It’s expensive to acquire new customers. According to Forrester, actually five times more expensive than retaining your old customers. Also the likelihood of selling to an old customer is many times higher compared to all new customers, says Marketing Metrics, and Gartner boldly states that 80 percent of a company’s future revenue will come from just 20 percent of existing customers. A loyal customer seems to really give you more bang for the buck.
In e-commerce, determinedly building customer loyalty is an efficient way of fighting against the challenging price competition. The mighty and great Amazon is almost always mentioned as an example of a successful e-commerce retailer, yet it seems that the popularity and massive volumes of Amazon are after all based only on wide selection and cheap prices. Will the customers remain loyal if Amazon someday decides to raise the product prices in hopes of better profitability? Zappos, an online shoe and clothing shop and now a subsidiary of Amazon, has taken a different approach: 75 percent of Zappos’s daily sales is generated from repeat customers (Forbes). Why? Because Zappos’s customer service is legendary for their insanely long customer phone calls and customer service representatives who are willing to do almost anything to make the customer happy.
Customer loyalty in e-commerce is nothing new. Already in 2002 researchers presented eight factors, the 8 C’s, which have a significant impact on e-commerce customer loyalty in an article published in Journal of Retailing:
- Customization. The ability of an e-retailer to tailor products, services, and the transactional environment to individual customers. Customers want products and services targeted for their own needs and preferences.
- Contact interactivity. The dynamic nature of the engagement that occurs between an e-retailer and its customers through the web site. The speed and quality of customer service and the possibility to have a discussion with a human affect customer loyalty.
- Cultivation. The extent to which an e-retailer provides relevant information and incentives to its customers in order to extend the breadth and depth of their purchases over time.
- Care. The attention that an e-retailer pays to all the pre- and postpurchase customer interface activities designed to facilitate both immediate transactions and long-term customer relationships. You can’t leave the customer alone; active customer communications is the key.
- Community. An online social entity comprised of existing and potential customers that is organized and maintained by an e-retailer to facilitate the exchange of opinions and information regarding offered products and services. Word-of-mouth and customers sharing their authentic experiences and ratings increase credibility and loyalty.
- Choice. An e-retailer is typically able to offer a wider range of product categories and a greater variety of products within any given category. The products don’t have to be in e-retailer’s own stock, but they can be delivered directly from partner’s stock which decreases the risk e-retailer has to take.
- Convenience. The extent to which a customer feels that the web site is simple, intuitive and user friendly. Shopping experience should be so easy that it requires as little effort as possible from the customer.
- Character. Creative website design can help an e-retailer build a positive reputation, brand image and characterization for itself and to stand out from competitors.
One of the latest trends in e-commerce is to use game elements in boosting customer loyalty and engagement. Game elements are usually incorporated in the loyalty program of the online store. Naturally customers should be rewarded for buying, but also for regular visits, social media shares, recommendations and product ratings, just to mention a few. A good example of successful e-commerce gamification is the online clothing store Gilt and their loyalty program Insider which is based on a simple model of using points. Gilt’s flash sales concept based on limited product quantities and time-constrained sales reminds a lot of a game itself, so it’s no wonder they’ve decided to use gamified elements in their loyalty program.
In addition to engaging customers, gamification can be used to influence customer behavior in all parts of the e-commerce sales process starting from promoting online presence and marketing (check the image). Game elements can be used, for example, to encourage customers to fill in their customer information which in the long run will increase customer understanding significantly. In marketing, games and gamification have already been in wide use for a long time; check out, how advertisers gamified their marketing campaigns in this year’s Super Bowl.
Online stores shouldn’t always be the cheapest options automatically since the customer value can also be created for example as better service, easy and fun shopping experience and engaging customer loyalty program. The rise of e-commerce in no way diminishes the importance of loyal customers, but customer loyalty is generated both in “brick” and in “click” in human encounters. Even e-commerce is all about people.
Retailers of all kinds can build lasting relationships with customers, both on and offline, by recognizing that the human brand experience they provide customers is even more critical than the products and services they offer. (Chris Malone)