Importance of Customer Loyalty in E-Commerce
The concept can be broken down quite simply - whoever has something to sell online needs customers to buy it. How the seller accomplishes this is a bit more complicated. Competing for the long term in the online marketplace requires a loyal customer base that a business can rely on. Of course, new customer acquisition is also a part of the business, but the efforts to bring in new customers is becoming more and more expensive, and the number of potential new customers does not necessarily increase over time. That is why customer loyalty in e-commerce is just as important as it is in-store.
New Customer Acquisition Cost
New customer acquisition is one of the main reasons a business needs a strategy to bring in and retain customers over the long term. A key indicator is to determine the Customer Acquisition Cost (CAC), which is the best approximation of the total cost of acquiring a new customer. It could generally include advertising, salaries, outside sales commissions, banking and processing fees divided by the number of customers acquired. * A good CAC varies by industry and tactics. But a good way to benchmark your CAC is by comparing it to Customer Lifetime Value (or LTV). LTV is a measurement of how valuable a customer is to your business, not just on a purchase-by-purchase basis but across the whole relationship. It is said that an ideal LTV to CAC ratio is 3:1. **
*sources: www.intercom.com 2019, www.demandjump.com (US) and www.corporatefinanceinstitute.com (CA) and www.qualtrics.com 2020
Profitable Existing Customers
According to Adobe's Digital Index, it shows that on average five to seven first-time customers (with no prior purchases) must be acquired to achieve the sales volume of an existing customer (with more than one prior purchase). This can also be seen in the relationship between the number of purchases and visits: In the U.S., approximately 40% of online sales come from repeat and existing customers (with previously one order) though these only represent 8% of visits. The sales revenue from existing customers increases during the Christmas holiday season and even more during economically trying times.
Valuable Customer Loyalty
Taking this into consideration, a focus on customer loyalty in e-commerce is not only valuable, but necessary. Certain factors, such as increased competition and access to competitive offers found through comparison sites, make it even more important to have a loyal customer base. The path to achieving this begins with new customers becoming regular customers and continues with taking appropriate measures to retain these regular customers. But how can this be accomplished?
Voluntary and Involuntary
In general, customer loyalty results either from involuntary or voluntary factors, also known as factual or emotional loyalty. Involuntary loyalty results primarily from existing barriers that make it more difficult to switch; for example, contracts with a commitment, certain cost structures, commitment to an operating system, non-transferable profile data or even a highly personalized offer that has value to the customer. Voluntary or emotional loyalty is based on satisfaction with a service, which may result from the choices and benefits available, the prices offered, or good service.
Satisfaction and Trust as Conditions for Commitment
Trust in a merchant is also an important aspect for the long-term loyalty of a customer. This trust is primarily created by an error-free ordering process, secure payment processing, reliable delivery and uncomplicated and solution-oriented handling of problems that may arise. It is important to note, however, that satisfaction and trust do not immediately lead to customer loyalty, but rather they are necessary conditions for it. If the customer believes that they will experience the same level of quality in the future as they have in the past, they will come back, and their loyalty will develop.
Measures for Customer Loyalty
This leads us to the measures to create and maintain the bond. These can be divided into four main areas, each of which should be addressed in a specific way:
When planning an online shop, numerous aspects should be considered that can have positive effects on customer loyalty. This begins with a simple and self-explanatory menu guide that the customer can use to find desired products more easily. In addition to this are navigation levels and a targeted search feature with good filter options. The registration process should have as little data requirements as possible and logging in later should be easy. The same goes for the order process. The fewer clicks necessary the better - mistakes should not be made and everything must go smoothly.
Even minor detail items, such as font size and color contrast, should not be neglected. Technical aspects, such as the site speed, a good mobile layout and the security of electronic payments with different payment providers, are also important factors. Of course, it is essential that the shop ensures good product selection and availability. Merchants who would like to sell in other countries must take each country’s language into consideration and present their business in those languages. The bottom line is that the purchase process should be as easy, error-free and as clear as possible for the customer - helping to ensure a repeat visit and sale.
When it comes to personalization, many things can be implemented during the planning of the online shop or its relaunch. If the customer can configure the home page to their needs or it is adjusted to their previous preferences, they are more likely to return. The profile should also offer the customer the possibility of customization, with examples such as Wishlist, a search and purchase history. And, they should be addressed by name. Customers also like to receive personal offers or product suggestions based on their previous purchase or search behavior, or with similar products or offers. The ability to customize or personalize their search or purchase helps increase their trust and use of the online shop.
Customers feel better when they believe they their business matters. That does not just apply in-store but also online. An online consultant that helps with purchase decisions or that answers important questions in a live chat can help provide the customer with this assurance. A product configurator is also a good tool. It is generally important to be available when the customer needs something. That could be a service hotline, on social media or via email - the more contact options available, the more taken care of the customer feels. This also means being in contact with the customer and for them to keep you in the back of their minds. Newsletters with new products or special offers shared on social media posts are suitable for this. Social media is especially important, not only advertise, but also to interact with customers when they have questions about a particular post or a general question about an offer.
Depending on the type of products offered, the customer needs a varying amount of information to visualize the product or its use. If it is technical in nature, meaningful technical data is a must so that a purchasing decision can be made with confidence. If clothes are offered, the visual appearance is key and the ability to zoom in to see various aspects of the product is also very helpful. Consider your products and put yourself in your customer’s shoes - think about all aspects of the product that they would want to see and know. Customer reviews bring additional information to light that can increase the customer's trust in making a purchase.
Customer Loyalty Program as a Multiplier
Customer loyalty programs with additional and/or exclusive benefits for members are ideal to strengthen the customer loyalty measures already in place. This is where the reward for loyalty is paramount and the customer receives the reminder with every purchase that they are greatly appreciated by the online shop. There are several ways these benefits can be presented whether as a special discount, bonus points or even Cashback.
The establishment of a customer loyalty program for online shops is often expensive and usually involves some sort of investment on the part of the business to make it successful. The myWorld Partner Program offers a customer loyalty program both for e-commerce as well as for stores with online shops. The benefit is that new Partners become connected to an existing customer base of 15 million potential shoppers around the world and grants Cashback and Shopping Points as benefits to those shoppers with every purchase.
Customer Relationship Management
Customer Relationship Management (CRM) is also a part of the myWorld Partner Programs and should be part of the implementation of a customer loyalty strategy. With the help of CRM, customer and sales data can be analyzed precisely so that the customer loyalty strategy can be monitored, adjusted, or improved. Data analysis allows for relationship-oriented market and customer segmentation to reach the relevant target groups with customized offers and messages. The results can be analyzed to determine if adjustments are needed so that you can reach your customers better and more efficiently.
It's the mix that yields results
In conclusion, if you want to achieve reliable customer loyalty in e-commerce, you may have to put some work into your online shop. But the reward is well worth the effort. It is important to find the right mix of strategies and tactics for your own shop that leads to the desired result - customers who develop a strong relationship with your store, can find what they are looking for with little effort, and feel that they are appreciated and rewarded for their loyalty.
Additional Sources: https://www.omt.de/online-marketing/kundenbindung-im-e-commerce/
Blömeke, E./Clement, M./Shehu, E./Pagendarm, E.: 2013, S. 85f.
Blömeke, E./Clement, M./Shehu, E./Pagendarm, E.: 2013, S. 83