Why it matters:
- Customer retention is a priority for businesses across sectors: It costs five times more to acquire a new customer than it does to retain an existing one.
- Startups that have built a loyal following count SMS marketing, customer data mining and product innovation among their best customer retention strategies.
- Brands cite sales conversion rates, customer reviews and ad performance as key indicators of customer retention.
Across industry sectors, brands routinely cite high customer retention rates as a key indicator of business success, and for good reason: It costs five times more to acquire a new customer than it does to retain an existing one.
While there’s no magic formula to convert a first-time buyer into a lifelong fan, startups that have nurtured a loyal following count SMS marketing and data mining to shopper-informed product innovation among their best customer retention strategies, executives from startups Stojo drinkware, State Bags and Yasso frozen yogurt told CO—.
Perhaps equally important is knowing what key performance indicators (KPIs) to measure, like sales conversion rates and customer reviews, in order to shape the strategies that keep customers coming back.
Indeed, there are practical, measurable ways “to keep customers satisfied with their purchase experience and product performance” so that they return again and again, said Jurrien Swarts, CEO and co-founder of Stojo.
We take the time to understand the ‘why,’ when a customer’s experience isn’t going well. We are really good at connecting with dissatisfied customers and making them happy, loyal customers.
Jurrien Swarts, CEO and co-founder, Stojo
Stojo drinkware: Turning angry shoppers into devotees boosts customer retention
Collapsible drinkware startup Stojo, which bowed at Target this month, has plucked best practices in customer retention from companies including Zappos, L.L. Bean and Patagonia.
Turning disgruntled shoppers into devotees is one of the most effective ones, Swarts said. “We take the time to understand the ‘why,’ when a customer’s experience isn’t going well. We are really good at connecting with dissatisfied customers and making them happy, loyal customers,” he said. “When someone loses a part or something breaks, we make it easy to get replacements. We connect with people via email, text and social media; we meet our customers where they are.”
Stojo actually systemized the process, creating a site feature that responds to customer concerns, questions and complaints, complete with tutorials, images and videos that answer common customer pain points.
The brand has gone to unusual lengths to both build and restore good will with a customer, he said.
An angry customer, for example, once posted on social media that a Stojo cup leaked during her morning commute, spilling hot coffee all over her white blouse. “We’ve sold millions of Stojo collapsible cups and know that when people are in a rush, fill their cups and then don’t properly screw the lid on tight, leaks will happen,” Swarts said. “It’s just physics.”
But instead of getting defensive and pointing fingers at her, “Our approach was to commiserate with her publicly, apologize for the bad experience, and offer to pay for her dry cleaning, or replace the blouse if it wasn’t salvageable,” he said. “In the end, she was so thankful for how we responded, that she acknowledged it was her mistake and that the shirt was fine. She ended up thanking us profusely and said she would tell everyone about us. This happens frequently because we keep to our principles and treat everyone like a trusted friend,” he said. “We give them the benefit of the doubt. People appreciate when brands show up this way and it pays off long term.”
[Read here for more insider growth strategies from hot startups.]
Measuring retention: tracking sales conversion rates to customer reviews
For its e-commerce business, Stojo looks to data points from Shopify and Amazon Seller Central as key customer retention indicators.
It mines Shopify data for sales conversion rate; total revenue; revenue by channel; product sales data; and average order value. Amazon Seller Central data provides the brand product sales data; ad performance; marketplace ranking; competitor reviews and customer reviews.
“We are focused on customer satisfaction at the transactional level, and repeat purchases on a 12-month horizon,” Swarts said. “We think these are the most practical, measurable ways to approximate a customer’s feelings about Stojo and its products. If we keep customers satisfied with their purchase experience, product performance and help them thoughtfully in a fun, empathetic way when troubles or questions arise, they’ll be back.”
Return-on-investment metric: thousands of 4.6-star reviews and a best-selling mug
Swarts links high customer reviews of its Stojo collapsible cup on Amazon to a sales bump. “We have 4,000-plus reviews and a 4.6-star ranking,” he said. “As of last month, it was the sixth-best-selling coffee mug.”
The brand began selling its cup on Amazon in 2015. “That many organic reviews took a long time to amass, but it’s paid off,” he said. “The reviews in 2015 to 2017 were in the 3-star range.”
State Bags: Targeted SMS and email marketing campaigns beget loyalty
State Bags works to hook shoppers at “hello” with automatic welcome flows, a sequence of email and text messages sent to a consumer who’s just signed up to hear from the brand.
“That allows us to tell our brand story from the get-go,” Meghan Holzhauer, chief marketing officer, told CO—. “Through our welcome flows, our subscribers can learn about State Bags, how we’re a give-back brand and get a stronger sense of our product assortment.”
From then on, text and email messaging serve as its central customer retention tool. “We can use data provided on our email and SMS platforms to understand what tactics work best, what our community wants to hear about and how we can best serve them,” she said.
The brand uses Klaviyo as its email platform and Attentive for SMS, and worked with boutique agency Tetra to optimize its automated email flows.
Customer segmentation has proven to be an important shopper engagement and retention tactic for the brand. For example, “We use our SMS channel as a sort of ‘VIP’ customer list — they hear about our product drops and promotions first,” Holzhauer said. “We also [segment] our email so we’re communicating differently with people depending on how engaged they already are, so we’re meeting them where they’re at,” she said. “So, our most engaged email subscribers also get early access.”
[Read here on how texting has become a major sales channel for brands.]
Measuring retention: monitoring repeat purchases and net promotor scores
State Bags measures customer retention by monitoring its repeat purchase rate and net promoter score (which measures customer experience and predicts business growth) through IRI data. “We’ve found this to be the most effective way to get a sense of how our marketing strategies are performing,” Holzauer said.
Return on investment metric: Customer retention rate climbs from 20% to 30%
State Bags’ email and SMS strategy has yielded “a major return on investment,” Holzauer said. On a monthly basis, the two channels now account for between 15%-25% of its e-commerce revenue, up from 5%-10%.
“I can’t attribute it only to email and SMS because it’s all an ecosystem, but over the past two years, our return customer rate has continued to climb from around 20% to nearly 30% on average, with customer lifetime value following the same trend,” she said.
Yasso frozen treats: Product innovation is key, as taste is king
For Yasso, the frozen yogurt startup brand that retails at chains such as Whole Foods and B.J.’s, taste matters. A lot. That’s why product iteration and innovation is the linchpin of its customer retention strategy.
“First and foremost, we believe that having an outstanding product unlike any other offering on the market is the best way to build and retain customers,” Andy Judd, Yasso's chief marketing officer, told CO—. “This means we're always developing new flavors, launching new product categories and finding ways to upgrade the formulas that are already successful.”
For example, mint chocolate chip was holding steady as Yasso’s best-selling flavor, boasting a repeat purchase rate of over 50%, Judd said. But that didn’t stop the brand from changing the formula last year to add more mint to improve the taste. “Despite consumers always telling us we have one of the best mint chocolate chip bars in the frozen category, we knew we could make it even better,” he said.
Measuring retention: tracking repeat purchase metrics and net promoter scores
Like State Bags, Yasso measures customer retention by monitoring our repeat purchase rate and net promoter score via IRI data. It’s found this “to be the most effective way to get a sense of how our marketing strategies are performing,” Judd said.
Return on investment: repeat purchase rate nears 60% today
Yasso’s strategy of constant innovation and product improvement has helped make the startup “the fastest growing brand — with the best repeat purchase rate, the best velocity and the best loyalty —in the better-for-you frozen aisle,” said Judd, citing IRI data.
Since the beginning of 2019, Yasso has watched its repeat purchase rate grow, hovering near 60% today. “This is a testament to Yasso’s commitment to never stop growing and deliver unbeatable taste and variety that consistently beats consumer expectations,” he said.
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