How to measure customer loyalty in e-commerce
- Detailed guide
The e-commerce landscape is booming. Barriers to entry are getting lower and competition is getting more fierce. It’s never been so important to retain existing customers. In order to retain customers you need to understand your customers. In this article we’ll explain the how and why to measure your customer loyalty in detail but first, some background information.
But while smaller brands may feel like they can’t even make a dent compared to these retail giants, a positive change is looming.
Whether you know it or not, 53% of your store’s revenue is coming from just 20% of your customers. It also costs five times less to retain this top 20% than it does to acquire a new shopper who could easily shop with you once and never return again.
It’s time to shift your attention and start focussing on keeping the customers you already have more seriously. In this article, we look at some quick wins you can implement to retain your active and engaged customer base for the long-term.
Building emotional bonds
To set yourself apart, and keep your customers returning, you need to look at new ways to differentiate beyond just price and logistics. Whatever you do in these areas, bigger stores will always be able to do one better. As a result, you’ll be stuck in a race to the bottom for little gain.
Where retail giants fall short, however, is crafting a narrative their customers can relate to and align their personal values with. A loyalty program gives you the opportunity to communicate your brand story.
A loyalty program gives you the opportunity to communicate your brand story.
100% Pure, for example, use their welcome emails to show new members that their brand is focussed on creating natural goods. This shows that they have a shared passion with their customers. As a result, these shoppers will think fondly of the brand meaning they’ll be more likely to return and buy again when they’re looking for their next beauty purchase.
Create an experience
All too often, customers buy from brands on a one-off basis. The site falls to the back of their mind as their interest is captured by another store or a tempting offer. To keep your brand at the forefront of your customers’ minds, make your store an experience these customers will want to engage with time and time again.
TheCHIVE have gamified their blog so customers receive loyalty points in exchange for sharing photos, scoring others or sharing on social media. By creating a social shopping experience and evoking friendly competition between their customers, they have created an experienced individual will seek to engage with time and again.
You could also incorporate tiers within your loyalty program. Tiers make your customers feel part of an exclusive club and give them something to aspire to.
When they know they can unlock more points or better rewards by completing more activities or spending more, they’ll be more likely to return to your store and interact sooner.
Use your existing customers as advocates
Show your happiest customers that you value their custom by rewarding them for referring friends to your store.
With customers being four times more likely to complete a purchase when referred by a friend, nurturing your existing customers into brand advocates is a sure way to attract new shoppers more cost-effectively.
To encourage this kind of behavior, make your loyal customers feel extra special by adding them to exclusive VIP tiers. This will make them feel part of a community and they’ll be more likely to share your brand with others. Particularly, as you’ll be giving them exclusive rewards that are worth shouting about.
For example, Annemarie Skin Care make customer advocacy the center of their loyalty program. The “Honest. Wild. Beautiful. Tribe.” not only rewards members for purchases but also for writing reviews and referring their friends. They also have an “Insider” VIP tier that allows shoppers to unlock more experiential rewards such as a first look at new products, access to an exclusive Facebook community, and surprise gifts.
As a result, Annemarie Skin Care has created an active and engaged community of faithful shoppers who are excited to share their experience with others. This strategy has proven to be cost-effective too. On the whole, the members of their loyalty program spend 140% more than non-members.
Measure if you are retaining customers.
According to Experian, nearly a fifth of companies have no tracking in place to measure the success of their retention strategies – that includes their loyalty program. This is a risky business. By failing to monitor the progress of your program you’ll be missing out on key performance indicators and opportunities to optimize and drive greater success. To measure the impact of your retention strategies, you need to start by looking at three key metrics:
- Repeat purchase rate
- Average order value
- Customer lifetime value
Repeat purchase rate
Your repeat purchase rate clarifies the chances of your customers coming back multiple times after their first purchase.
To calculate your repeat purchase rate, use the following calculation:
This increases every time the same customer makes a new purchase. It’s important to note that the likelihood of a customer making a second purchase is close to 30% and after they make a second, the chances of third jumps over 50%.
They already know and trust your brand so are happy to shop with you again and sooner.
By using tools like Conversific, you can view simple charts like the one above. You can clearly see your new customers vs recurring customers and figure out the percentage of repeat customer revenue.
Average order value (AOV)
AOV tells you how much, on average, your customers are spending every transaction. Loyalty programs can be used to increase your AOV from existing customers, which is a cheaper strategy than beavering away at acquiring new ones.
Turns out, the average basket size of a customer that uses a loyalty reward in a purchase is 39% higher than the basket size of a customer that doesn’t – showing the importance of monitoring and improving on this key metric. Try calculating your average order value by dividing your overall revenue by the total number of orders placed.
Customer lifetime value (CLV)
75% of senior executives say that CLV is an extremely important indicator of success, but only 42% of them admit to not regularly calculating it.
CLV helps you calculate how much a customer is worth to your business. It’s made up of AOV, the frequency of purchases and customer lifetime. All three of these metrics are proven to be positively impacted by a loyalty program. It’s calculated like this:
CLV may only be a prediction, but it’s also a great indicator of your most valuable shoppers – this allows you to prioritize where you’re spending your time and marketing resources.
In Conversific, the customer dashboard highlights your most loyal customers and gives you important data such as the number of products ordered and lifetime spend. You can also use this data across your loyalty programs and VIP offers.
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How to measure customer loyalty?
Once you’re happy with the above metrics, you can get to work optimizing your site and marketing strategy to improve them. Google Analytics is a great place to start as you can really drill down into the numbers. Here are some key parameters that you can begin with:
- Time lag
- Path length
- Assisted conversions
- Top conversion pathsTime lag
A time lag report helps you analyze a visitor’s conversion path by looking at how your different channels interact along a customers’ journey.
This allows you to see and analyze the clicks and behavior someone exhibits on your site so you can optimize it for conversion.
The path length of a customer is also important when understanding how many times a customer visits your site before making a purchase. It will also show you how often your most profitable customers view your site.
You could even use your loyalty program to edge more customers into this category by rewarding points for a certain amount of site visits.
Assisted conversions refer to the number of times a channel appeared on a conversion path but was not the final conversion interaction. By looking at how channels interact with one another – and which relationships perform the best – you’ll be able to target your marketing efforts on the best campaigns that guarantee the best results.
Top conversion paths
Reviewing your top conversion paths report is a great way of identifying your most popular paths and how many times customers interact with each channel before converting to your site – and can even include the value of each conversion.
Seeing this overview helps you understand user behavior so you can better tailor your retargeting campaigns.
Make the most of the opportunity
It’s a challenging time to be an e-commerce retailer. But it’s also a time full of opportunity. To differentiate from the competition, you need to find the balance between acquiring new customers and taking the time to maintain relationships with your existing and engaged customer base. This will help you retain them long-term.