3 Ways Online Retailers can Increase Customer Lifetime Value
In a traditional e-commerce business, transaction-based metrics are often considered key, as they help you optimize your marketing funnel and ensure conversion for the lowest acquisition cost.
However, many of the most successful retail brands today are moving beyond competing on price, and instead, focus on competing on customer experience. By shifting the battleground, well-known brands such as Warby Parker, Zappos and Bonobos, are setting up more sustainable business models for themselves, as they reduce the pressure on margins and minimize the risk of a newcomer undercutting them.
For retail brands such as these, traditional e-commerce metrics can be damaging, as they focus on short-term sugar hits provided by optimizing acquisition costs, at the expense of nurturing long-term relationships with repeat customers. And when you factor in the fact that acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one, focusing on the wrong metrics starts to look pretty costly.
I would argue that online retailers who compete on customer experience should take a leaf from subscription-based businesses such as Netflix and Spotify. Rather than transactional metrics such as conversion or traffic, companies such as these tend to focus on Customer Lifetime Value – the net profit attributed to the entire relationship with a customer. If the focus of your organization is built around nurturing a sustainable, long-term relationship with your customers, you are ultimately positioning your brand for sustainable, long-term growth.
With that in mind, here are three tactics online retailers can employ to increase Customer Lifetime Value.
- Use data and psychological principles to cross-sell and upsell
Done poorly, cross-sell and upsell can be enormously damaging to LTV, as customers will feel like they are having unwanted junk forced on them by an aggressive – and maybe even unethical – business. But there is a science to upsell and cross-sell that can be employed to deliver better outcomes for your customer, and actually increase LTV in the process.
Consider perhaps the benchmark of e-commerce upsell and cross-sell – Amazon – which invariably offers related products at the checkout. This is known as “compound value” – where, if you understand users’ motivations and needs, suggesting certain complementary products can actually add value to the customer’s experience and keep them coming back for more. Conversion covers 8 Psychological Principles to Increase Your Upsells and Cross-Sells on their blog, which includes this great insight from Len Markidan of help desk software company Groove:
“Upselling isn’t just a sales tactic; it’s a customer happiness tactic that can help you build deeper relationships with customers by delivering more value.”
- Nurture your valuable omnichannel customers
If you are an online retailer that also operates physical stores, you probably know who your most valuable customers are online, and you may know who your most valuable customers are in store. But chances are, the more channels a customer shops in, the more valuable they are. According to an article in the Harvard Business Review:
“A retailer’s omnichannel customers are more valuable on multiple counts. After controlling for shopping experience, they spent an average of 4% more on every shopping occasion in the store and 10% more online than single-channel customers.”
One way to nurture relationships with these valuable customers is to create moments of unexpected delight. On a tactical level, this may include initiatives such as free samples so your customers can try out the rest of your inventory, personalized discount offers, or even handwritten thank you notes. Or on a strategic level, it is critical to integrate all customer touch points across stores, online, mobile, and so on, to give your service staff the insights they need to ensure that all customer interactions are personalized and relevant.
- Support customer service with visual collaboration
The promise of the internet was that retailers could simultaneously scale their shop floors, while reducing costs on rent and staff. But sometimes, there is no substitute for human to human interaction. Currently, an increasing number of luxury retailers are offering live chat, and/or a visible customer contact center online. But to be at the bleeding edge of customer service, there’s a better way.
Visual collaboration with co-browsing (which you can try out for free in a matter of moments here) is a tool that enables your staff to assist your customers in-app or on your website. Among other things, co-browsing enables your staff to share your customer’s browser in real time, to talk them through a product, while chatting on Skype-like video chat and highlighting points of interest on the screen. In a certain sense, this mimics the in-store experience online. This highly personal interaction can provide a number of benefits for customer experience-focused brand:
- It can enable your staff to rescue at-risk customers during points of uncertainty in the customer journey, thus increasing average LTV.
- As a direct and real-time touchpoint with your customers, it can give you the chance to be immediately alerted to any issues with your website or app, and receive qualitative feedback to improve your store.
- It can add a personal touch, particularly to high transaction value purchases – giving you the opportunity to reward your most valuable customers with thank you coupons or other rewards.These are some fairly basic use cases that can potentially add a great deal of value to the customer experience. But beyond this, there are still more intriguing possibilities.
Targeted emails recommending products based on past purchases and browsing histories are one example. Retailers can take these emails one step further and offer live co-browsing sessions directly from a person’s inbox to help customers efficiently complete an online purchase.
Where to next
A number of retailers have experimented with subscription-based business models, with mixed success. But I firmly believe a focus on LTV and investment in tactics such as those listed above will help experience-focused brands thrive even as the Retail Apocalypse hits its peak.
Do you have any other suggestions for cutting-edge tactics?
P.S. Do you think co-browsing is essential for taking your e-commerce business to the next level? Get started with a 14 day trial for Free.Try Surfly now