The rising cost of living is curbing discretionary consumer spending while pandemic accelerated digital discovery has raised customer expectations, retailers have to start economising loyalty to secure long-term profit potential.
Southeast Asia is undergoing a rapid retail transformation and has a projected GMV of USD 1 trillion by 2030. Since the pandemic started, there are 80 to 100 million new digital buyers in the market and the field is wide open for retailers to compete for customers. The online penetration of fast fashion has hit 20 percent and online grocery is only 2 percent, indicating the wealth of potential. Customers are also 1.2 to 1.7 times more likely to spend with digital retailers who ensure customer satisfaction.
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So, how can retailers win the battle for the customer and long-term profit potential?
While a lot of retailers worry about new customer acquisition, KPMG’s Retail Industry Outlook recently showed that a high customer retention rate can increase profits by up to 95 percent.
Revolve Group also famously filed for an IPO of USD 1.2 billion in June 2019, which was 4.5 times its revenue over the previous 12 months. Revolve had acquired customers that stayed with them for many years and their long-term profit potential was clear. Other retailers have long hypothesized about the impact of investment on retention but were never able to understand the value of a loyal customer or link purchases made in-store to a customer profile. However, digitalisation has opened the door for these retailers to connect the dots and implement data-led loyalty strategies.
Identify and acquire high-value customers.
Using a customer data platform (CDP), retailers can identify traits that are specific to high-value customers and use them to attract similar prospects to make their first purchase. As Ben Moreau from Lexer explains: “Once a customer has been acquired, retailers can convert them into repeat purchasers using tailored experiences that are built off the insights of existing customer cohorts”.
Implement strategies to improve customer lifetime value.
Customer lifetime value (CLV) has become one of the most crucial metrics that marketers track internally to orient their personalisation and customer experience strategies. However, often it can’t be measured due to disparate data silos and manual methods of calculation.
When a CDP is deployed, marketers can marry online and offline data to get a complete view of CLV, strategically reduce churn rates, and increase customer engagement across all channels.
Improve purchase frequency.
For most retail brands, 50 – 80 percent of their customers purchase once and never again. However, by implementing a “crawl, walk, run” approach they can increase repeat purchase frequency. It’s possible to attract buyers with hero products that are frequently purchased, drive sequential purchases with triggered messaging, and leverage loyalty programs that drive sales with high CLV customers.
The effects on profitability can then start snowballing, as customers that buy twice are nine times more likely to buy again.
Increase basket size with micro-segmentation.
Retailers use CDPs to execute tailored, high-impact campaigns with niche micro-segments. Hyper-targeted promotions and messaging can be delivered to customers based on previous purchases, channel engagement, and web behaviour. The campaigns drive behaviour across disparate groups, without sacrificing profit because they leverage insights that have already been gained from existing customers.
Win the hearts of fickle customers.
Customers are spend-conscious and have a low tolerance for poor experiences. They can easily discover a better alternative on their mobiles while walking out of a store. So, if marketers want to win retail’s next battleground, then they can’t treat their online and offline channels as separate. Nor can they blast out generic marketing messages with no relevance.
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The new world of retail highlights a powerful asset that was once ignored, first-party data. Harnessed correctly, it can enlighten a retailer on its business health and kick start meaningful customer experience strategies that generate sales.
Author: Jayesh Easwaramony, MD Spectra Global