Driving Customer Retention Through Incentives

For most retailers, the more traditional attempt at reducing customer churn often centers around customers that the brand feels are more likely to leave them for another retailer.

Cutting down on defection rates is an important responsibility of any brand, but there is often a direct relationship between customer retention and a company’s bottom line profit. Brands are known to send customized emails and notifications to customers they haven’t heard from in a while in hopes of keeping them a happy shopper by lowering the price on certain products they know the customer might buy or by offering other deals and programs to keep them coming back.

Most experts suggest that brands develop various retention campaigns that look closely at customer buying habits while also working to be creative in bringing back online or into a store for great deals and incentives without ruining profit margins.

Sue Frech, CEO of Vesta, says the best retention strategies take a long-term view of a customer relationship and focus on planting the seed of emotional loyalty early. Emotional loyalty transcends transactions, tapping into consumers’ underlying motivations and deep-held beliefs.

“Emotionally-connected consumers buy more products and services, are less sensitive to price, and recommend the brand to others,” Frech says. “One study found that retailers could realize a 5% boost in revenue by driving emotional engagement.”

Using Incentives Thoughtfully
Marlon Bowser, CEO of HTK, says the trouble with discounts as incentives is that they can set expectations for further discounts in the future. That doesn’t mean that discounts should never be used, just that they should be used thoughtfully.

“When it comes to retention specifically, it’s worth considering what other types of incentives you might offer,” Bowser says. “Think beyond the immediate sale — what expectations do you want to set? What behaviors do you want to drive?”

If you’re trying to draw the customer back in for the long-term — and not just the next discounted) sale — Bowser says to consider incentives tied into your loyalty program.

For example, you might offer a lapsed loyalty member additional points on their next purchase,” he says. “Enough to reach a reward or boost them up to the next tier of the program for a month, so they can enjoy some premium perks.”

Grant McCloud, Director of Strategy at Brierley, says using a member’s purchase history data is important for retention initiatives and can help strengthen your member communications.  Notifying them of when new products within their frequented categories arrive is one way to drive engagement.

“Also, explore adjacent product categories and provide customers with product recommendations,” McCloud says. “Both of these tactics can significantly improve customer retention because they make communications and interactions with the brand much more relevant. You can test different incentives or even no incentive – sometimes the product information alone can be compelling enough.”

Build Emotional Loyalty By Focusing On Personalized Engagement
Frech says marketers can build emotional loyalty by focusing on creating personalized brand engagement that speaks to consumers’ emotional needs. Enhancing your online presence through an online community allows you to easily collect zero-party data and utilize it to personalize the brand experience to meet your customers’ values, preferences, and behaviors.

“This positive and transparent exchange between the data shared and the value received provides a higher-order incentive that consumers truly value,” Frech says. “And the two-way dialogue also allows you to continually listen and communicate with your customers, helping future-proof your brand.”

Bowser says customer insight is the most important factor; the biggest mistake brands can make is giving the same incentive to every customer, every time. He says personalization is essential, not only so that the offer resonates with the customer and drives the intended behavior but also so that profits are not compromised by sales pull-forward or cannibalization.

“To that end, it’s also important that brands find sophisticated ways of measuring the performance of each incentive or offer to ensure that it really is driving the desired results,” Bowser says. “The ongoing optimization of incentives, through split testing and control groups, is essential.”

And when it comes to measurement, Bowser says brands should be aware that most ecommerce and POS systems don’t go nearly far enough.

“It’s worth considering an investment in a more specialized system, rather than trying to work within the constraints of a platform that isn’t designed with robust personalization in mind,” he says.

Understanding Timing and Frequency
Cadence is another important element to consider in customer retention, says McCloud. Understanding the timing and frequency of their past purchases can help predict if their behavior is changing or if they are a churn risk.

“Modeling and analyzing this data can provide target groups of ‘at risk’ customers that can then be targeted with compelling communications and incentives, such as a special offer for a product within one of their top categories,” McCloud says.

Customer retention is often addressed too late in the lifecycle. Bowser says incentives are frequently employed when a customer has already lapsed as a way to win them back.

“This isn’t a bad approach,” he says. “Offers can be a great way of catching the customer’s attention and reminding them of what the brand has to offer. But retailers would also be wise to consider how incentives can play a role in retention earlier on in the customer lifecycle.”

For example, Bowser says suppose a customer makes a regular purchase of a consumable product about once every six weeks, and it’s been eight weeks since their last purchase. This would be a great opportunity for an offer on the product — or product category — they usually buy.

“If they’ve moved to a competitor, it might draw them back when the next purchase date rolls around,” Bowser says. “If they’re simply not ready to replenish the product yet, for whatever reason, the offer signals that their custom was missed and can strengthen emotional loyalty.”

Not the Same Blanket Offer to Everyone
It’s important that the offer or incentive is communicated in such a way that customers see it as genuinely personalized and not the same blanket offer to everyone that just happened to be on a product that they’ve previously purchased.

“Something as simple as ‘We’ve missed you! Here’s an offer on X product we know you’ll love’ can often do the trick,” Bowser says.

And for retailers whose customers have less regular purchasing cycles, machine learning can help. Bowser says ML can be used to analyze transaction history and identify when a customer’s normal purchasing behavior has changed or when their activity has lapsed.

“Long before they hit the criteria for a standard win-back campaign,” he says.

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