CASE STUDY: Customer retention is necessary for e-Commerce success
Today, I want break down a complete customer retention strategy by a hugely successful eCommerce store: e.l.f. Cosmetics.
But first, I want to explore what makes customers loyal in the first place. Why do some brands enjoy repeat purchases, and others don’t?
If you want to skip straight to the e.l.f. customer retention strategy breakdown, use the navigation below. Otherwise – let’s get started!
Customer Retention Factors
The cornerstone of a successful retention strategy is the customer.
Customers want great products at value. They want to have excellent customer service and convenience. Increasingly, they want a personalized shopping experience.
The challenge for e-Commerce stores is adapting fast enough to meet customer expectations.
Oftentimes, adapting new technology is a necessary step.
Below, we quickly cover the basic success factors of a customer retention strategy. We include specific customer retention statistics to establish relative importance of each factor.
Why Product Value Is a Necessary Condition for Customer Retention
Product value is the primary driver for customer retention.
If a customer is dissatisfied with their purchase, they are unlikely to come back. But even beyond that simple statement, it turns out product value creates loyalty.
- 64% – Of customers identify value for money as an important factor in brand loyalty.
- 50% – Agree that if a brand offers the best quality products and services they will purchase again.
While the “how-to” of sourcing and creating great products is beyond the scope of this article, nothing else here will work without you getting it right.
Personalized Customer Experiences Are Increasingly Necessary
Customers don’t want to look through countless uninteresting items.
They want personal offers – relevant to them in this moment. They want products they care about.
Today, e-Commerce stores can create personalized product recommendations, leverage dynamic content, and even tailor specific rewards down to the individual.
- 54% – Want brands to personalize loyalty rewards based off of past purchases.
- 44% – Indicate that they will purchase again after a personalized shopping experience.
- 71% – Of Shoppers experience frustration when their shopping experience is not personalized.
“Winning and retaining customers in the digital era requires a mix of personalisation, relevance, exclusivity, and engagement across all the different channels. “ – Deloitte Consumer Review
A Few Customer Retention Statistics
During research for this article, I came across an in-depth review on customer loyalty programs by Deloitte.
I found the results of their study telling.
It’s obvious that customer retention and loyalty depend on more than just financial incentives.
It is part brand. It is part experience. Above all, it is a big dose of relationship through consistent communication, influenced by understanding who the customer is.
Honestly, it is difficult to talk about it without a detailed case study. Which is why I chose to break down a company whose business model depends on loyal customers, repeat business, and customer retention: e.l.f. Cosmetics.
How e.l.f. Cosmetics Creates Loyalty with Customer Retention Strategies
I want to illustrate a developed customer retention strategy by breaking down e.l.f. Cosmetics.
e.l.f. Cosmetics generated over 265MM last year. Their core offerings are trend-inspired products across “eyes, lips, and face and tools…”.
Modeled after fast-fashion brands, e.l.f. creates value by creating trend products at significantly lower prices. However, this type of strategy demands high customer retention to work.
How e.l.f. Manages After-Sale Customer Service
Mistakes will happen.
Successful e-Commerce stores address mistakes head-on, and use customer service as an opportunity to maximize future sales.
As the study above showed, 41% say directly that having great customer service is necessary for brand loyalty.
Leveraging Transactional Emails to Generate Referrals
Double sided referrals have become industry standard.
e.l.f. takes advantage of timing to maximize their standard referral bonuses.
Understanding that recent purchases are a key leading indicator for future purchases, they embed their referral incentive in the very first transactional email they send.
In e.l.f.’s case, they are incentivizing joining their loyalty program, “Beauty Squad”, not a single transaction.
They also create various types of incentives. You get $5 off. You get free shipping. 50 points are added to your account – ANDY you get the option for a free full size item.
This layering of incentives is a common theme in e.l.f.’s customer retention strategy.
Overcoming Bad Experiences with Pre-Emption, Apology, Free Shipping, and Free Moneys
How do you handle late shipping times?
e.l.f. recognizes when a shipment is delayed. And they don’t pull any punches in their response.
Here is a screenshot of the email they send out.
Notice how they take a bad experience and use it to ensure a repeat purchase.
They apologize. They recognize me as a first-time customer, and stand by the value they create in generally on-time deliveries.
And then, they incentivize a repeat purchase with both a $10 coupon code AND free shipping.
All of this is done without complaint from the customer. Instead, it is triggered when there is a delay in shipping.
This is key.
Customer’s don’t always voice their displeasure. Taking initiative is key to customer retention.
Creating a Tiered Loyalty Program that Rewards Lifetime Value, not Transactions.
Loyalty programs should focus on lifetime value, and hedge against rewarding transactional behavior.
e.l.f.’s loyalty program is a fantastic example. It uses a number a tactics, including:
- Status Symbols – Each tier is labled, and given various status rewards
- More Than Points– Second, e.l.f. creates a variety of reward types to maximize customer retention – from early access to sales free beauty sets, and full sized products.
- Tiers – The program is split into three separate tiers which reward long-time customers and give new customers something to work towards.
- Life Time Value Focused – Lastly, each reward tier makes it easier and more beneficial to make repeat purchases. While less loyal customers are only rewarded 2 points per dollar, top-tier members are rewards 3x as much.
Sparking Repeat Purchases with Scarcity & Dramatic Discounts
Scarcity is a popular tactic since Cialdini brought it everyone’s attention.
I see a lot of e-Commerce stores using scarcity in the form of expiring offers to urge customers to buy. However, it is rare that this tactic is paired with dramatic enough offers to inspire action.
e.l.f. doesn’t hold any punches.
It offers a giant 50% off.
And, with such a compelling offer, they are able to impose a $30 hurdle to help manage costs.
Of course, they also wait until the last minute to tell clients about it to maximize effectiveness.
Generating Demand With Scheduled Offers & Free Gifts
Price discounts are not the only tactic e.l.f. employs.
Every month, they give customers a chance to earn a new free gift. These gifts help protect margins, preserve customer’s perception of value, and perhaps most importantly, exposes them to new product categories.
I love how e.l.f. communicates to their audience, validating them while simultaneously celebrating the benefit of the offer.
Leveraging Loyalty Programs to Spur Repeat Purchases
Managing lifeime value with high rewards is a key ability in e.l.f.’s customer retention program.
This is one of my favorite examples.
Instead of diluting their offer to make the numbers work, they add a few hurdles.
First, the customer has to have over 100 points to unlock the reward.
Second, they need to order again. And third, the order must be $10 or more to use it.
This approach aligns the customer’s objective with e.l.f.’s.
To successfully build your own customer retention strategy, you need to focus on three things.
- High Value Products– Customers will not come back if your product fails to deliver on its promise.
- Personalized Customer Experience – Customers expect seamless, personal shopping experiences that lead them to the right purchase.
- Relevant, Inspiring Offers – Many customers require outreach and nurturing relationships to get them to come back