In an era when ‘customer lifetime value’ is one of the most important measurements of retail success, these tactics will help build loyalty.
NEW YORK, United States — Audrey McLoghlin built women’s shirting label Frank & Eileen, a profitable, more-than-$25 million-a-year business, by not only focusing on finding new customers, but also convincing them to come back again and again.
Instead of blitzing Instagram with ads or hiring a PR firm, she relied on wholesale partners to get shoppers’ attention and put her money toward following up with them on email and social media. It worked: eight out of every 10 shoppers who buy a button up, t-shirt dress or another item from the Frank & Eileen website will return to buy something else.
It’s harder than ever to hold onto customers, who can shop online with any brand at any time. Many start-ups bet they’ll recoup the cost of marketing on Instagram or Google when the shoppers those ads attract return on their own accord. In many cases, that gamble hasn’t paid off. At the same time, nationwide chains like Gap and Macy’s are struggling to hold onto formerly loyal customers. They increasingly resort to promotions to bring back fickle shoppers.
“The foundation of how we grow the business is around this loyal customer.”
Loyalty involves more than creating an attractive product or providing a seamless checkout experience. Customers need to feel like they have a relationship with a brand that isn’t just transactional. That means creating a personalised experience. It also means investing in loyalty programmes and creating a community.
“The foundation of how we grow the business is around this loyal customer,” McLoghlin said. “We’re always thinking about how to develop everything around this very specific woman who has a high lifetime value with us.”
One common measurement of loyalty is lifetime value, or the estimated amount a customer will spend with a company throughout their lifespan. Brands spend a lot of money acquiring customers online. The goal is typically to ensure that the customer ends up spending three times as much on product as it cost to get them to buy something in the first place, said Matthew Tingler, managing director at investment bank Baird.
Overestimating lifetime value is a common trap, particularly for new brands. An overly rosy view of customer loyalty can be used to justify high spending on marketing at the expense of profits.
Brands can also track repeat purchase rates — the percentage of customers who come back to a brand after their initial order. A rate of around 50 percent or higher is “great,” said Ari Bloom, an e-commerce entrepreneur.
“What loyalty does is engage with your top customers in ways that should make them happy and satisfied…they are your most valuable asset.”
A brand without loyal customers will quickly be overtaken by rivals or be forced to plough ever-greater amounts of cash into advertising. But when done right, good customer retention ensures a steady stream of revenue that keeps profit margins high.
“What loyalty does is engage with your top customers in ways that should make them happy and satisfied…they are your most valuable assets,” said Oliver Chen, an analyst at Cowen & Co. “[A loyalty strategy] helps you identify those that come in and out and if you understand why, you can gain market share.”
Fewer, But Better, Customers
As finding new customers grows more expensive, some brands are investing more in the shoppers they already have.
Saks Fifth Avenue and Neiman Marcus are honing their customer service, betting that the best way to boost profit margins is to get their most prolific shoppers to spend more money. Frank & Eileen invites customers to its showroom in Los Angeles — an elaborate space built to resemble an Irish country house — and sends them home with sweet treats. Shoppers who visit the brand in person always end up buying more, McLoghlin said.
Retailers also use customer data to improve the chances of that customer coming back. A brand might track shoppers’ online activity and customise emails to their taste. That same information can be sent to salespeople, who can offer personalised service when that customer walks into a store.
“I love a good concierge service…to show up and have your concierge waiting for with an espresso and the size of your clothing, and the pieces you’re looking for and a few that you weren’t,” said Jeremy Bergstein, chief executive of The Science Project, a creative retail agency. “That makes you feel truly luxurious.”
Argent, a direct-to-consumer workwear label, has figured out a unique way to increase its shoppers’ overall lifetime value by offering to send them a box of items in their size, free of charge, along with a return label. Customers can try on the pieces at home, keep what they want and send back the rest. Under the consignment, Argent’s average order value tends to be $300 higher than conventional transactions, which hover around $600. (Sending top customers product to try before they buy is common at high-touch high-end boutiques, but has not been adopted en masse.) The tactic has helped to increase the brand’s average order value.
For online-only retailers, winning customer loyalty may be as simple as quickly replying to their emails, or making it easier to reach employees by phone or online chat. Companies must be wary of privacy concerns, however. Too much personalisation can come off as creepy.
Building the Perfect Loyalty Programme
According to a 2017 Forrester survey, 56 percent of consumers say they seek loyalty programmes of the brands they like and 60 percent say loyalty programmes influence where they make purchases.
Loyalty programmes encourage customers to shop more with a brand. They are also a stealth way to offer discounts without having to mark down products on the rack or via a brand-diluting online sale.
With 25 million members, Sephora’s Beauty Insider is one of the most successful loyalty programmes in retail. Users receive points for every dollar they spend, which can earn them free samples, experiences and cash.
Everyone receives a sample on their birthday, a small giveaway that convinces people to sign up and stay active, said Allegra Stanley, vice president, general manager of loyalty at Sephora.
Some rewards are designed to build an emotional bond between the customer and the store, including free classes, early access to product launches and meeting with brand founders. For top spenders, Sephora even offers travel packages, such as a recent Smashbox-sponsored trip to Los Angeles that includes a professional makeover and dinner for two at Catch, an upscale seafood eatery frequented by celebrities.
“We’re striving for a transactional and emotional balance.”
Sephora also introduced a tiered system. Customers who spend at least $350 a year enter the VIB programme, and those who spend $1,000 or more make up the Rouge programme. These higher-tiered members get more points for every dollar spent and have access to benefits like free shipping and early access to products.
“We’re striving for a transactional and emotional balance, and the latter drives over 70 percent of repeat purchases,” Stanley said.
Create an Online Community
Sephora’s Beauty Insider Community, an online forum launched in 2017, allows users to ask and answer questions, solicit recommendations and share tips. The “100 Days of Lipstick Challenge” thread has nearly 27,000 replies.
Instagram has been key for direct-to-consumer brands like Glossier and Reformation to build their fan bases. For online slippers brand Birdies, the posts that garner the most interaction sometimes have nothing to do with products, said co-founder Marisa Sharkey. For example, the brand shared a book list based on what employees were reading. Followers ended up sharing their own recommendations.
“Even if it’s not necessarily going to drive a purchase tomorrow, it’s important for us to really keep them engaged with the brand, and recommendations work especially well,” Sharkey said.
Getting face time with customers is always important. Argent participates in conferences, such as the Watermark Conference for Women and the Professional Businesswomen of California Conference. A pop-up shop at the Watermark Conference in 2016 resulted in more than $25,000 in sales in one day, according to Argent founder and Chief Executive Sali Christeson.
Write the Perfect Emails
The most powerful resource a brand has is often its collection of existing customers’ email addresses, but content and timing are critical to a successful email campaign. For smaller labels with lean in-house teams, it’s a good idea to work with a third-party data analytics and automation platform to handle personalised email outreach. Birdies, for instance, works with a company called Retention Science to categorise their existing shoppers by different behaviours.
“Some people may have already repurchased while others are close to repurchasing because they’ve been interacting with our site frequently, and we’re able to use that data to segment them and send out 10 different emails based on what stage they’re in,” said Sharkey.
Argent, which has a repeat purchase rate of 44 percent, tests multiple subject lines, lengths and send times. It’s found that one email per week works best, typically sent between Tuesday and Thursday in the late afternoon to catch customers toward the end of their work day.
As for the content of these emails, Christeson said simple, singular-focused messaging works best. She highlighted two emails, one that featured multiple photos of real women in Argent’s clothes, and another with just a few images zooming in on the inside pockets of a jacket, a key design feature for the line. The latter was more effective because it was easier to understand.
Argent has also seen its conversions change based on the different models and photographers it features on the website. Even lighting and colour choice can have an impact on sales. For instance, while they’ve played with colourful backgrounds on the product pages, they’ve found that blank backgrounds increased conversion.
Be Creative and Focus on the Product
There is no one-size-fits-all playbook for customer retention. Ultimately, the key to creating loyalty must be trusted, according to McLoghlin, and allowing the product to speak for itself.
“The reason why customer acquisition costs so much money is because you’re going after a customer that doesn’t trust you yet,” she said. “But when you allow her to discover your product and experience it in her own unique way, that trust can be built organically.”