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Why Do E-commerce Brands Need Retention Marketing?

Lindsay Tjepkema
Lindsay Tjepkema , Marketing Director, Americas , Emarsys

In the old school days of marketing for e-commerce brands, the motto was the same for decades: more ads, more customers, more sales. E-commerce retailers focused their efforts solely on the old school marketing strategies surrounding customer acquisition. Social media made a splash in the early half of this decade making it easier than ever to connect with customers and understand their wants and needs. More recently, though, behavioral data has revolutionized the e-commerce marketing space.

We now have access to mountains of data that can help make a more tailored and personalized marketing strategy and customer experience. But in each of these revolutionary trends, the main focus has always been on acquisition. Well, now there is a new school in town and it is the hot e-commerce marketing trend of 2016: retention marketing.

What Is Retention Marketing?

Retention marketing aims to create engaged customers that return to a store or a website again and again. It’s a major shift in focus that recognizes the value of marketing to your existing customer base rather than constantly trying to grow it. After all, you’ve already spent significant hours (and dollars) attracting them in the first place, and don’t forget that it costs nearly seven times more to attract new customers than it does to retain existing ones.

This shift in focus also puts a heavier emphasis on the profitability of the pre-existing client base. In fact, a study done by the Harvard Business School shows that increasing customer retention rates by only 5% can increase profits by up to 95%. Another study done by the Gartner Group shows that 80% of a company’s future revenue will come from just 20% of existing customers.

While this new strategy has proven itself to be extremely beneficial, it should never be the sole focus of a brand’s marketing power. A brilliantly executed retention marketing strategy is one that works in tandem with the pre-existing traditional and digital acquisition marketing strategies.

Adopting a retention marketing strategy is not as tall a task as you may think. For instance, you’ve probably already done much of the heavy lifting. Most businesses have mountains of behavioral data from existing customers that can be turned into big revenue by enlisting the help of retention automation.

Why Should E-commerce Marketers Adopt Retention Marketing?

E-commerce retailers have won big by adopting customer retention plans. Take the example of online shoe retailer JustFab. The chart below, taken from David Skok’s For Entrepreneurs blog, showcases just how well JustFab’s adoption of a customer retention focus and strategy has performed.chart

Let’s take a closer look: Between 2012 and 2014, JustFab’s advertising budget remained constant while their revenue and gross profit doubled year after year. How? JustFab’s retention marketing model gets their customers back to their site an average of 30 times per year.

Re-engagement is the key to executing a lucrative retention marketing strategy. JustFab also enlists a loyalty program/membership model to further strengthen customer relationships and re-engagement opportunities. Strong customer relationships create loyal customers.

In addition to purchasing more, loyal customers also frequently refer new customers to a retailer, providing another source of profitability. Referrals are extremely beneficial in the e-commerce retail space, with that impact being amplified by the heightened use of social media channels. The Harvard Business School coined the phrase “word of mouse” as the reach of social media is much larger than that of traditional word of mouth.

In Conclusion

With the increased focus on the need for more personalized customer experiences brought on with the surge of behavioral data and social media marketing, marketers have a pre-existing base in which they can build a solid retention marketing strategy. Marketers should turn their focus to creating more engaged customers in order to reap the rewards.