KEY INSIGHTS. The Loyalty Factor. How to turn one-time visitors into loyal lifetime customers

Transcription

1 KEY INSIGHTS The Loyalty Factor How to turn one-time visitors into loyal lifetime customers

2 Table of Contents Overview and Key Takeaways 3 1. The 4 Success Factors of Online Shops 4 2. The Theory: Loyalty is the Best Investment 5 3. The Reality: Marketing Budgets Are Not Optimized for Retention 6 4. The Opportunity: Apps Are a Powerful Retention Tool 8 5. The Numbers: Apps Provide the Best Results The Social Proof: Successful ecommerce Companies Use Apps to Retain The Caveat: Smart, Consistent App Marketing Is Essential to Success 13 Conclusion 14 The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 2

3 Overview Marketers have always known that existing customers are more valuable than new customers. Nevertheless, decision makers in ecommerce rarely place enough emphasis, proper budget allocations, or the needed attention on retention efforts. This whitepaper examines customer engagement in ecommerce from the mobile perspective, revealing hidden potential for increasing customer value and improving marketing ROI. Key Takeaways The four key factors that determine an online store s revenue are: traffic, conversion rates, shopping cart size, and retention rates. Successful ecommerce companies incorporate all four factors into their strategy, but many merchants don t take into account the massive revenue multiplier that comes with increased customer loyalty. We re creatures of habit, both online and off. So the goal of every ecommerce retailer should be to accustom users to shopping with them, making repeat purchases a habit, and transform one-time visitors into loyal customers. Returning customers are the most profitable customer segment because they re more likely than new customers to complete a sale it s that simple. As the industry stands, a large majority of ecommerce retailers marketing budgets are focused on new customer acquisition, with an economically disproportionate amount aimed at retention. Retailers should also have a dedicated customer retention budget. Apps are the most powerful tool for driving customer retention on mobile. Compared to mobile web, apps deliver 2x higher customer retention rates, 3x higher conversion rates and 39% higher average order values. For a successful app in the long-term, merchants need to develop and maintain a smart, comprehensive app marketing strategy, complete with a push notification strategy and app exclusive promotions. The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 3

4 INSIGHT 1 The 4 Success Factors of Online Shops The success of your online store ultimately boils down to answering one question: how can I increase repeat purchases? There are four factors that determine this: 1. Site traffic How many people are visiting your site in the first place? 2. Conversion rate Of those visitors, how many actually complete a purchase? 3. Shopping cart size What is the average order value (AOV)? 4. Retention Do those customers ever return for a follow-up purchase? Sales = ( Traffic x Conversion rate x Shopping cart size ) x Retention So many marketers spend time, energy, and investments on the first three factors elements that are undeniably vital to any online retailer but fail on the fourth. The most successful online retail giants of the world, however, have mastered the art of loyalty. Retailers like Gilt and Amazon have realized customer loyalty is the silver bullet when it comes to gaining an edge over competitors. Gaining the business of customers who will return to buy two, three, ten, or twenty times exponentially increases the ROI of the initial acquisition investment, and creates a class of customers more valuable than any others as shopping with you becomes a reflexive habit. The importance of habit cannot be overstated here. We re creatures of habit, through and through. In his bestselling book, "Thinking, Fast and Slow", Nobel Laureate Daniel Kahneman explores just how much of our decision making comes from the force of habit. Everyday life is characterized deeply by intuition by the routines we create for ourselves. These routines work for us because they save us time and energy. If we move forward with a decision we ve already made and decided we re happy with, we save ourselves from having to make it again. Decisions we must make over and over again where to get a haircut, where to buy groceries, where to meet up with friends are simply easier if we ve made them part of our habitual process. We continue doing things a certain way, making certain choices, going certain places, because it s the most obvious solution, and because it s easy, convenient, and we intuitively trust that the thing we know is the best option. The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 4

5 Ok, so what does all this have to do with online shopping? Well, those habits we ve forged apply to both our offline lives and our online decision making. So the goal of every online store should be to become part of their customers buying habits, eliminating the need for them to make a decision on where to buy the products they want, and shifting the question to when and what they ll buy from you. A merchant who can establish themselves as the go-to buying option for their customers is far more likely to succeed in the long-term, and have a stronger justification for the initial high costs of acquiring these customers. At the heart of this habitual buying pattern lies the accessibility factor, and the most powerful way to provide an accessible path to purchase on mobile is through apps. Throughout this report, we ll detail the reasons apps are such an essential tool for customer retention, and how every merchant can build a mobile strategy including apps to forge long-term relationships with their most loyal customers. INSIGHT 2 The Theory: Loyalty is the Best Investment Looking at an online shop s visitors, you can divide users into 4 segments. 1. Visitor: No purchase made 2. Monetizer: One order, no subsequent purchases 3. Return buyer: Two or more orders 4. Regular customer: Regular orders 1. VISITOR 2. MONETIZER 3. RETURN BUYER 4. REGULAR CUSTOMER While constantly seeking out new customers, many online marketers forget their most valuable customers their regular customers. But why are they so much more profitable than new customers? The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 5

6 NEW CUSTOMERS ARE MORE EXPENSIVE THAN RETURNING CUSTOMERS. On average, it costs 7 times more to win a new customer than to keep an existing one. 1 New customer costs Existing customer costs REGULAR CUSTOMERS BUY MORE THAN NEW ONES. You d need to acquire 7 first-time buyers to match the sales volume of a regular customer. 2 First-time buyer x 7 $ $ $ $ $ $ $ Regular customer $$$$$$$ INVESTING IN CUSTOMER LOYALTY IS MORE PROFITABLE THAN INVESTING IN ACQUISITION. Increasing your customer retention rate by just 5% can increase profits by 25 95%. 3 Retention Rate 5%+ Profits 25 95%+ Although these relationships aren t new, they re still valid vital, even especially in ecommerce. Despite the fact that many mobile marketers are aware of these stats, they re not often reflected in their budgets and decisions. INSIGHT 3 The Reality: Marketing Budgets Are Not Optimized for Retention For every 100 visitors to an online store, just two actually make a purchase on average. 4 Still, about 78% of the retail industry s digital marketing budget is spent on acquiring exactly this kind of traffic. It s a classic scenario of merchants favoring quantity over quality a scenario that s costing retailers a massive amount of money for a minimal return. As marketing platforms like Google and Facebook become more effective, more retailers flock to them, driving up costs per click and making competition stiffer. Because of the high proportion of budget spent on acquisition, there s often little left for re-engaging with existing customers, even though they are proven to be the most lucrative user segment. The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 6

7 WHILE REPEAT CUSTOMERS MAKE UP JUST 8% OF SITE TRAFFIC, ON AVERAGE, 40% OF SALES CAN BE ATTRIBUTED TO THEM. 5 Site Traffic RETAINED CUSTOMERS 8% Sales 40% Budgets are typically allocated according to the number of visitors attained with each dollar, but this method does not properly correspond to the division of actual sales being completed. On the contrary, the high discounts and low-margin offers provided to first-time buyers can actually hurt the relationships you have with existing customers, while capturing one-time visitors for only a moment, leaving loyal users in the lurch. From a business perspective, this is an unsustainable practice. The real winners in the ecommerce game emerge as those who have invested in their existing customers, cultivating meaningful relationships and expanding their base share. Amazon is an outstanding example of this practice. Since its inception, the company has focused heavily on customer satisfaction, yielding excellent customer loyalty and ensuring sustainable growth from the start. 20 years later, it s clear this method has paid off. If existing customers are so much more valuable and less expensive why don t marketers allocate their budgets accordingly? There are 3 main reasons for this: 1. NEW SHOPS HAVE TO FOCUS ON ACQUISITION In this situation, a retailer clearly needs to focus on acquisition, because there are no existing customers to build relationships with. Investing in traffic as the first step makes sense here, but once a solid foundation has been laid, a shift in strategy and budget is in order to bolster loyalty. 2. NEWLY ACQUIRED CUSTOMERS ARE MORE VISIBLE Customer acquisition costs (CAC) are easy to calculate, and deliver a relatively fast turnaround time. Because of this, these investment decisions are easy to defend, and demonstrate decent success measures internally. The short-term results of the CAC can be formulated very simply: Through the investment of $X, we saw Y new visitors and earned $Z additional revenue, during period A. On top of the fact that only the last click can be taken into account when measuring CAC, rather than each touchpoint within the customer journey, the most effective acquisition channel isn t the one with the lowest costs or fastest turnover it s the one that ultimately provides the highest customer lifetime value. While it may take longer to develop and maintain these relationships, they prove to be far more valuable in the long run. The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 7

8 3. RETAILERS DON T KNOW THE BEST WAY TO BUILD A RETENTION STRATEGY The methods for re-engaging existing customers aren t fully established just yet, so while savvy retailers know how loyalty works, most are still determining the best ways to scale it and track it. However, a shifting focus to improved ROI in acquisition makes it clear that the highest priority for retailers and marketers should be placed on existing customers. MARKETING TIP: ANALYTICS SHOULD BE YOUR FOUNDATION 1. Analyze your customers! This may seem obvious, but we ve talked to so many retailers who simply haven t taken the time to fully explore the behaviors of their customer base. How many of your online visitors have purchased several times in the past year, and how many have made just a single purchase? Do you have this data? Check out the order cycles in different time periods and identify trends and strategize using them. 2. Evaluate how much of your marketing budget has gone toward new customer acquisition, as opposed to re-engaging existing customers. Now, compare these numbers with your sales metrics. Does the proportion of marketing dollars spent on new customers line up with the sales volume those users have contributed? Most likely, the answer is no. INSIGHT 4 The Opportunity: Apps Are a Powerful Retention Tool When we re talking customer loyalty in ecommerce, there are few comprehensive solutions. For the most part, loyalty can be divided into two channels: passive/pull and active/push methods. Passive methods of customer loyalty focus on the existence and appeal of a shop, relying on a customer to be motivated enough to return to the shop on their own. The idea here is that by providing a great product offering or service, with simple order processing, fast delivery, and instant gratification-type promotions like daily deals or special offers, retailers can position themselves as an attractive enough buying option for customers to return to naturally. Active loyalty solutions, on the other hand, leverage a direct approach with the customer through targeted invitations to shop again. In traditional marketing strategies, the prominent vehicle for this method is marketing, followed by remarketing to re-engage existing customers. The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 8

9 Social media platforms also fall into this category, with networks like Facebook, Twitter, Snapchat, and Youtube used to draw users back in with offers from stores they ve shopped before. It's important to activate both passive and active strategies to maximize retention rates. Mobile apps are the most comprehensive way to retain customers and communicate with them in a meaningful, effective way, to truly become part of their habitual decision making process. There are 3 reasons for this: 1. SMARTPHONES ARE A UNIVERSAL ADDICTION Smartphones are, unquestionably, the most important devices in our lives. Users typically open their smartphones times per day, often more. There s no mystery surrounding the fact that smartphones have infiltrated our very existence, and become one of the most prominent habits of humans across the globe. Whether on our commute, in the waiting room, sitting in a restaurant, or even when spending time with loved ones, our smartphones are an essential appendage, thanks to the force of habit. For this reason alone, your brand s presence within the app store is worth the investment. There s simply no comparison to the consistent brand awareness and prominent screen space a mobile app affords you. Your app s existence on a customer s smartphone increases visibility and reduces the likelihood of them buying from the competition. 2. PUSH NOTIFICATIONS THE MOST DIRECT COMMUNICATION CHANNEL Push messages are a direct, personalized customer loyalty tool that allow targeted communication with app users, increasing app usage by up to 300%. Segmented messages, along with relevant discount campaigns or exclusive offerings, prove particularly effective to driving tangible increases in sales. Compared to traditional marketing, the engagement rate for push notifications is significantly higher. Two out of every three users who download an app opt in for push messages, a rate marketing can t hope to touch. 9

10 3. CONTENT MARKETING INCREASES THE LENGTH OF TIME SPENT IN THE SHOPPING APP Naturally, the active time spent within an app is much higher than mobile web, as apps are used to browse through product offerings, rather than providing a just passing through experience that might come from a mobile web search. With content marketing, you can increase this effect even more. Add color to your app with lookbooks, virtual wardrobes, blogs, themes, and daily deals to encourage exploration and repeat engagement. THE WRAP-UP Apps are the most efficient channel in ecommerce when it comes to capturing your shop s visitors. ecommerce managers and marketers should establish a clear goal: to get as many first-time buyers, no matter which acquisition channel they come from, to download their app. INSIGHT 5 The Numbers: Apps Provide the Best Results Customer loyalty and apps are unquestionably connected in ecommerce. Many online retailers question whether they need an app at all, especially if they already have a mobile optimized site. If they take the time to evaluate the unique value of each channel, however, it s obvious that both play an important part in a comprehensive mobile strategy. The mobile website is a reliable tool for new customer acquisition, while the app is a powerful tool for customer retention. A website s aim is to generate as many new customers as possible from a mass of visitors, and intercept those who search for products and services. Apps, on the other hand, aim to increase the rate of recurring customers, increasing the revenue per customer, making marketing investments more profitable. Mobile websites are the short-term solution, while apps provide a long-term opportunity for profitability. In it's "State of Mobile Commerce" study, Criteo, a stock market-driven performance marketing company, found app users are more active than web visitors, and provide better results at every stage of the purchase process. 6 Apps produce higher customer loyalty: customer loyalty in apps is twice as strong as on mobile websites. App users return to shops twice as often within 30 days. Apps mean sales: they re more efficient than any other channel when it comes to successful checkout rates. App conversion rates are 3x higher than mobile web conversion rates. Apps yield larger shopping carts: 39% higher than mobile web. The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 10

11 A cohort analysis of all fashion retailers using the Shopgate mobile commerce platform further solidifies these findings. This Google Analytics evaluation, which any online retailer can perform easily, compares repeat visitors on both mobile web and app channels. We looked into how many customers returned to a shop after visiting for the first time in August over a 10-week period. MOBILE WEB Week 0 Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 New Users 20,670,655 Users % 4.37% 2.11% 1.54% 1.25% 1.01% 0.87% 0.76% 0.68% 0.63% 0.58% WEEK 10.58% ,573,847 Users ,679,462 Users ,666,842 Users ,749,463 Users ,804,008 Users ,771,171 Users ,821,091 Users ,744,120 Users ,556,795 Users ,695,916 Users ,827,721 Users ,780,219 Users % 4.57% 2.32% 1.70% 1.49% 1.18% 1.03% 0.90% 0.73% 0.70% 0.71% % 4.46% 2.25% 1.76% 1.39% 1.15% 0.97% 0.79% 0.76% 0.75% 0.68% % 4.49% 2.32% 1.69% 1.36% 1.11% 0.85% 0.80% 0.80% 0.75% 0.34% % 4.43% 2.20% 1.63% 1.28% 0.94% 0.88% 0.82% 0.75% 0.36% % 4.59% 2.26% 1.64% 1.19% 1.06% 0.96% 0.85% 0.40% % 4.56% 2.25% 1.48% 1.24% 1.06% 0.92% 0.42% % 4.59% 2.08% 1.51% 1.28% 1.05% 0.49% % 4.24% 2.04% 1.54% 1.29% 0.56% % 4.15% 2.10% 1.54% 0.67% % 4.40% 2.17% 0.88% % 4.75% 1.29% % 3.21% x10 IPHONE-APPS Week 0 Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 New Users 380,913 Users % 24.55% 16.10% 12.96% 11.04% 9.48% 8.31% 7.66% 6.95% 6.38% 5.91% % 24.55% 16.00% 13.24% 12.78% 10.60% 9.09% 8.61% 7.44% 6.88% 6.44% 31,423 Users WEEK % ,563 Users ,101 Users ,732 Users ,267 Users ,580 Users ,647 Users ,333 Users ,492 Users ,836 Users ,803 Users ,136 Users % 25.53% 16.93% 15.49% 12.59% 10.72% 9.68% 8.05% 7.50% 6.79% 7.05% % 27.21% 20.28% 15.40% 12.89% 11.45% 9.40% 8.60% 8.12% 8.28% 4.12% % 28.84% 18.66% 14.27% 12.52% 9.93% 8.98% 8.35% 8.43% 4.06% % 26.19% 16.93% 13.75% 10.32% 9.35% 8.14% 8.16% 4.13% % 25.63% 16.53% 12.51% 10.59% 9.17% 8.74% 4.35% % 24.40% 14.51% 11.52% 9.85% 9.31% 4.49% % 22.39% 14.78% 11.94% 10.89% 5.34% % 22.43% 15.03% 12.89% 6.44% % 24.55% 19.91% 7.90% % 24.52% 9.80% % 16.48% DEFINITIONS: COHORT ANALYSIS The term cohort comes from sociology and refers to a group of people who share a common characteristic that differentiates them from another group. This common trait might be a characteristic of the group, e.g. age or location, or refer to a time period during which the analysis has been performed. The cohort analysis we performed in Google Analytics sorted users based on behaviors, the channel they used (mobile app versus mobile website,) over a specified time period. The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 11

12 The results? After 10 weeks, ios app customers returned to the app 10 times more than mobile web shoppers. These results are exactly the reason so many successful ecommerce retailers pursue apps as an element of their mobile strategy. Major merchants like Amazon feature their apps very prominently on their mobile sites to encourage users to download them directly. These savvy retailers know, every order placed on a mobile site that doesn t lead a customer to install an app is a long-term loss of potential revenue. PRACTICE TIP Test out a cohort analysis in your Google Analytics account. How many of your mobile web customers come back to your shop during the week? A month? A year? INSIGHT 6 The Social Proof: Successful ecommerce Companies Use Apps to Retain In 2016, mobile commerce reached a tipping point. For the first time, the leading 25% of US mobile retailers saw over 50% of their sales from mobile. 6 The concept of mobile first will be replaced with an app first mindset as the trend continues, and it s all thanks to the loyalty factor. Whether an international super-retailer or a small, specialty merchant, smart retailers consistently rely on customer loyalty to propel their brands into the next phase of success. Amazon Amazon Prime is a vital element of Amazon s loyalty and mobile strategies. With the Amazon Prime Music or Amazon Video App, the brand solidifies its multi-app strategy and acquires additional home screen space on the mobile devices of established customers. Additionally, the up-selling potential of having multiple branded apps amplifies the mobile impact of the brand overall. 12

13 Gilt Anyone who visits Gilt s mobile site will find the online fashion retailer s app to be very prominently promoted, with a smart banner that encourages app download, and subsequently, app launch. The objective here is clear: the app delivers longer browsing sessions, higher average order volume, and better conversion rates, making every user more valuable. KicksUSA KicksUSA is an urban footwear and apparel retailer with a comprehensive mobile commerce offering for their fiercely loyal customer base. With brands like Nike, Jordan, adidas, and more, they often host exclusive releases of highly sought after sneakers, and use smart mobile strategies to drive engagement and loyalty in the process. During some special releases, products are only available in the app, or separate quantities are offered for app users exclusively. Additionally, every item inside the brand s brick-and-mortar stores is connected to their app s barcode scanner, allowing customers to order a size or color that may not be immediately available, right to their doorstep. With more than 130K downloads so far, and a 75% increase in conversion rates using push campaigns, KicksUSA s smart use of their app has proven to be a powerful tool in their retention strategy. INSIGHT 7 The Caveat: Smart, Consistent App Marketing Is Essential to Success Of course, an app is only as successful as the number of customers who actually use it. Marketing your app is absolutely essential, but it can be a challenge for merchants, as it s essentially a brand new sales channel. The most common starting question is who should be installing my app? It s simple, really: the same customers who already shop with you. The mobile even desktop users who know your The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 13

14 shop and have purchased from you before are the prime audience for app marketing targeting. There are myriad ways for promoting organic and paid downloads, and for increasing the frequency of use once an app is downloaded. Below is a list of many app marketing solutions we recommend. We won t go into detail about each of them, but we encourage you to look deeper into the methods that apply to your business model, and craft an original app marketing strategy that helps your app reach its full potential. Organic Channels Smart Banners App Store Optimization Website Spotlight Search Google App Indexing /Newsletter Social Media QR Codes Ad-Scanner In-store Promotional Materials Package Inserts Paid Channels Web Visitor Retargeting Facebook App Install Ads Google Universal App Campaigns App Store Ads Snapchat Ads Youtube Ads Instagram Ads Twitter Ads TV Advertising Print Ads Affiliate Marketing Conclusion Smart, modern e-retailers looking to master mobile must take into account the four sales factors that help make or break their business: traffic, conversion, AOV, and retention, and determine the investments necessary for each aspect. In the customer loyalty arena, hidden possibilities for optimization are abundant, all with massive potential to increase long-term profitability. It s important retailers take advantage of these opportunities, and secure themselves as part of the daily shopping habits of their customers. Using tried and true marketing principles, paired with forward-thinking app strategies, retailers can effectively capture their mobile visitors, and turn them into loyal, lifetime app customers. The Loyalty Factor: How to turn one-time visitors into loyal lifetime customers 14

15 About Shopgate Shopgate is the leader in mobile commerce. Our award-winning SaaS platform enables stores to integrate with existing ecommerce platforms to build best-in-class mobile experiences that garner increased customer loyalty through native apps and mobile sites for ios and Android. Request a demo Request a demo of our platform for an inside look at how we can build your brand s mobile value. Visit our website at 1. Hubspot, "Take Your Online Store From Average to Elite with Retention Marketing" 2. Adobe Digital Index report, "The ROI from Marketing to Existing Online" 3. Invesp CRO, "Customer Acquisition Retention" 4. INTERNETWORLD Business, "How Traders Make Breakers Buyers" 5. Adobe Digital Index reports 6. CRITEO 2016 State of Mobile Commerce Report