming back. This isn’t the case, however. Points balances and strong customer relationships are the main reasons that customers come back to make additional purchases. They already love your brand and realized that from the first purchase they made, so it’s unnecessary to discount products in hopes that they’ll return.
Creates Brand Advocates
Organic word of mouth marketing is a business’s best friend. When customers truly love a brand, they’ll rave about it to their friends because they genuinely enjoy the perks and see great value in it. This immense satisfaction ultimately transforms customers into brand advocates who naturally can’t help themselves from referring new customers.
Creating a Customer Loyalty Program
Choose A Creative Name
Branding is key for driving customer loyalty and retention. Rather than naming a loyalty program something mundane like “[Company Name] Rewards Program & Points,” get creative and choose a name with deeper meaning. The mundane names and programs are less likely to perform as well as the creative ones. Think about your brand’s story or the founder’s story, and make a connection between the meaning behind your brand and the name of the loyalty program.
A great example is beauty giant, Sephora, who has created a craze around their loyalty program using unique strategies. This ties back into the customer experience lifecycle because successful loyalty programs engage customers throughout their journey and create a cohesive shopping experience.
Reward A Variety Of Customer Actions
Integrate your customer loyalty program with other apps to reward customers for a variety of things. Rather than only rewarding customers when they make a purchase, provide even more value by rewarding them as they take specific actions, such as the ones we discussed for the standard points program.
Make Points Valuable
Retain more customers by making the points in your loyalty program valuable. Is the dollar amount that customers need to spend worth the amount of points they accrue? Merchants may think so, but some customers may not. Create value with these points, so customers are actually excited to follow the rules.
It’s important to note that there’s no use in “setting and forgetting it” here. After buying a customer loyalty software and connecting it to your website, you must cultivate it and put the effort into optimizing your loyalty program. There’s always something that can be done better, so be on the lookout for ways to improve the program and the overall customer experience.
Structure Non-Monetary Rewards Around Customers’ Values
In addition to allowing customers to cash points in for discounts, don’t forget to offer non-monetary rewards that align with your customers’ values. For example, give customers in the VIP tier a behind-the-scenes look into certain content, like videos, or early access into sales and deals. It doesn’t cost the company anything to make their customers feel valued! Small steps like this make customers feel appreciated and part of a larger community, which helps customers establish an emotional connection with a brand because they’re given access to something that not everyone has.
Provide Multiple Opportunities For Customers To Enroll
Businesses need to promote their loyalty programs and ensure that customers are properly engaging with it. We recommend promoting it using a banner on your homepage or through social media. Take it a step further and integrate your ESP to personalize the customer experience even further.
For instance, customer information, like the number of points accumulated, will integrate directly with your ESP and allow customers to see their points balance directly in the email. This eliminates the need for customers to sign into their accounts to check their points balance. Leveraging this functionality is a great opportunity for eCommerce brands to personalize how they reach out to their customers.
Make It A Game
Points and VIP programs are generally gamified as it is. Create anticipation among customers so that they’ll come back to purchase (and actually be excited about it). Simple examples of this include sending an email that lets customers know that they only need to earn X amount of points until they can redeem a discount or reminding them that they are only a few days away from their birthday reward. Using gamification helps to build the anticipation and keep customers eager to return.
Starbucks is another great example of a company that uses gamification. When customers make a purchase at Starbucks, they earn “stars” that can be redeemed for rewards like free food, drinks and more. The coffee giant uses gamification by showing customers a progress bar that shows how close they are to earning a free beverage or menu item.
Ensuring Seamless Checkout
Don’t Insult Your Customers
The point at which a willing buyer is prepared to give a willing seller money is a beautiful moment in the world of eCommerce. After experiencing the thrill of the hunt and the satisfaction of discovery, a customer gets that jolt of joy from purchasing the product they want.
That’s mostly what shopping is about for the customer, right? That satisfying sensation is a key part of creating a memorable customer experience. It’s what turns shoppers into fans and what keeps a brand’s fans coming back.
Too often, however, the joy is short-lived, and the fun of finding the perfect something turns to bewilderment and frustration. The order confirmation never comes. Or a cryptic email arrives explaining that there has been a complication and suggesting the customer contact customer support. Don’t be this kind of company. Communicate with your customers in real time, and be honest 100 percent of the time.
Fear Leads To Friction
Generally, the culprit is fear — a fear that the transaction is fraudulent or that the shopper is somehow trying to take advantage of a retailer. Understandably, merchants don’t want to ship products to fraudsters or conduct business with buyers who will later falsely claim that their order never arrived or that the product that did arrive was not satisfactory.
At times, retailers will give into fear and erect barriers between themselves and legitimate customers whose valid orders raise red flags. The problems tend to arise when merchants rely on outdated rules-based fraud detection systems or manual order review teams that don’t have the time or the tools to properly assess the orders they receive.
Though this has always been a problem in the eCommerce space, it has especially been an issue during the pandemic. Signifyd’s Ecommerce Pulse data shows online sales increased year over year by an average of nearly 50% across all verticals and merchant sizes.
Of course, every order incorrectly declined for fear of fraud means that a sale a retailer should have made wasn’t realized. But that one lost sale is only the beginning of the financial devastation turning away good customers wreaks.
Losing A Sale Could Mean Losing a Customer
It’s hard to imagine a worse customer experience than being a legitimate customer who places a valid eCommerce order only to have it declined by a merchant for reasons that are a mystery to the customer.
A survey conducted for Signifyd by market researcher Upwave shows that more than 57% of consumers said having a retailer decline their order for no apparent reason was reason enough to never shop with that retailer again. Nearly 53% of respondents said they would allow no more than one bad online experience before leaving a retailer for good. It’s hard to imagine an online experience worse than not getting an order a customer was ready and willing to pay for.
It almost goes without saying that any bad customer experience has a ripple effect in the era of social media. It can be hard to quantify, but it is also hard to deny that a customer who feels insulted or wronged is more than likely to share those feelings on social media, causing damage to a merchant’s brand.
And so it turns out a merchant who wrongly declines an online order doesn’t just lose that one sale. They quite likely lose the lifetime value of the customer who was disappointed. And what is that value? Obviously, it varies widely by retailer, vertical and the products the retailer sells. Nevertheless, that value quantifies a significant loss of dollars.
Explore The Buying Journey To Find The Friction
Finding where your prospects, leads and customers experience friction relates back to the customer lifecycle that we discussed earlier. To put it simply, let’s refer to a model that Signifyd created based on a loyal shopper at a well-known apparel brand. The model considers the size of their shopping cart as well as shopping frequency. If that shopper has a 30-year purchasing window from that retailer, and their order is falsely declined 10 years in, that retailer stands to lose $15,360 — on that one disappointed shopper.
Here’s what you can do to protect your business and avoid insulting truthful customers and losing profitable lifetime value: take a hard look at where in the buyer’s journey your company is turning away orders.
Consider the percentage of orders you decline and benchmark that against your peers. Analyze your fraud and risk practice. Have you adopted the thinking that the goal of fraud management is to optimize revenue by increasing the number of approved orders
Are your fraud tools up-to-date? Do you have automation in place that will allow you to rapidly review orders when orders spike? Have you explored fraud protection providers that will not only give you a ship-or-don’t-ship decision on orders, but also guarantee those decisions in the event a fraudulent order is approved?
Have you done the math to determine whether your biggest threat is not fraudulent orders that you approve, but legitimate orders that you decline?
Plenty has changed in the past year for eCommerce merchants, but the basics still apply. And there is nothing more basic than ensuring your customers have a wonderful buying experience — the kind of experience that will bring them back for more.
The Importance of Metrics
At the end of the day, there is always room for improvement. Customer success is still relatively new, with many companies lacking a dedicated customer success team. Though customer support is common among businesses, prioritizing customers and their needs really helps differentiate brands from the competition.
There are a few key metrics that we feel are important and apply to a breadth of eCommerce businesses. The first is customer churn, or the number or percentage of customers that stopped using your company’s product or service after a certain period of time. Though this is a key metric for many SaaS companies, it really applies to all industries. Once you determine the customer churn rate, do some digging to figure out what leads to churn. Then, change your strategy to decrease this metric.
Net Promoter Score
Another great thing that we encourage businesses to do is conduct a net promoter survey to measure net promoter score. This involves asking customers one simple question: How likely are you to refer a friend or family member to [company]? With 1 being the least likely and 10 being the most likely, sales teams can get a quick look into their overall performance.
Remember how we previously discussed responding to bad news immediately? Connect your Slack channel (or the platform that your team uses for internal communication) to the new promoter survey so that you are notified the second that a customer submits a bad net promoter score. This enables your team to provide assistance as quickly as possible and get in touch with the customer if they’re experiencing an issue.
Customer Lifetime Value
Most businesses know what the average order value of their store is. Take it a step further and measure customer lifetime value — a metric that measures the total revenue a business can expect to generate from an individual customer account. Calculate a customer’s average purchase value and the average number of orders they’ve placed to determine customer lifetime value. If a customer’s lifetime value is below your company’s average order value, reassess your eCommerce strategy to align better with customers' needs.
There are a ton of metrics for eCommerce businesses to track. Some may be more relevant to certain industries or businesses than others, and that’s normal. All in all, we hope this guide has provided you with actionable strategies and recommendations to drive customer loyalty and retention throughout the entire buyer lifecycle.
Have any questions or want to learn more about how Groove Commerce can help? Get in touch with our team to learn more about how we partner with eCommerce businesses to drive growth. Or, browse our website and marketing services.
About Groove Commerce
Groove Commerce is a full-service eCommerce agency with 14 years of experience helping mid-market retailers design, build and grow their eCommerce websites. As an Elite BigCommerce Partner Agency and Diamond HubSpot Partner Agency, Groove Commerce follows an inbound methodology and delivers bespoke, white-glove service to convert visitors into repeat customers.
Headquartered in Canada, Smile.io is the world’s largest reward program provider. With over 50,000 active reward programs, 100 million+ participating members and 100+ partner agencies, Smile.io provides customer loyalty programs to businesses worldwide. From Points, VIP and Referral programs to integrations with BigCommerce, Shopify and more, Smile.io is a driving force behind customer loyalty and retention.
Headquartered in California, Signifyd is an eCommerce fraud protection platform that comprises 3 distinct services for companies: revenue protection, abuse prevention and payment compliance. Relying on big data, machine learning and domain expertise, Signifyd now protects the largest network of merchants globally — with a 100 percent financial guarantee on any approved order that later turned out to be fraudulent.