The holiday season is a profitable time for retailers, with billions of dollars spent by hundreds of millions of shoppers. The influx of first-time shoppers during the holidays presents an incredible opportunity for retailers to turn these shoppers into returning customers.
In this 2019 Holiday Shopping Guide, we discuss consumer purchasing benchmarks, personalized marketing, customer experience, and more. It also features an accompanying infographic that highlights the most critical statistics on these topics.
Continuing reading to learn how you can turn holiday shopping magic into year-round success.
Part 1: First-Time Holiday Shoppers Offer Huge Business Potential
With the holiday shopping season in full-swing, retailers are gearing up for their most wonderful time of the year (at least in terms of sales numbers). Shoppers are flocking to stores and websites looking for deals on everything under the sun, particularly during Black Friday weekend (which encompasses Thanksgiving day, Black Friday, Small Business Saturday, and Cyber Monday).
The major draw for holiday shoppers during this time is financial savings, with nearly every retailer running sales or other incentivized purchasing campaigns at some point during this two-month stretch. While many of these campaigns are likely to reach the mailboxes and inboxes of existing customers (ideally with a personalized touch to drive engagement), if marketing has done its due diligence and subsequently pushed the right buttons, these campaigns will also draw in first-time shoppers. For clarity, we are defining first-time shoppers as consumers who are making their first-ever purchase with a business, either in-store or online.
Busy holiday season brings big results
As all retailers know, the goal is to convert as many of these first-time shoppers into repeat customers as possible, which is why customer retention and brand loyalty are hugely important business focus areas. Converting first-time shoppers presents a real opportunity for retailers to grow their customer base and generate sales. And during this time of year, the volume of shoppers and the money they spend on their purchases are at their year-long highest levels.
How high, you ask? Let's use the 2018 holiday shopping season as a point of reference. The National Retail Federation (NRF) reported that retail sales in the United States topped $701 billion during that time period last year (which it categorizes as Nov. 1 through Dec. 31), with $146.5 billion (21%) of that coming from online/non-store purchases. The NRF also reports that 165 million Americans shopped in-store or online during just the Black Friday weekend period in 2018 and spent an average of $313.
(Note: the above image features statistics from the 2019 Black Friday weekend, as well as a projection of total 2019 retail holiday sales.)
While no exact data is available on what number of those 2018 Black Friday weekend purchasers were first-time shoppers, lets theoretically put this number at a fairly conservative 1%. If this were the case, that would equate to over $510 million in just that that five-day period. While this is an impressive number, as previously noted, the goal is to convert these first-time shoppers into returning customers that continue to generate revenue for the brand.
Returning customers have been proven to spend more per purchase than first-time shoppers. And when it comes to online shopping, return customers account for one-third of all online shopping revenue despite making up only 15% of all online shoppers. So while reaching potential new customers is critical for retail success, devoting resources into retaining them is equally as, if not more, important. Consumers have a huge variety of purchasing options today, which makes customer retention far more more than just a buzz-phrase.
Part 2: Increasing Customer Retention in Retail: The Why and How
As we noted in Part 1, the ultimate goal of retailers is to turn as many first-time shoppers into returning customers as possible to increase sales. But is this truly the best use of time and resources? Or is it actually better for retailers to focus their efforts on customer acquisition? Let’s take a look.
Stats showing increasing customer retention in retail pays off
By definition, a returning customer cannot be classified as such if they didn’t make a purchase with a business previously. This alone seems to indicate that the focus should be on customer acquisition rather than increasing customer retention in retail, right? This is certainly an oversimplification of things, but this simplified approach may be the one currently winning out among today’s retailers.
A recent study by CommerceNext found that 81% of e-commerce marketers (a mix of retail and direct-to-consumer) surveyed classified “acquisition marketing” as a top investment priority at their company, while only 43% placed “retention and loyalty marketing” in this same category. But statistics show that returning customers spend nearly three-times more than one-time shoppers and that it costs five-times less to retain a customer than to acquire a new one.
But what does this all mean for retailers, exactly? Well, it means that many of them are likely over-allocating resources into customer acquisition and under-allocating resources into customer retention, the combined result being a shortcoming in both ROI and profitability. Given today’s volatile retail climate, a way for retailers to potentially cut costs while increasing both short- and long-term sales definitely warrants attention.
Three tips for increasing customer retention in the retail sector
To circle back to the question of which is better, acquisition or retention, the extremely anticlimactic conclusion is that both are important customer journey areas for retailers to focus on. It’s very clear, though, that many retailers need to create a healthier balance between the two areas in their overarching customer journey strategies.
Moreover, simply shifting this balance more to the center won’t guarantee increased sales without a solid strategy in place to reach and connect with shoppers. Unfortunately, there’s no one-size-fits-all method for increasing customer retention in retail, as factors such as target audience and industry vary from business-to-business. There are, however, a number of best practices retailers can follow to ensure their customer retention efforts aren’t being done in vain. Here are a few that we feel are the most critical to focus on when solidifying a customer retention strategy.
1. Send timely, personalized follow-up communications
Being proactive and staying on the mind of new customers is critical when trying to generate repeat business with them, particularly because 50% of repeat shoppers will make a second purchase with a company within 16 days of their initial one. Sending a timely post-purchase thank you email with a personalized touch helps demonstrate that their business matters, as do additional follow-ups alerting them to any upcoming sales or special offers. During this time of the year, it could be as simple as wishing them a happy holiday season.
2. Maintain a customer loyalty/rewards program, and offer incentives
Customer loyalty and rewards programs are an extremely effective way to turn first-time shoppers into lifelong ones. A Forrester study found that retail customers in a loyalty program spent $42.33 more on average than shoppers not in a program. Interestingly, that same Forrester report found that only 40% of consumers who were part of a loyalty program belonged to one offered by a retailers, so retailers must make sure to provide rewards and incentives that truly make customers feel appreciated.
3. Prioritize positive customer experiences across all channels
Across all industries (not just retail), organizations have embraced customer experience management as the preferred method to drive sales and grow their customer bases.
But a truly customer-centric business approach requires that every facet of an organization – marketing, sales, customer service and support, etc. – operate with the customer at the center of the universe, so to speak. Retailers must also ensure their customers are having positive experiences across all of their business channels (in-store, online, on social media, etc.) as shopping preferences continue to shift. This is a challenge no doubt, but one that’s absolutely worth investing resource into.
According to a report from PWC, 17% of all American shoppers will stop doing business with a company or brand after just one bad experience. Given that the same report found that 54% of American shoppers believe customer experience at the companies they do business with needs improvement, the message is clear: provide a positive experience or risk losing customers permanently.
The bottom line
Converting first-time shoppers into loyal customers is a sound time and resource investment for retailers that can both cut costs and increase sales profits, and more retailers should prioritize customer retention in their customer journey efforts. There’s no universal method retailers can use to increase customer retention, but they can up their chances of successfully retaining shoppers by using customer data to identify consumer habits and preferences and engage the right buyer with the right messaging at the right time.
Part 3: Using customer data to improve customer retention efforts
Now that we've detailed the importance of customer retention, let's delve into what may be the single most critical item needed to maximize retention efforts today: customer data. Let's take a look at the important role customer data plays in customer retention.
Create personalized customer experiences using customer data
Today's shoppers interact with brands across more channels than ever before, and with these interactions comes heaps of valuable, actionable data that can be used to better understand customers -- regardless of whether or not they've even made a purchase. Data is the backbone of any organization looking to succeed in today's ultra-competitive business landscape, and customer data is an invaluable piece of the puzzle.
Using customer data, retailers can uncover insights into a variety of customer behavior areas (such as shopping and purchasing habits) that allow them to make more informed business decisions such as what products are marketed to a particular customer and how. This allows retailers to engage with customers on a much more personal level and provide things like product recommendations or promotions based on previous interactions.
Personalized interactions create lasting connections with customers, and these are connections that they want. Research by Accenture found that 91% of consumers are more likely to shop with brands that recognize them, remember them, and provide them with relevant offers and recommendations. This means that any outreach used to support customer retention efforts must include personalized messaging to be impactful. And without information on past customer-business interactions to reference back to, truly personalized messages wouldn’t be possible.
Companies aren't using customer data to its potential – and missing out on profits
Given the overwhelmingly positive sentiment around personalization, it’s safe to say that companies not using customer data to carry out personalized marketing campaigns as part of their customer retention efforts are putting themselves at a serious disadvantage. The issue is that research indicates that the majority of companies are, in fact, putting themselves at said disadvantage.
A report from Harvard Business Review found that only 42% of surveyed business leaders believed their companies were using customer data to provide personalized customer experiences. This disconnect between consumer and company is quite concerning, especially considering companies are losing out on potential profits because of it. Research from Boston Consulting Group found a direct correlation between the level of personalization retail customers experienced, the number of items they purchased, and the average order value of those purchases.
In other words: better personalization leads to greater profits. Retailers who don't prioritize personalization risk losing potential returning customers to their competitors, and, as we discussed in part two of this series, returning customers spend nearly three-times more than brand new ones.
Customer data is at the heart of customer retention
Customers desire personalized interactions with the companies they shop with and prefer to do repeat business with the ones that can provide them. This personal touch demonstrates that their business is valuable and provides them with a positive customer experience, which is a huge factor when it comes time for their next purchase. And the only way to truly understand today's consumers and provide them with the level of personalization they desire is via customer data analysis.
As noted, many companies struggle to turn their customer data into actionable intel, or simply struggle managing the heaps of data they have. Salesforce research found that the average number of customer data sources has increased in the last three years, and there's no sign of this trend slowing down as brands strive to be visible in all areas of consumers' lives. Retailers can either choose embrace the flood of customer data or succumb to it like many businesses have in recent years.
1. National Retail Federation 2.Salesforce
3. Customer Communications Group 4. Yotpo
5. Accenture 6. Harvard Business Review