Retail Strategy
June 30, 2021

Want to Build Brand Loyalty? Focus on Quality Over Quantity

News that U.S. retail e-commerce sales were up 44.5% in Q2 of 2020 compared to the previous year signaled the extent to which new customers have flocked online since the pandemic. While that’s great news in otherwise challenging times, attracting new customers is only the first step to a successful return to “the new normal.”

Retail Strategy
May 13, 2021

Want to Build Brand Loyalty? Focus on Quality Over Quantity

News that U.S. retail e-commerce sales were up 44.5% in Q2 of 2020 compared to the previous year signaled the extent to which new customers have flocked online since the pandemic. While that’s great news in otherwise challenging times, attracting new customers is only the first step to a successful return to “the new normal.”

Customer acquisition alone does not guarantee growth or even survival. The key is to develop meaningful relationships with existing customers and empower them to become advocates. Here’s why smart retailers are focusing on building brand loyalty and aiming for quality customers over quantity of customers. 

The Changing Value of a Customer

While any sale is a competitive triumph, transactions with new customers are the most expensive ones any business will make. Factor in lead generation and it costs five times as much to acquire a new customer as to retain an existing one. Yet too many e-commerce retailers remain fixed on reaching out to cold audiences, dedicating around 80% of their budget to acquisition. Here’s why that’s unsustainable.

There’s a Hole in the Bucket

The average business loses 50% of its customers every five years through churn, according to the Harvard Business Review. Feeding new customers into the funnel in increasing numbers won’t necessarily balance the bottom line, given that the average new customer has just a 10% likelihood of returning to a brand after one purchase. 

Instead of finding fresh replacements for lapsed new customers, there is a solution: Invest in turning first-time buyers into returning visitors. 

Successful Businesses Run on Returning Customers 

Amazing things happen when new customers return. For a start, 60% to 70% will make a second purchase, and more than half will go on to refer other customers to the store. And each referral is a powerful sales tool. A study by Bain & Company concluded that word of mouth is the “single most effective and economical way online retailers grow their sites.” Numerous studies have pointed to the growing distrust consumers have for online ads and the faith they put instead in referrals from friends or family members. So how does an e-commerce business turn customers into brand advocates? It comes down to loyalty.

The Key to Building Brand Loyalty? Make it Less About You

The bigger a business grows, the greater the tendency to focus advertising spend on the brand story, mission statement, values and company position. But it’s equally important to put the customer at the center of your brand. In fashion retail, two in five customers claim no loyalty to any particular brand, according to research by Ello Media. So-called brand-obsessed customers are something of a myth, and retailers need to shift from brand-centric to customer-centric strategy to change this.

What Customer-First Looks Like

  • Rethink personalization, accepting that traditional customer segments do not deliver an engaging user experience. The current system is broken, and it’s turning customers away.
  • Look beyond basic demographics to understand customer behavior. It’s not who is buying that matters so much as why they buy. 
  • Champion the emotional context in the buyer journey. Two customers may have wildly different perceptions of the same product attribute, such as color, shape or pattern. Building a complete psychographic profile of each customer’s behavior and perceptions allows for meaningful experiences.

Despite the apparent apathy of consumers toward fashion brands, the evidence suggests that applying these principles can quickly turn customers into brand evangelists. A third of customers in the same Ello Media survey revealed they would be more loyal to a brand if they received tangible value for their loyalty, such as exclusive previews or discounts. To that end, 22% of customers are prepared to share data in return for a more personalized experience.

How to Increase Brand Loyalty

There’s a good reason why digital and streaming services make up the bulk of the top 10 Brand Keys index for 2020. They typically offer hyper-personalized digital experiences with a granular level of understanding about customer behavior. Retailers can emulate that success by using smart data with a purpose to resonate with customers on a deeper, more intuitive level.  

Nurturing Loyalty

  • Offer a connected, consistent experience across all touchpoints. Top brick-and-mortar sales assistants learn to recognize and reward loyal customers, so online stores must match that relationship-building experience. 
  • Engage, don’t broadcast. Customers don’t just want to know what a store offers; they need to know why you’re great to do business with. Traditionally, that meant reaching out through surveys, polls and giveaways, but there are better ways to accumulate behavioral data that offers greater insight, such as using deep product data to draw pertinent behavioral insights that indicate how you can re-engage the customer later.
  • Build communities. Engagement with social media platforms and their advertising isn’t always reliable, with Facebook use down to an average of 37 minutes a day in the U.S. in 2019, and engagement for sponsored posts dropping below 0.37%. It ebbs and flows. So, brands should build loyalty through their owned channels, offering bespoke conversations, games, challenges and tutorials to build a community.

How Lily AI Creates the Experience That Builds Loyalty

Delivering a more complex digital experience that can satisfy the demands of tomorrow’s retail customers requires a greater ambition than many platforms today provide. Why settle for standard personalization and a one-size-fits-all catalog of data when you have the potential to leverage enriched product data with over 15,000 tagged attributes and the largest proprietary training data set in the world? We’re empowering the personalized shopping experience, and putting emotional context and psychographic profiles at the heart of brand loyalty. 

Ultimately, that translates into ROI too. According to the book Leading on the Edge of Chaos, reducing the customer defection rate by just 5% can increase profitability by 25%. In other words, there is no such thing as taking too much care of your existing customers.