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February 9, 2016 // 11:11 AM

What is Retention Marketing, and Why You Need to Start Today

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Retention marketing, the mysterious form of marketing that seems to be popping into your favorite ecommerce blogs, podcasts, and even into conversations with your other merchant friends. The whisperings have started, but do you really know what retention marketing is?

What is Retention Marketing?

Retention marketing is a new form of marketing that is becoming more and more prevalent in the ecommerce world. The focus of this school of marketing is to create engaged customers that return to your store to shop again. It is a shift in focusing only on the acquisition of countless new customers, to also focusing on the profitability of those you already have!

In short, retention marketing is:

The activities a store uses to increase the likelihood of a customer purchasing again, while focusing on increasing the profitability of each repeat purchase.

Will retention marketing ever become the only way you market your store? No! You will still need to use traditional digital marketing to first acquire customers, but you can increase your ROI from those channels by getting them to shop with you more often.

Retention marketing drives an increase in purchase frequency (how often a typical customer buys) and repeat purchase rate (likelihood a shopper returns). A boost to these two metrics means that you are increasing the customer lifetime value (CLV) which leads to long term profitability, rather than short term acquisition gains.

Retention Marketing vs. Acquisition Marketing

Retention marketing is never going to completely replace acquisition marketing that is focused on bringing new customers to your store. The two methodologies need to be used in tandem. Think of ecommerce marketing as a sport. Some teams are good at offense, and some are good at defense. But will a team ever win only playing one or the other?

Retention is your store’s defense and acquisition is your offense, play both to truly dominate the game!

Retention is your store’s defense and acquisition is your offense, play both well to truly dominate the game. The amount of each your store uses will vary based on what you sell, the margins you have, the industry you are in, but most importantly the life stage of your store.

The life stage of your store is the biggest influencer of what your retention/acquisition mix should be. Did you start yesterday? Retention will do nothing for you if you have no customers, so put 100% of your effort and budget into acquisition. However, as you gain a more established customer base and increase your sales, you can start to add more and more retention marketing.

Marketing Budget Allocation

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As your store grows you can (and will want to) add more retention marketing into your mix. At a certain size it becomes much more difficult to grow by “adding more” than it does to grow by “getting more.” A study by Harvard found that a 5% increase in online retention can boost profits by 95 percent!

Why Start Retention Marketing?

Some of you may be asking yourselves, “If this is so profitable, why am I just hearing about this now?” Great question! We, as humans, tend to only discover things when we are presented with a need.

In the past SEM and social media were cheap and effective ways to drive traffic to our ecommerce sites. You could afford to sell to someone once and never speak to them again. Unfortunately this isn't the case anymore. These traditional ads are more expensive and less effective than they were in the past.

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Adwords CPC’s are on the rise and I don’t see that trend changing! Search Engine Land shows non-brand keywords have risen 75% while branded keywords are up 300% from two years ago. That is tough to swallow if you are already operating with small margins. 

Social media is seeing a similar trend to Adwords. According to a study by AdAge, your organic social reach is on the decline as well. While Facebook says you can expect to reach around 16% of your audience with a post, AdAge says it is more like 6%. To get real exposure on social media you can pay for social ads or promoted posts. That will cost you though.

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The trend you should spot is that it is becoming tougher than ever to acquire a customer. You need retention marketing to make each customer you do acquire more valuable. With retention marketing you are essentially increasing the ROI of every paid acquisition you achieve. There is also the added benefit that a return shopper is 9x more likely to convert on a purchase than a first time shopper.

Effectiveness of Retention Marketing

The effectiveness of a retention marketing strategy will vary depending on what you sell. Dish washers are not going to be purchased as frequently as coffee, for example. So you will not see the same results in different situations. That being said, at Sweet Tooth our clients have seen an average increase of 40% in lifetime value and a 20% increase in repeat purchase rate after adopting retention marketing tactics like loyalty programs.

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