E-Commerce Link : Smoothing a Bumpy Ride

How to build loyalty in a maturing market

To combat the triple challenge of economic uncertainty, slowing market gains and seasonal swings, e-commerce merchants must shift focus to a previously neglected stage of the sales process: customer retention. Currently, online retailers allocate 53 percent of their marketing budgets to online customer acquisition and 21 percent of marketing dollars to online customer retention, according to Shop.org's State of Online Retailing Study for 2008. By building a base of loyal customers, merchants can smooth their averages by driving repeat business over time.

Loyalty: A Precious Commodity
There's no question that repeat customers are a boon to merchants. Lower customer service costs and higher lifetime purchase totals have long been potent motivators for merchants to identify and engage with customers to encourage an ongoing relationship.

Online, the value of return customers is more clear than ever. They're more engaged, adding items to carts at double the rate of new buyers, and they place orders 200 percent more often. The average order size for loyal buyers is also higher by 10 percent than that for new customers.

With loyal customers proving such an asset to online sales, now is the time to begin tackling the barriers to offering a cohesive, relevant experience that will keep shoppers coming back. The first step: understanding your target audience and identifying the right retention goals for your business.

Segments: The Building Blocks of Loyalty
Creating marketing and site merchandising with broad appeal is fundamental to driving overall sales. But in order to retain existing customers and build loyalty, merchants must take their games to the next level and focus on crafting relevant, personalized offers.

The positive response to personalized offers is well-documented. Forrester Research found that of the 54 percent of shoppers who perceived that offers had been tailored to their personal preferences, 77 percent found the recommendations useful, and 34 percent made a purchase.

So, where to start? Sophisticated technologies now exist to track visitor behavior on e-commerce sites and deliver tailored recommendations in real time, based on click patterns, IP information and regional demographic data. But merchants can make significant gains in loyalty by focusing on a single data set and deploying one of the simplest tools in their arsenal-e-mail.

E-mail: Basic but Effective
E-mail is often overshadowed by the hype of social computing. But despite the enticements of Facebook, YouTube and more than 100 million blogs, e-mail is still consumers' most frequent online activity. Ninety-one percent of online consumers have used e-mail, according to the Pew Internet & American Life Project, whereas social computing activities rate no higher than 36 percent.

By combining the effectiveness of e-mail with the relevance-boosting power of segmentation, online merchants can create a winning retention strategy that won't overwhelm the marketing budget.

Best Practices for Sign-up and Sending
To craft a loyalty-building e-mail strategy, merchants must convince shoppers to sign up to receive ongoing updates. Encourage new e-mail subscribers by following these best practices:

• A simple e-mail sign-up box should be available as a global element. Provide a benefit-driven statement near the sign-up that lets shoppers know what's in it for them, such as special offers and timely news.
• Don't be afraid to aggressively promote your e-mail sign-up using key merchandising space, where an invitation to sign up with an enticing discount offer for the subscriber's next purchase is displayed as a prominent homepage banner.
• Don't require registration with sign-up. Shoppers should be able to subscribe to e-mail without creating a username and password. According to the Email Experience Council (EEC), only 12 percent of merchants require that level of commitment for e-mail sign-ups.
• Ask shoppers to opt in, not opt out, and back up their choices with a double opt-in confirmation. According to eROI, only 30 percent of merchants take the extra step of e-mailing a verification link to ensure that subscribers are committed.
• Keep data fields to a minimum. Because purchase history is the key driver for loyalty, extraneous information only builds resistance to capturing new sign-ups. Forty-three percent of merchants use three fields or less for their sign-up forms, according to the EEC.
• Prominently link to privacy policies from the sign-up box. Reassure shoppers that their e-mail addresses won't be shared and subscribing won't bring them unwanted spam.
• Immediately send a welcome message that puts recipients on the path to purchase. Reiterate the value proposition to subscribers, reminding them of the benefits to receiving e-mail.
• Use subsequent event-based e-mails as merchandising opportunities, within reason. First and foremost, when shoppers abandon their shopping carts, e-mail them with a gentle reminder and invitation to complete the purchase. In 2007, 73 percent of merchants rated abandonment-triggered reminders to be somewhat or very effective, according
  to MarketingSherpa.

Three Buyer Types to Target
Merchants should initially focus efforts on three types of buyers who can contribute significantly to
loyalty-building efforts.

1. Lapsed buyers. These are customers who've purchased in the past but haven't done so within a given time frame. These shoppers are the low-hanging fruit of loyalty; they've already demonstrated trust and interest in your brand and need only be enticed to re-engage with relevant offers.

When targeting these shoppers, merchants should factor in the order value of past purchases. Bargain-hunters who solely purchased steeply discounted products are less likely to be loyal and therefore are less apt to respond to invitations to reconnect with the brand.

2. Traditional loyalists. Willing to purchase often and pay full price, this second group of customers is the traditional target of loyalty programs, with a high lifetime value due to their individual buying histories.Because these shoppers have demonstrated an affinity with the brand, offers should enhance their sense of belonging.

3. Brand advocates. With social networking referrals and customer reviews increasing in importance as marketing tools for merchants, brand advocates are now as valuable as traditional loyalists.

Crafting Relevant Offers for Your Business
Another factor to consider when studying purchase behavior is what your ideal customer's purchase frequency should be. Not all merchants can expect constant, repeat purchases; retention goals depend on the product mix, price points and seasonality of the business. Here are three segments of purchasing frequency:

1. High frequency. Vitamins, books, party supplies, gifts and cosmetics are all items most shoppers use throughout the year; once used, they must be replaced. Sellers of these low-consideration products should aim to achieve a high rate of return purchases per year.

2. Medium frequency. Clothing, small appliances, kitchen or home improvement utensils, and costume jewelry are all the type of midpriced items shoppers should find reasons to buy or replace at least twice a year. To encourage that second purchase per year, merchants should highlight what's new and fresh-whether it's the latest seasonal merchandise or newly discounted items.

3. Low frequency. Sellers of furniture, diamond jewelry, hiking boots with 20-year guarantees and wide-screen televisions are unlikely to see customers return to replace those items any time soon. But these merchants aren't off the hook.

To lure big-ticket purchasers back, focus on complementary items. Buyers of sofas aren't going to be interested in another one-but they might buy decorative pillows, throw blankets and rugs that match their recent purchases.

The First Step on the Loyalty Journey
By combining these segments to match their customers and their businesses, merchants can expand their e-mail arsenal, moving away from the "batch and blast" method and toward delivering personalized messages that have unique relevance for their shoppers. Already a reliably profitable business, e-mail that's targeted can drive even higher ROI and provide compelling proof that focusing on loyalty is a winning strategy that can smooth out the bumps caused by economic uncertainty, slowing market gains and seasonal swings.

Ken Burke is founder and CEO of MarketLive, an e-commerce technology services provider based in Petaluma, Calif. He can be reached at ken@mmlive.com or visit www.marketlive.com/sitereview.

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