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A Short Guide on The Importance of Customer Retention for Retailers & D2C Brands

A Short Guide on The Importance of Customer Retention for Retailers & D2C Brands
Published On
July 8, 2022

Discover the significance of customer retention for retailers and D2C (Direct-to-Consumer) brands. Explore the key reasons why focusing on customer retention is essential for long-term business success. Learn effective strategies and best practices to nurture customer loyalty, increase customer lifetime value, and create a sustainable competitive advantage. Read now and gain insights on how to prioritize customer retention to drive growth and profitability in the retail industry.

Sama used to run a small yet successful bakery. He sold cakes, cupcakes, donuts, pies, muffins, and a variety of desserts. His banana bread recipe was a hit in the neighborhood! 

One day Sama came to know that a renowned bakery chain is opening one of its outlets near Sama’s bakery.  He got worried that soon he would be out of business and he could not sleep for days. 

However, when the giant bakery opened in the neighborhood, it did not affect Sama’s business at all. Two months later and his bakery remained as busy as it used to be. 

Why weren’t the residents buying from the big bakery?

Sama used to bake personalized cakes for his customers based on the colors they liked and the flavors they preferred. Whenever he learned a new recipe he used to provide free samples to his customers and asked for their feedback. Many of Sama’s customers knew him personally. They knew who he was, what his story was, why he was a baker, etc.

Sama always welcomed new customers with extra discounts on all desserts. Not only his exceptional recipes but his affordable price made customers come back. Many times he used to ask for personal preferences of his customers like what cake designs they like or what colors they want. He listened to his customers. They knew who he was, what his story was, why he was a baker, etc. 

The new bakery owner in the neighborhood did not know customers at all or their preferences and interests. Neither did the customers know anything about the bakery.  Therefore, it was a little difficult for the new bakery to win customers’ trust. 

So despite the new bakery having every special dessert, Sama’s bakery could retain the customers and continue to increase the sales. In fact, as Sama built trustworthy relationships with his customers he never had to put much effort in finding ways to attract new customers. 

Just like for Sama, customer retention is important in every business. 

What is customer retention? 

Customer retention is a process of engaging customers with your brand so that they continue buying products or services from your business. Customer retention is all about making a customer loyal to your brand. It can result in converting your loyal customers to your brand ambassadors who spread the word about your business within their circle of influence. 

Just like what Sama did! He used different tactics to win customers’ trust and they became loyal to his business. 

If you don’t trust my story, I am sure you will trust these statistics that I am going to discuss next. 

Why is customer retention important? 

Customer retention is profitable 

The probability of selling to an existing customer is between 60% and 70%. It is found that selling a product to an existing customer is much easier than selling it to a new customer. This is because the customer has already interacted with your brand once. They have used your product and found it useful. On the other hand, the probability of selling to a new customer is only between 5% to 20%. 

Customer retention ensures better feedback 

It is found that existing customers are 50% more likely to try your business’s new product. This is because they are impressed by your business. They want to see what you are bringing to the table. They not only try your products readily but can provide constructive feedback. 

Customer retention ensures more brand awareness

Existing customers of a brand are likely to spread awareness about your brand. They can provide referrals or share information about your brand with their friends and family. This is because they have used your products and are satisfied with your brand. 

Customer retention results in higher revenue

Existing customers are also 31% more likely to spend more on their average order value with your business. A new customer would think, compare and then decide whether they should buy a product from a brand. An existing customer on the other hand would wait for your product to get in stock. 

Some more statistics about customer retention

  • Depending on the scope of your business and industry, you may spend 7x more to acquire a new client. 
  • Loyal customers generate more revenue each year they stay with a company. Statistics indicate that a 5% increase in customer retention increases profits by 25% – 95%.
  • 65% of a company’s business comes from existing customers. 
  • For most industries, the average customer retention rate is below 20%. 
  • 89% of companies see customer experience as an essential factor in driving customer loyalty and retention.

This takes me to my next point! 

How can retailers and D2C brands increase customer retention? 

We know that retaining customers means better feedback, more profits, and a better brand reputation. But, how do we achieve customer retention? 

Here are some of the best tactics that retailers and D2C brands can follow to increase customer retention. 

Start a customer loyalty program 

A loyalty program attracts customers by presenting them with rewards and incentives based on their interaction with your brand. Whether they buy a product from you or recommend your brand on social media, you can use a loyalty program to reward them for their efforts. 

Here’s how you can use a loyalty program for customer retention:

  • Send emails with exclusive discounts to your top customers
  • Fine-tune your rewards system based on the personalized needs and preferences of the customers
  • Know more about customers' demographics and provide them with offers and rewards from time to time 

Use customer journey mapping 

Journey mapping is nothing but keeping a record of various interactions or touch points of customers with your brand. For instance, you can find out about the different ways potential customers come to know about your brand, what makes them buy your product, what distracts them from buying your products, and so on. 

Once you map different customer journeys, you can create marketing campaigns to optimize the customer journeys. For instance, when a new user signs up on your website, you send them welcome emails highlighting the unique selling points of your brands. 

If a customer adds items to their shopping cart but does not make a purchase then you can send them emails pursuing them to complete their purchase. Similarly, you can send special discounts to customers who have purchased from your brand once to encourage them to make their next purchase. 

Send personalized communications

Personalization was one of the main factors of Sama’s bakery. Today, businesses can use personalized email marketing and send offers, product recommendations, or announcements to their existing customers in order to retain them. For instance, give them early access to your upcoming sale, share new products with them before you officially launch them, or send them a special discount on their birthday, anniversary, etc. 

Personalization makes customers feel valued. Loyalty programs can help you gather more data about your customers such as their preferences, interests, age, demographics, birthdays, and so on. You can even segment customers based on this data and run separate campaigns for each segment. 

Be where your customers are

In today’s time, if you want to retain customers, make sure you always reach out to them via the channels that they prefer. You must create a variety of content such as blogs, videos, email newsletters, social media posts, etc. for different types of customers. Customer retention will become easier if you incorporate an omnichannel marketing experience into your marketing strategy. 

Being Omnichannel will allow you to streamline your communication with every customer, enhance your customer service and provide a seamless shopping experience to your customers. 

Use upselling and cross-selling techniques 

Upselling is a technique that is used to invite customers to try a new product that is more expensive than what the customers usually buy. The customers are already available for the value and quality that you serve them. Their trust in your brand can encourage them to buy even a high-cost product.

Cross-selling is sending complementary product recommendations to your customers based on the items that they are interested in buying. Just like Amazon, which provides product recommendations based on the products in your shopping cart. These products complement each other and can grab a customer’s attention. If a customer has bought tea cups from you, you can provide recommendations like teapots, electric kettles, coasters, etc. to them. 

Customer retention is all about building relationships 

Retaining customers can help in increasing your profits, building your brand’s reputation, and ensure better feedback, and is easier than acquiring new customers. Customer retention depends upon how well a customer trusts your brand. It cannot be done overnight. It requires understanding the customer, their problems, preferences, and interests. The ways that I have shared above will help fill the gaps between your business and your existing customers so that you can retain them for the long haul. 

Frequently Asked Questions

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Lead Consultant

With over 7+ years of experience in his field, Prashant brings a wealth of knowledge and expertise in customer analytics, Retail, and Data Strategy. Prashant works closely with our clients to provide strategic guidance and innovative solutions for their business. When he's not deciphering data puzzles, Prashant enjoys exploring new hiking trails and finding peace in the beauty of nature.

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