Posted onNovember 23, 2016
Executive Summary: Online retailers disproportionately invest marketing dollars in acquiring new business at the expense of strategies designed to retain existing customers. At a time when 70% of internet users are already buying online and smartphone owners comparison shop across sites at will, earning customer loyalty has become a critical success factor for web retailers.
To many retailers a customer retention strategy equates to a loyalty program that offers monetary rewards. Retail marketers like these rewards programs because consumers follow a predictable and measurable path to repeat purchases. Yet there are signs that consumers are disillusioned by the similarity of these programs among retailers and their lack of compelling benefits. Of even greater concern, rewards programs produce transitory loyalty that is indefensible against rivals that offer bigger rewards.
To build deeper connections with customers, smart retailers think of loyalty not as a program but as a corporate strategy. They put themselves in their customers’ shoes and then serve those customers with passion. These brands create customers with emotional loyalty who will act as brand advocates, spend more, pay premium prices and go out of their way to buy from the brand even when other retailers and products are readily available.
Online retailers have unique opportunities to earn emotional loyalty by mitigating the pain points of ecommerce and capitalizing on the strengths of digital commerce to deliver exceptional shopping convenience and personalization.
Customer Loyalty as a Strategic Imperative
The growth and maturation of the digital shopping landscape means there is a shrinking pool of new shoppers for online marketers to target. This makes existing customers more important and gaining their loyalty a critical business need.
eMarketer’s forecast of US digital shoppers and buyers reflects ecommerce’s maturity. This year, 73% of US internet users, or 156.1 million individuals, will make a purchase online or via mobile, eMarketer predicts. By 2016, the share of digital buyers will increase by only 4 percentage points to 77%, a sign that most of the sales generated by online retailers will come from existing digital buyers, not new ones.
The lower importance of customer retention initiatives is evident from marketers’ budgets. A February 2012 survey by Acxiom and Loyalty 360 of 129 US marketing executives from across a spectrum of industries found that 60% of businesses dedicated 20% or less of their marketing budget to customer retention strategies, and 39% spent less than 10% on customer retention.
In a tough economy, marketers rely on advertising media designed to attract new shoppers—for example, search and display advertising, which produce immediate and measurable results. Marketers are less willing to invest in marketing techniques that aim to retain customers, such as retargeting, email remarketing and social marketing, said Adobe Systems in a Q2 2012 analysis of the return on investment from marketing to existing online customers.
As a result, retailers have struggled to build customer loyalty. The 2012 Brand Keys Loyalty Leaders List showed retailers losing ground to other brand types. It ranked just two retailers (Amazon.com and Zappos.com) in the list’s top 10 and just 11 retail names among the top 100 brands, with many falling lower in the rankings than in 2011. “We believe that the inability for retailers to provide meaningful differentiation— beyond low-lower-lowest pricing
strategies—has seriously eroded loyalty levels in the retail category,” said Robert Passikoff, president of Brand Keys, in announcing the results of the 16th year of tracking loyalty leaders.