What is customer retention and why is it important?

My dad's friend has been running an apparel store for 10+ years now. Once when I was having a conversation with him during a family gathering, he received a call from his new salesman at the store.

Apparently, a customer had come to the store and purchased something, but she paid him 30 bucks less than the actual bill amount. She claimed to be an old customer and convinced the salesman how my uncle would have certainly given her a discount.

My uncle simply told him, " Oh boy, that's Maria! She's been buying from us for more than 10 years now. It's surprising that she only reduced 30 bucks and not 50, haha!''

We continued to talk about his business and that's when he told me how 80% of his store's revenue comes from existing customers. New customers visit the store, take a good look at the collection, pick something, try it out, and may or may not buy. But old customers come to the store with the intent of buying something in particular, and they end up buying that along with a few others from the latest arrivals.

The main thing in play here is the relationship between the customer and the store owner. The better you engage with a customer and earn their trust, the more they'll shop from you - as simple as that!

To my uncle, losing the 30 bucks was not a matter of concern because he knew Maria would always come back to his store to buy more clothes. Not just that, Maria is also his store's brand ambassador. She'd always visit my uncle's store with her old and new friends, who are all very much convinced that his store has the best apparel collection in town - thanks to Maria's word-of-mouth marketing. Now compare this 30 bucks to the customer acquisition cost (north of 100 bucks for my store) he said! And that stuck with me!

Picture this: You're running an online store that sells handmade candles. You've invested time and resources into acquiring new customers, paid for ads, paid for the website and app, and what not. But, after their first purchase, the majority of the shoppers just disappear.

This is where customer retention comes into play.

Customer retention is the art of building and maintaining long-term relationships with your shoppers. The goal? To keep them coming back for more, repeatedly.

The importance of customer retention

Steady revenue stream: One of the most obvious benefits of customer retention is increased revenue. Repeat customers tend to spend more than first-time buyers. According to studies, they can contribute up to 70% of a company's revenue, even though they might constitute only a small percentage of the customer base.

Cost-efficiency: Acquiring new customers can be expensive and time-consuming. It involves marketing campaigns, discounts, and convincing them to trust your brand. In contrast, retaining existing customers is more cost-efficient. They already trust you and are familiar with your products, reducing the need for extensive marketing efforts.

Word-of-mouth marketing and loyalty: Satisfied customers often become your brand ambassadors, like Maria. They recommend your products to friends and family, essentially doing your marketing for you. Word-of-mouth marketing is powerful, as people trust recommendations from other people. After all, wasn't this the very thing that Amazon capitalized on by introducing the rating system in early 2Ks.

Continuous business improvement: Retained customers provide valuable feedback. They can tell what's working and what needs improvement. The longer you retain customers, the more data you collect about their preferences and behaviors. This data can help you fine-tune your strategies, product offerings, and customer experiences, making your business with them more efficient and responsive.

Stability in uncertain times: In volatile markets or during economic downturns, retaining loyal customers can provide a stable source of income. They are more likely to continue purchasing from a brand they trust, even when times are tough.

Strategies for effective customer retention - online and offline

Building and maintaining long-lasting customer relationships takes time and effort—whether you run a physical store or an online store or both. Yes, how you engage with your online shoppers differ from how you'd interact with them in person. But the core intention remains the same—to get them to trust you and your brand and keep buying from you repeatedly. Now that you understand why customer retention is vital, you can check out my blog titled ''6 proven strategies to improve customer retention, engagement, and loyalty'' to learn how you can retain your customers better.

What would have been Maria's first shopping experience like with my uncle's store? Let's try to cook up a scenario:

Maria visits the store with the intent of window shopping since she's seen it a few times but never bought from there. But when she sees that their collection is great, she decides to just try on a blue shirt and a white jeans, still with no intent of buying. She loves the look and feel of it and her mom approves of the attire over a video call too.
My uncle makes a casual talk saying how well it suits her and lays out all the similar clothes on the table for her to choose from.
Yes, arranging them back to the same order would take him an hour or so but that's okay. My uncle ignores that part because it's more important to let Maria know there's more in this particular collection and pique her interest.

Maria is in awe. She loves the collection and color combinations, and tries a couple of them one after the other. My uncle is patient. He also caters to the other customers who walk in but also never lets Maria feel he's ignoring her.

An hour or so later, Maria walks to the reception where my uncle is already packing a dozen bags for her. While calculating the final price, he offers her a free item from her cart and gives her a 10% discount coupon for her next purchase! Maria is really happy! She tells my uncle how much she loves his collection and that she'd surely visit again. My uncle politely asks her to recommend this store to her friends to which she nods positively.

This would have been the very beginning of a long-lasting customer relationship. 10 years later, it's at a point where she decides the discount number! :)

Wrapping it up

Customer retention is the heart of D2C. It's not just about closing that first sale; it's about nurturing a deep-rooted relationship with your customers, whether they shop online or offline.  In the world of D2C, where competition is fierce and customer expectations are high, retaining your customers is the key to long-term success. Remember, your existing customers are your brand's biggest advocates. Treat them well and they'll help your business flourish.

Cheers to happy customers and a successful e-commerce journey! 🛒

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