Keeping your online customers loyal

About Dave Chaffey
Dave is a bestselling author who has advised companies large and small about how to get the most from their online marketing. Dave offers free advice on Internet marketing strategy to marketers and businesses through his Smart Insights site.

All marketers know how vital customer retention is to profitability, but it seems that with online marketing, many businesses are grappling with other thorny issues like attracting visitors to their site and then converting them to the outcomes they need. Little resource then remains for improving customer retention.

But some companies do give this aspect of online marketing the attention it deserves and in this article we will review the key success factors to improve retention of online customers. The examples I will use are mostly from e-retail, but the principles apply equally to other sectors.

Building long-term relationships with customers is essential for any sustainable business, and this applies equally to online elements of a business. Failure to build long-term relationships largely caused the failures of many dot-coms following huge expenditure on customer acquisition.

Research summarised by Reichheld and Schefter (2000) showed that acquiring online customers is so expensive (20-30% higher than for traditional businesses) that start-up companies may remain unprofitable for at least 2 to 3 years. The research also showed that by retaining just 5% more customers, online companies can boost their profits by 25% to 95%.

Success factors for retention

A useful approach to review how to improve all aspects of digital marketing, or indeed any marketing activity, is success factor mapping. You may know this as 'cause and effect analysis' or 'fishboning'. With this approach, the ultimate objective is placed at the right of the diagram and the success factors or performance drivers that will help achieve this outcome are placed on the left of the diagram.

In the case of online retention marketing, our ultimate goal is customer loyalty. The factors on the left help to deliver two facets of loyalty. First, emotional loyalty where loyalty to a brand is demonstrated by favourable perceptions, opinions and recommendations.

Of course, a favourable customer experience is, very important to achieving repeat purchases - how many online sites have you continued to use after a poor level of service was delivered?

The second type of loyalty is behavioural loyalty where loyalty translates to repeat sales and response to marketing campaigns. To achieve these repeat sales, companies work hard to deliver relevant marketing communications either through e-mail or web-based personalisation or through direct mail.

So, the success factors are grouped in terms of customer experience and relevance, but I have stressed the importance that, although we are referring to online retention, these are delivered across different channels - hence the main performance drivers are delivering a satisfactory multi-channel customer experience and delivering relevance in marketing communications across channels.

The type of approach to identify loyalty drivers was highlighted by Reicheld and Schefter (2000).

They reported that Dell Computer has created a customer experience council that has researched key loyalty drivers across different channels, identified measures to track these and put in place an action plan to improve loyalty.

Loyalty drivers and KPIs are:
1. Order fulfilment. Ship to target. % that ship on time exactly as the customer specified.
2. Product performance. Initial field incident rate - the frequency of problems experienced by customers.
3. Post sale service and support. On-time, first-time fix - the percentage of problems fixed on the first visit by a service rep who arrives at the time promised.

You can see that similar loyalty drivers can be identified for an e-retailer, i.e. Deliver on target, time to resolve different queries and returns.

Although companies can access benchmarking services, companies that are passionate about improving the online or multi-channel customer experience are evident from the efforts they put into surveying customers using - not simply ad-hoc surveys, but rolling surveys and in-depth feedback using systems such as Opinion Lab or Kampyle.

Reichheld, F. and Schefter, P. (2000) E-loyalty, your secret weapon, Harvard Business Review, July-August, 105-13.