How to Improve Customer Retention in Ecommerce: a Lesson From the Baby Products Industry
How the purchasing habits of your target consumer can boost or kill your retention rate.
In the research for my upcoming book I noticed that a significant portion of the stores I had classified as above average in customer retention metrics sold baby products. That intrigued me, so I interviewed some of them to find out what was special about their stores in comparison to the rest.
The first thing I learned: New parents are likely to be loyal and frequent customers. Babies – spoiler! – grow up quickly. In a few short months, those cute little shoes that were easy to put on no longer fit. For a new parent, who’s tired and overwhelmed, this is a giant pain in the butt. They now have to spend their precious free time finding affordable shoes that are just as good as the old ones.
When parents of small children trust a brand, they will not waste their limited time looking for alternatives. Elina Furman, marketing manager for Dockatot – one of the baby stores in our study with the highest performance in retention metrics – calls her customers “born again consumers.”
Parents overhaul their shopping habits (and indeed nearly every life habit) when a baby is born. It’s a massive opportunity for brick-and-mortar and e-retailers alike.
Some of the largest retailers in the world take advantage of this phenomenon and go to great lengths to convince new moms to make their first parenting purchases on their store. A few years ago, Target went so far as to create an algorithm to predict if their customers were pregnant, based on what they were buying at their stores. The (creepy) goal was to start advertising baby related products as soon as possible, extending their bond with these customers prior to many years of parenthood to come.
This is an exploitative ploy, but it’s also true that, as an online shopper and a parent, I’m twice as grateful to those going through the trouble of selecting or manufacturing trustworthy products I can buy in a few clicks. It prevents me from having to drag my one-and-a-half year old to a physical store, where I’ll spend half the time picking up every item she pulls off the shelves and throws on the floor.
High Purchase Frequency
As with almost everything in ecommerce, different customer retention strategies will work for different types of stores or customers. Baby product stores were in high positions in our research because their customers purchase new items frequently.
High purchase frequency is one of the main causes for loyalty and retention in retail. Shoppers don’t have the time to research and compare prices – especially new parents.
If the item isn’t a high value one (i.e.: a computer, a car or a smartphone), few people will spend their mental cognitive reserves doing research before every single purchase.
An online store will increase the probability of becoming a one-stop-shop for baby-related products if it has a good selection of items and is a trusted brand. The convenience and the relatively small price of most baby products will lead to a high purchasing frequency, creating loyalty between the customer and the store.
Take Natural Baby Shower. When Clifton Vaughan and Victoria Hampson moved to the UK from New Zealand, they noticed a gap in the market of natural products for babies. A niche industry that was booming in their native country.
Being parents themselves and passionate about this type of product, Clifton and Victoria knew what their customers wanted: “We’re passionate about buying and selling more considerate and natural baby products. We personally vet every product we have,” says Clifton. “The store just grew. It’s been 12 years now, doubling each year. It’s really exciting.”
The company started small: “We were working from the kitchen table, really.” he says. “Packing each order and driving to the post office to ship them.” As they grew, they hired “stay-at-home moms” to help with the packing and shipping: “It was the perfect job for moms and a great way to get their insights and feedback of the products we were selling.”
Eventually, the company moved to a 15-thousand-square-foot warehouse just outside London. “We’re now the one-stop-shop in the UK for new moms that are conscious about the purchase decisions they make,” says Clifton, highlighting one of the main reasons for their success.
As the preferred online destination for parents of young children to buy natural and organic products, they have earned the trust of a very frequent and loyal type of customer: a gold mine for retailers.
It’s well known among ecommerce experts that online stores serving a customer niche have higher chances of success. But little is said about the importance of considering the purchasing habits of that niche. If your target market buys your type of products once a year, it will be very hard to have a decent repurchase rate.
Low repurchase rates usually lead to low average customer lifetime value and low margins, putting pressure on marketing to keep customer acquisition costs down. Sometimes unrealistically so. But if your target market has a high frequency purchasing habit, then investing in a well-thought-out product range will help keep shoppers coming back and customer lifetime value (CLV) high. A high CLV will allow you to spend more money acquiring new clients, opening up many more marketing possibilities.
In addition to a wide product range, Natural Baby Shower offers a very flexible return policy (three months) that shows how well they understand their customers. I know from experience that parents of young children have little time to organize returns, frequently missing deadlines. Combined with an outstanding customer service (they have a 9.4 – out of 10 – score in Trustpilot, an independent reviews aggregator), their return policy is another detail that helps create loyalty to their brand.
Livie & Luca shares many of the same characteristics with Natural Baby Shower. The founders, Mitzi Rivas and Amie Garcia, are also parents themselves and saw an opportunity to sell products missing in their market: high quality, beautifully designed, affordable baby shoes. Michael Hixson, marketing manager for Livie & Luca, emphasizes how the quality of their shoes increases retention.
“It’s a well-made product. It’s durable, it’s comfortable, and looks very cute,” he says. “That to me is what drives retention. When you’re selling baby products you have to realize that mothers don’t have a lot of time to research. They’re shopping in the small breaks they have, when the baby is napping. When moms find quality products, they tend to be loyal customers.”
Michael himself had run, some years earlier, his own online store focused on home baby-proofing products. What prevented his store from becoming as big as Livie & Luca, he thinks, was the short period customers need these products.
“Baby-proofing starts from when the baby starts crawling, at six months or so, to about two and a half year olds,” Michael explains. “So I continually had to find new customers. If I had a different model, where I could have those customers for a longer period, it would’ve been a totally different thing but customers would time out of me.”
In contrast, Livie & Luca sells shoes for children ranging from babies to nine-year olds. To increase repurchase rates further, they invest in loyalty programs and in the personalization of their site and emails. All great ideas that help serve the needs of an already frequent type of shopper.
An online store that needs to continually acquire new customers because their repurchase rate is poor will have a hard time remaining profitable. Especially if average order value isn’t high or margins are low.
When starting a company, research to see if your desired target market has a high frequency shopping habit. If yes, work diligently on your product range, customer service, and other details so you can earn their trust and keep them coming back.
Once you’ve earned the trust of frequent shoppers, your repurchase rate will soar, causing lifetime value and profit margins to increase. This will, in turn, allow you to invest more heavily in marketing and grow.
Investing in a loyalty program, a subscription model, or personalization can help you improve your retention numbers. But don’t expect any miracles if your customers aren’t frequent purchasers of your type of products.
If the products you’re selling aren’t suited for high-frequency purchasing, don’t panic. There are other ways you can leverage what you have to drive up repurchase rates. It will depend on the type of product you sell or your average order value. Both subjects of upcoming chapters.
About the author: Ramon Bez is a growth marketer who has worked for Compass (former Startup Genome) for two years. He has combined data from both their researches into his upcoming book, Ecommerce Genome, due to launch in 2019.