Here we are with the third and final part of Alex Greifeld's three part series on customer retention! If you haven't heard, she's the wiz behind the No Best Practices newsletter - do check it out.
Part one covered the best way to measure the success of a retention program, and part two covered how to evaluate the potential of different customer retention strategies.
Now we’re in the home stretch: how to design a winning retention program.
Setting The Stage For Your Retention Program
We’re going to use the VIP program example from part two of this series. This is one of the trickiest retention programs to get right, but it’s also one of the most popular, often framed as a “quick win”. And that’s exactly why it makes the perfect case study here.
Let’s imagine that it’s your first day as the head of retention marketing for a skincare brand. This brand targets women over 35 who want all-natural skincare. It has three major product categories–moisturizers, cleansers and anti-aging–and one cult best-selling product.
Your boss, the head of marketing, is pushing you to launch the brand’s first VIP engagement effort. This is a small, growing brand, so the pressure is on to design a retention program that really contributes to the bottom line.
The following framework is helpful when you’re faced with a challenge like this:
Objective -> Strategy -> Tactics -> Tools
What is your real objective here? You received vague but explicit guidance from your boss: “engage VIPs”. You also know implicitly that you’ll need to prove the financial benefit of your program. So your objective will be something like:
“Improve the retention rate and spend per customer for the top 10% of our customers by (some benchmark)”.
This is a great objective because it’s measurable. You can define the top 10% of customers and then you can benchmark the audience’s average YoY retention rate, as well as the average spend per customer per year.
You can use these metrics to create a ballpark estimate of the financial benefit that you’re likely to achieve from this program. Remember, you’re unlikely to double spend per customer or audience retention rates. This step will prevent you from overpromising and under-delivering.
Let’s say that the math works out. Now it’s time to design your program.
How To Develop Your Retention Program Strategy
This is the stage in the process where a lot of marketers will jump straight into software. But new software takes time to implement and often locks you into long-term contracts. It’s better to test out some of your hypotheses for free, using the tools you already have.
The first step is getting to know your target audience better, so you can design some incentives that motivate them to spend more. You can leverage customer surveys, live customer interviews, transaction data and even the results of prior testing (if available). You should also do an audit of all the communications and offers that this audience currently receives.
This research will enable you to develop a solid strategy. Let’s say that you learn that most of your VIPs entered the brand by purchasing your hero product, and that SKU is still their most common purchase. Their primary concern is anti-aging. How does this tie back to your objective?
Increase YoY Retention Rates:
- Don’t mess with the hero product! This isn’t a decision you “own” as a marketer, but make sure the rest of the organization gets the message.
- Make sure it’s easy to reorder the hero product, because that is what’s driving the bulk of this audience’s retention.
Increase Spend/Customer:
- Get these customers to sample other products in the anti-aging category, as that is their primary reason for shopping with you.
- Think about fun extras that are compelling enough that they sample a different category.
There’s your strategy. Now you can come up with a list of tactics that give you a good chance of achieving it:
- Audit the current reorder experience and address key pain points.
- Offer a discount for subscribing to the hero product, available only to VIPs.
- Streamline email & SMS communications so that 80% of VIP messages are related to anti-aging products and content.
- Offer a full size of your second most popular anti-aging product as a VIP gift with purchase.
How To Design Your Retention Program
You want to create a framework for testing all of these tactics to see which ones actually work. Some tactics may require collaboration from other teams, or some additional budget (for example, the GWP idea). Other tactics may actually require software to carry out (for example, improving the reorder experience).
Before you proceed with any tactics, weigh the costs against the potential upside you calculated at the start of the project. If costs exceed upside, it’s a no-go at this point.
You’ll want to design a holdout test for each of your tactics. These tests should run separately so you can evaluate the distinct impact of each tactic. Depending on your audience size, you’ll want to run each tactic for 1-4 weeks. If you’re working with a really small audience it may make sense to implement a group of related tactics together and figure out their individual impact later.
Split your audience in half, and designate one half as the test group and the other half as the control group. Track who is in what group, either via a spreadsheet or by tagging each group in your eCom platform or CRM. The test group gets the new tactic, the control group does not.
After the end of the test run, evaluate the conversions and sales for each group. If you achieved a lift in conversion or sales (or both), congratulations, you have a winning tactic! At this point you can figure out how to scale the winners. You’ll also want to study your VIP audience’s spend and retention rate trend over time and compare it to your initial benchmarks.
Bringing It All Together
Net-A-Porter’s Extremely Important Person program is an example of a VIP engagement effort with a clear objective that offers benefits designed to appeal to the brand’s best customers.
For those unfamiliar, Net-A-Porter is a multi-brand luxury fashion retailer. The site’s top spenders are some of the world’s most discerning luxury shoppers; a traditional points program isn’t going to cut it with this crowd. The objective of the EIP program is twofold: retain Net-A-Porter’s VIP customers while encouraging other customers to spend more in order to gain entry into an elite club.
Net-A-Porter designed the program to feed into its customers’ self image as fashion insiders while providing a more convenient and personalized shopping experience. The EIP program is invitation only, but members need to spend at least $10K annually to be considered. EIP’s receive early access to new arrivals, personal shopping service and free worldwide shipping, among other perks. These tactics encourage members to shop more without relying on incremental discounts.
Although there are no formal case studies on the EIP program, it does appear to be driving both loyalty and incremental spend among Net-A-Porter’s top customers. Unlike a broad points-based loyalty program, the EIP program succeeds in speaking to and incentivizing a specific segment of Net-A-Porter’s customer base.
Why Design Your Retention Program This Way?
The short answer: you want to make sure that your program is profitable before you publicly commit to anything. Many brands make the mistake of launching a loyalty program or offer with a big PR push, only to discover that the program is losing money. You’re then placed in the uncomfortable position of going back on your word, which will alienate many of your customers.
This method lets you evaluate the potential benefit of different tactics before you launch them publicly, so you can be confident that your retention program will have a positive impact on the bottom line.
The above retention strategy framework relies heavily on making it easy for customers to reorder their favorite products. Luckily that's exactly what Repeat does! What's more, it won't complicate your retention program... but it will enhance it. Book a demo with us today and we'll tell you all about it.
