I talk with Alex McEachern from Sweet Tooth, experts in customer loyalty and customer retention online who help create loyalty and rewards programs for e-tailers. We star““t by exploring customer acquisition vs customer retention and just what businesses exactly can benefit from having a points and rewards program. We then take a dive into core metrics and why Customer Lifetime Value is so important and some of the ways a business can go about improving Customer Lifetime Value.
Key Points in Customer Retention and improving Customer Lifetime Value
1. Customer Acquisition vs Retention:
- When you first start out, customer acquisition is the main thing. As you move into that mid-tier stage, customer retention becomes more and more important
- There is no set number for when you should start retention; it comes down to the owner of the store, if they feel like they have an established customer contact base.
- Once you become very well-established, growing through acquisition becomes very difficult, you saturate. At that mid-tier you still want to focus more on acquisition like 70% acquisition, 30% retention. But as you continue to grow that retention piece of the pie is going to get bigger and can actually eclipse the acquisition.
- Referral marketing is one of the key links between acquisition and retention.
2. Benefiting from Points and Rewards Programs
- The biggest thing with the loyalty program is you want products that have repeat purchasability
- When done effectively, you can see sales lifts of around 30% year over year with a loyalty program
- Loyalty program isn’t something that you can set and forget; you need to put the effort into it
- It starts with understanding what that target customer looks like and wants, offering things in the program that are best suited to those people
- People who do get the most out of a loyalty program are continually checking in with their customers, with the data, and making adjustments based on that.
3. Customer Lifetime Value, Retention Rate, and Purchase Frequency
- Customer Retention Rate equals the number of customers who have purchased from you more than once divided by the number of unique customers in your store
- Purchase frequency is the total orders divided by the unique customers. You could look at that over a one year timeframe and determine the average customer in your store is making this many purchases per year
- Customer Lifetime Value can be a little complicated. There’s a ton of different calculations out there but my favorite calculation is an easy one. CLV = Average Order Value x Purchase Frequency x Customer Lifespan
- Customer Lifespan is basically the amount of time that a customer is going to continue to shop with you. That can also be a little bit tough to calculate so if you can find something in your industry, I’d use that. If not, you can use a value between one to three. One if you want to just look at what’s this customer worth to me this year and kind of do it at a short term forecast. And then three if you kind of forecast a little out.
- CLV is so important because it gives you a much clearer picture of what a customer is worth. But calculating your customer lifetime value, it’s better to be on the conservative side by keeping the Customer Lifespan time low so that you don’t get caught short in your calculations.
- Segmentation is works well with CLV, giving you much more detailed and actionable data that you can use by basically seeing how profitable that individual segment is to your store. For example, segmenting on based on leads or segmenting based on customer location to determine how profitable each of these segments are.
4. Improving CLV
- Improving your CLV is just so profitable for your store that you should never put it on the back burner; it should always be something that you’re considering.
- My biggest tip for improving CLV is basically looking at the data and for example devoting more resources to identified profitable customer segments.
- Loyalty programs are a fantastic way to get more brand advocates and increase the effectiveness of your brand advocates
- Where loyalty programs are great for that repeat purchasability, a CRM solution would be better for something that isn’t as repeatable.
- Use ‘top of funnel’ emails keep your store ‘top of mind’ for the customer.
- Personalization can be more difficult to do online than offline, but it is still effective. A simple thing like using their name goes a long way.
- Content marketing improves CLV by getting more people to coming back to your site and increasing purchase frequency.
- For merchandise, the best course of action if I was going to start my own company tomorrow, would be selling other people’s products and then try to slowly introduce my own brand. You can see what customers are buying and what they’re interacting with, and you can tailor your brand to your customers specifically.
- For lost customers, you’ve got to implement that win-back tactic where your offer is steeper than you normally would go. If it’s effective in bringing this customer back you cut into your profitability, your margin, but then you’ve started that CLV cycle all over again
- Personalizing as best as possible with the win-back tactic. So figuring out what metrics to use and looking at it as a whole to figure out what elements among the segments are similar.
5. Parting Advice
- Looking at retention tactics is the number one way to grow. If you’re only focused on getting a customer, you’re never going to realize the full benefit of having that customer worth a lot over long course of time.
- Influence by Robert Cialdini can be related to learn to use psychology to your advantage online
- The Click Moment by Fran Johansson talks about how to set yourself up to be more lucky in business
- Tools and Management:
- Google Analytics
(04:19) Introducing Alex McEachern
(06:18) Customer Acquisition vs Retention
(09:15) Benefiting from Points and Rewards Programs
(12:23) Customer Lifetime Value, Retention Rate, and Purchase Frequency
(18:36) Improving CLV
(32:22) Parting Advice
Tweetables and Quotes
People who do get the most out of a loyalty program are the people that are continually checking in with their customers, with the data, and making adjustments based on that.
Improving your CLV is just so profitable for your store that I don’t think you should ever put it on the back burner; it should always be something that you’re considering.
If you’re only focused on getting a customer, you’re never going to realize the full benefit of having that customer worth a lot over long course of time.
On this episode of the 2X eCommerce podcast show I'm going to be talking to a customer retention expert and one of the top e-commerce loyalty marketing specialists you can find on the web today. He's going to talk about the importance of understanding your average order value by segment, repeat transactions, customer lifetime value, and a lot more. So do stay tuned!
[Intro clip] Welcome to the 2X eCommerce podcast show where we interview founders of fast growing seven and eight figure eCommerce businesses and eCommerce experts. They’ll tell their stories, share how they 2X’d their businesses and inspire you to take action in your own online retail business today. And now, here he is, the man in the mix, Kunle Campbell.
Kunle: Hello 2Xers, welcome to the 2X e-commerce podcast show. I'm your host Kunle Campbell. And this is the podcast dedicated to rapid growth and online retail. Not at the enterprise, neither for micro e-tailers, this is a show geared to helping ambitious online retailers like yourselves looking at scaling by 2X, 3X, and even 10X. I hand-pick the guests that come on this show to share their expertise and experience, and my criteria is based on one question, 'Can my guests provide valuable information and insights to help you, my listeners, rapidly grow metrics such as conversions, average order value, repeat customers, traffic and ultimately sales?' If they can, then I try my best to get them on the show.
Now today's show is based around loyalty programs, customer lifetime value, and customer retention. And starting out with loyalty programs, you may have noticed that loyalty programs are making their rounds in e-commerce, and for good reason, especially in the area of replenishables. So if you sell replenishables where customers are coming to you every month or every other month, loyalty programs should be a given, really, you shouldn't even think about it. But thinking about loyalty programs traditionally, they've been a default way retailers have used to drum up and improve customer retention. Think about grocery stores, their loyalty cars cards they give you, or even your cafés when you go to coffee shops for instance and they give you loyalty cards, whether a Starbucks or Costa or a Nero café, they give you these loyalty cards where they encourage you to come back over and over again. Now if we're to bring that thinking into a more digital manifestation it's a double edge sword. It plays first the traditional role of retention. And then the second element which I find quite interesting is the word-of-mouth referral marketing bit. Because with digital loyalty cards, you get your customers to carry out actions on social media. And those social actions will be engagements with your brand, whether it's a review of your brand or share of their experience with your brand, they share it in social media and their friends see it in social media, whether it's Facebook or Twitter. And when their friends see it on those channels, they see the engagements, they start to see your brand and they are aware, they get that referral, and then they get the points. So it's quite interesting. Now when it comes to e-commerce loyalty programs, one SaaS company seems to be leading the pack. And their name is Sweet Tooth. They seem to be out there with some of the highest quality content on customer retention and customer lifetime value. And every time I see their brilliant content, a name seems to pop up generally and this name is Alex McEachern. He runs the Sweet Tooth blog and has immense knowledge in the domain of customer retention and customer loyalty. He is joining me on this call all the way from Canada. He humbly refers to himself as a customer loyalty specialist, I regard him as an expert in that domain. Without further ado, I'd like to welcome to you Alex to the 2X eCommerce podcast show. Welcome to the show, Alex.
Alex: Thank you very much, thanks for having me.
Kunle: Fantastic. It's a pleasure to have you on. Could you take a minute or two to tell the listeners a bit about yourself?
Alex: Sure. So as you mentioned before I'm from Sweet Tooth. We like to think of ourselves as the experts in customer loyalty and customer retention online. I'm personally one of the loyalty marketing specialists here so I do most of the articles and everything you've been reading, podcast, kind of letting everyone know about customer retention and loyalty.
Kunle: And Sweet Tooth, you're based out in Canada is that correct?
Alex: Yes, we're just outside Toronto in one of the tech startup areas of Canada called Kitchener Waterloo.
Kunle: Right. Okay, so you like hockey?
Alex: I do like hockey. I think most Canadians do. It's a stereotype but we definitely do like hockey here.
Kunle: And you don't live in an in an igloo?
Alex: No. Most people think that but no we don't live, we don't all live in igloos here.
Kunle: All right. Okay, okay. Right. So as far as I'm concerned, most of our listeners are fairly established midtier online retailers, at least that's what I like to think. Now, what's your take on customer acquisition at the midtier versus retention, from this context?
Alex: Sure, so in that kind of mid-stage that a retailer would be in, obviously when you first start out, acquisition's going to be huge. You can't really retain anyone if you don't have any. But as you move into that mid-tier stage, that's where customer retention really becomes important. So you need to, as you progress into that mid-stage, you really need to be sprinkling retention in with your acquisition. It doesn't really need to be split down the middle at this point. But introducing basic retention elements like email marketing, personalization, maybe even a light rewards program can really go a long way in establishing when you need to be more focus on retention down the road, it really lays a strong framework for down the road.
Kunle: And what's your take, is there any magic number on retention? When to start retention when you've taken off? In terms of the numbers of customers in your database. From your experience is there any set number?
Alex: I wouldn't say there's a set number when you should start. I think it more comes down to the feel of the owner of the store, if they feel like they have an established customer base. Because for every industry it's going to be different, the amount of customers that you have, the people that you're selling to. But if you feel that you've had enough customers come to you and you have established enough basically contact base, then you can start using retention to really accelerate your growth and boost your profitability.
Kunle: Okay. What about ratio of time spent on acquisition versus retention? How would you split that ratio?
Alex: Sure. For those midtier companies I would say somewhere between 30 and 50%. Once you've become very well-established, growing through acquisition becomes very difficult. You kind of saturate, if you will, customer acquisition as you grow into a very large retailer. So by introducing retention you can actually continue to grow without kind of needing to pump all the resources into the acquisition. So at that midtier I'd say you still want to focus more on acquisition. I'd probably go at like a 70% acquisition, 30% retention. But as you continue to grow that retention piece of the pie is going to get bigger and can actually eclipse the acquisition as you get larger.
Kunle: Fantastic. I can see, at the mid-tier, I can also see a missing link of referral marketing. What are your thoughts on referral marketing?
Alex: Referral marketing is huge, it's actually one of the key links between acquisition and retention. So if you're using referral marketing properly, then you're getting your existing customer base to bring you new customers. So that in a sense is acquisition but when your existing customers refer a friend, they've become more invested in your site, they've kind of made a public statement that they like you. And that's going to bring them back in the future. So it is kind of link between the two channels and it is a very effective one.
Kunle: This is like a triangle, really when you look at it, okay. So Sweet Tooth, let's move into Sweet Tooth. Sweet Tooth is a points and reward solution. What kind of product types or e-commerce verticals best benefits from a points and rewards module?
Alex: Well really, anyone can benefit from a points and reward system like Sweet Tooth. But obviously some are much better suited than others, so for example if you're selling pianos let's say. That's probably not going to be the best thing for a loyalty program. Someone's probably buying one, maybe two pianos in their entire life so it's going to be difficult to get them coming back points. Basically the biggest thing with the loyalty program is you want products that have repeat purchasability. It’s that someone has the ability to come back and make that purchase again. So some industries that work really well for customer loyalty are like pet supplies, any consumables, supplements and vitamins companies is very big with loyalty, even like the beauty industry so like makeup, hair products, things like that.
Kunle: Okay, so replenishables would be really where it's all about. Okay, that's really good. What kind of sales uplift should e-tailers with these sort of product ranges that have implemented loyalty and rewards solutions actually expect? What's ROI on a rewards module or a rewards program?
Alex: Sure. I don't want to promise anything super specific but if you loyalty's done right or done effectively... is it marketed well? is it well set up? is the staff dedicated to it? ...you can see sales lifts of around 30% year over year with a loyalty program. But a loyalty program isn't something that you can set and forget, which is what maybe some people don't realize. So you get what you put into it. Like a loyalty program is a very effective way to boost your customer retention and your profitability but you need to put the effort into it
Kunle: Okay, let's talk about putting the effort into it. What does a loyalty program management, from the backend look like from your perspective? If you look at your top-performing customers that are getting hard high ROI, what do they do on a daily basis basis, a weekly basis, and probably a monthly and yearly basis to make their loyalty campaigns actually return that high?
Alex: Right so, it all starts with understanding the customer. So with Sweet Tooth you can reward for different things like social sharing, referrals, account registrations. So it's basically knowing their customer, have a good understanding of what that target customer looks like and wants. And basically offering things in their program that are best suited to those people. So that's kind of at the start and on a yearly basis you probably want to kind of be like tweaking what you doing there. I'd say more in a weekly basis you want to be looking at your program and seeing how your customers are interacting with it. You really want to be able to get a sense of okay, what are they liking, what's working, is there an opportunity to test something here? So it's basically like any marketing initiative you do where you always want to be kind of A/B testing it and making tweaks here and there. So if you want to get the most out of your program, and people who do get the most out of a loyalty program are the people that are continually checking in with their customers, with the data, and making adjustments based on that.
Kunle: Okay, so there are segmentation features in Sweet Tooth. Fantastic. Now, let's talk metrics. From a management standpoint you need to look at these metrics. Beyond conversion rates, say number of transactions, sales, average order value, stuff you basically see in Google Analytics, maybe revenue, what other core metrics in your opinion should e-tailers track?
Alex: I'd say there's three others that I would say are core in kind of emerging in an e-commerce space and that would be customer lifetime value, customer retention rate, and your purchase frequency.
Kunle: Okay, let's talk about each of them. So customer retention rate. How do we calculate a customer retention rate?
Alex: So it's basically the number of customers who have purchased from you more than once, divided by the number of unique customers in your store. That's basically going to let you know how many people are coming back to purchase from you more than once. It can also kind of [inaudible [00:13:12] back to you, be like three or four if you want to go for more just like a repeat customer and try to look at someone who's more of a loyal customer than just that repeat customer.
Kunle: Okay. What about frequency? To me it sounds very similar to purchase frequency. Could you define frequency, purchase frequency, please?
Alex: Right. Purchase frequency would be in its basic form the total orders over the unique customers. So that's basically, you could look at that over a one year timeframe and determine the average customer in your store is making this many purchases per year.
Kunle: Okay. And then the big daddy in the room, customer lifetime value. [laughs]
Alex: Yeah so, customer lifetime value, it can be a little complicated. There's a ton of different calculations out there but my favorite customer lifetime value calculation is an easy one. It's your average order value, times that purchase frequency that we just talked about, times your customer lifespan. I mean your customer lifespan is basically the amount of time that a customer is going to continue to shop with you. That can also be a little bit tough to calculate so if you can find something in your industry, I'd use that. If not, you can use a value between one to three. One if you want to just look at like what's this customer worth to me this year and kind of do it at a short term forecast. And then three if you kind of forecast a little out.
Kunle: So I think the lifespan variable is a bit shaky, it could change, it's very volatile, in my opinion. It could be as a result of changes in your marketplace so it could be a new competitor coming in and they swap over. And it can also be dependent on I guess your product and trends. Okay, quite interesting. So why is CLV, customer lifetime value, so important, and not just online retail but business in general?
Alex: Yeah, it's because it gives you a much clearer picture of what a customer's worth. So if we're only looking, in business and especially online, if we're only looking at what that customer brings when we acquire them through say AdWords, they come and make a purchase, that's not the full story. If that customer comes back, they're actually a lot more valuable to your store than you might initially think. And you can actually base your acquisition, your cost per acquisition, off this customer lifetime value. Because it's not just that first purchase. If you can retain them, they're going to be coming back for however many years, one, three, five years down the road.
Kunle: Okay so in calculating your customer lifetime value, should you be conservative or quite optimistic in your projections?
Alex: Right. I would say I would do it on the conservative side. This way if you make an estimate that's lower than what you actually are and you basing other things off that like, how much am I going to pay to acquire this customer, if I'd been conservative than in the future I'm going to see more profitability and be pleasantly surprised whereas if I was too optimistic, I might've actually overpaid to acquire that customer and then I'm not going to be very happy in the future.
Kunle: Absolutely. And looking at the metrics in the calculation for CLV, which of the metrics which you tweak to be more conservative or optimistic?
Alex: That would be, I'd probably adjust the 'T', so if you're going to be more conservative, I would forecast that down to maybe just a year and see what that customer is going to be worth this year. And then if you're going to try to be more optimistic and project further out, then you can increase that 'T' to be three or five years down the road and try to forecast out what that customer's worth to you over a longer period of time.
Kunle: Okay, fantastic. The 'T' being the lifespan, is that correct?
Kunle: Okay, all right. I'll add this to the show notes to give an illustration on it. Okay right. A bit complicated CLV, from calculations I've seen online, but yours appears to be very simple.
Alex: Yes, it's a very simplified version just to give you the bare-bones to make some CLV estimates. Because I'm a huge believer in simple CLV is a lot better than no CLV and that's what a lot of retailers are doing because it's so complicated.
Kunle: Absolutely. Absolutely. Okay. What about segmentation? Are you better off calculating CLV by customer segments? Because if I used a daily deal site for instance, my CLV for the daily deal site, a lot of retailers, this is like off-line retailers, complain about daily deal sites, they kind of say like if the CLV for daily deal sites are just a single transaction, the purchase frequency is one. So what are your thoughts on segmentation and how would you typically segment to accurately calculate customer lifetime value?
Alex: Yeah, segmentation is huge with customer lifetime value. It gives you a much more detailed and actionable data that you can use. So basically segmenting on anything is effective for CLV because whatever you segment based on, you're basically seeing how profitable that individual segment is to your store. So you could look at like acquisition channels. So is someone coming in from social media actually worth more over their lifetime to me than someone I acquire with AdWords? Or if I segment based on people who came in using a certain keyword, is that keyword more profitable? And I can allocate some more resources there. You could even look at locations so, is a customer from Canada worth more than a customer from the states to the store? Basically segment on anything. You could look at people who are enrolled in your newsletter, and enrolled to your blog, basically anything and segment your CLV based on them and determine how profitable each of these segments are.
Kunle: Okay. Gotcha. Okay let's talk about improving CLV. Should customer acquisition costs be controlled before considering improving CLV? So say I acquire a customer from AdWords, I'm how much I acquire a customer from AdWords say it's 10 dollars, should I fix that before considering improving? Should I kind of tame my customer acquisition cost before trying to improve my CLV? Or can I let it be variable over a period of time while trying to improve my CLV?
Alex: I don't know if you need to have it fixed while trying to improve your CLV. Improving your CLV is just so profitable for your store that I don't think you should ever put it on the back burner, it should always be something that you're considering. And whether that's trying to increase your average order value, increase how frequently people are buying from you, or increase how long they're going to buy from you, just improving your CLV it shouldn't be dictated by trying to stabilize that cost per acquisition first. If you are improving a CLV then if that customer is worth more to you, then you can actually adjust back what you're paying for AdWords and your cost for acquisition might actually be changing.
Kunle: Absolutely. Absolutely. Okay so they're all different moving parts really when you think about it. Okay.
Kunle: All right. Do you have practical tips for increasing and improving CLV?
Alex: So you kind of hit on it before. My biggest tip for improving CLV is basically looking at the data. You always want to be looking at what's happening and making adjustments and if you're segmenting, then you're getting the best and most accurate data for an individual customer sets. So like I said before, you could look at like that target keyword and figure out that this particular keyword's actually resulting in a 60% increase in that segment CLV over our average store CLV, so we can actually devote more resources into that, focus a little more heavily there. Or maybe it's a location, we can start targeting in that location, do a little more research into what the people from that location are looking for and increase the effectiveness and maybe even make it more profitable than it already is.
Kunle: Absolutely. So joining up data, the metrics and segments would just make it super powerful to get you feedback to improving CLV. Right. Do you have any practical advice in turning customers into brand advocates? This is more in referral marketing, it's a step out from CLV but how can you get your customers to become brand advocates for you?
Alex: So I may be a little biased here but loyalty programs are a fantastic way to get more brand advocates and increase the effectiveness of your brand advocates. So if you can reward points for doing things like referring customers, leaving reviews and giving points and encouraging engagement on your site from your customers then they're going to one, want to pursue those to get those points, accumulate those points, become more loyal to your store. And they're going to become more and more advocates of your site over time as they accumulate and engage with your site more.
Kunle: Absolutely agree with you there. There's a psychology there when you give people a reward for action, and it happens a lot also in competitions. You know when you're running a competition, you ask people to take a certain action which obviously is positive to your brand, and they take it and it brings more people in. So yeah, I do agree with you. So I guess it's the way you engineer the loyalty program and the kind of messaging you actually infuse into the messaging they're going to re-share or do the action ask them to carry out. So yeah, that's a really good point. So you could actually tie in loyalty with customer referrals.
Alex: Exactly. Yup.
Kunle: Which is interesting, very, very interesting. Okay CRM platforms have long been used for managing customer lifecycle and retention in the B2B space. I would sort of like you to recommend any applications in e-commerce that would be good for managing customer lifecycle and retention?
Alex: Right. So in the e-commerce space I'd say a CRM solution is really good for say the example before with the pianos where I have like a large, maybe slower sale times and I have high order value on what I'm selling. So I can use that CRM to basically take any information I have on the customer who bought last time and basically make some recommendations. Like I know that a piano should be replaced every 15 years, I can schedule something and reach out to them in that way. So it's great for kind of the other side. Where loyalty programs are great for that repeat purchasability, a CRM solution would be better for something that isn't as repeatable. And it's great for e-commerce for all the same reasons that it's great in the off-line world. It allows you to keep tabs on your customer and keep everything organized.
Kunle: So high-ticket items, okay. How do you recommend maintaining engagement with customers in a bid to drive in improving CLV? What would you do to get them to, even if you don't want them to the buy stuff from your website, to just engage with the brand so your top in mind, and when they're ready to purchase they kind of have you top in mind to make that purchase?
Alex: Yeah, one of the things I'm a big fan of is what we call top of funnel emails. So even if you're not trying to push a purchase, just trying to give people relevant information and information about what you're selling, the industry, just keeping yourself top of mind so that when they say, 'Hey, it is time to replace that piano,' my store has been ...kind of like soft touches here and there, maybe an email every month or so, just kind of keeping in touch, keeping top of mind and then when the need arises then the first thing that pull-up is my store, and I'm the one that they are now all of a sudden engaging with.
Kunle: Absolutely. You earlier alluded to the fact that you could use personalization to improve customer retention. How do you think personalization could be effectively executed to improving CLV? Digging deeper into personalization and retention?
Alex: Yeah, personalization is huge and the one thing I always like to say is, we all have that favorite restaurant or that favorite coffee shop that we go to. And we love them because they know our name when we come in. They know our order, they know little bit about us. But in the e-commerce world that becomes a lot more difficult when my customer is thousands and thousands of miles away behind a computer screen. So personalization isn't the same as it is off-line as online. But that doesn't mean it isn't effective anymore. So for personalization you can go as far to as far as like what Amazon does and have like personalized recommendations based on what you bought before. Personalized recommendations based on what your friends are doing. But just like from a simple standpoint, even just using the person's name in all of your communications. So if you put the first name in all the email, if you're using live chat, starting off with saying like, 'hey Alex, here is...(blank).' Just simple things like that go a long way.
Kunle: Okay, good point, really, really good point. Just being human, I mean, it's people, people [inaudible [00:25:36] [laughs]
Alex: Exactly, that's it.
Kunle: Okay. On the Internet, on Twitter I've have come across a lot of articles that talk a lot about touch and the fact that content marketing helps improve COV. What are your thoughts on content marketing and CLV? I think you just mentioned soft touch and top of the funnel emails, could you pipe in contact content marketing through there or do you think it's blogging? I'm just open to your opinion on content marketing and as it relates to improving CLV.
Alex: Right, I am a huge fan of content marketing especially in e-commerce. I think it is a very underutilized form of marketing online. And the people that are doing it are doing it and seeing amazing results. So for improving your CLV, if you're constantly updating your blog with information that your customers are looking for, then you’re going to be, one, getting more people to come to your site because they're not necessarily looking for product, they're looking for an answer and if you have the answer then they're going to come and they might find the answer is your product. And when you have an active blog or an active YouTube channel or anything like that then those customers are constantly coming back to see kind of what's new, what are you talking about, and that's going to, one, improve their purchase frequency, they're more likely to buy with you more often. And if you can use the content, say a YouTube show if you're selling hair products then you can shoot use the products in that YouTube show and then have the person realize that hey, that's a great complement to what I'm already using, and then now you've increased the basket size, you've increased your average order value as well.
Kunle: Gotcha. Gotcha. In the context of e-commerce, what brands do you think are doing e-commerce really well? Content marketing really well as it relates to their CLV or improving their CLV?
Alex: One of my absolute favorite examples is a shop called Slick Hair Shop. They have a YouTube channel where they basically do... it's men's hairstyling products and they have a YouTube channel that basically shows you how to cut your hair and how to style your hair and they use their products in the videos. And they're not necessarily really hard selling the products, it's more of, hey this is what we're using, and then people identify, hey, if I want that same look and maybe I should be purchasing from them. And I've been following them for a while now and they started off selling other people's products, they then introduced a product of their own. And now they have a whole line of products that they're selling thats their own brand.
Kunle: Okay, let's talk about that, by the way, from the looks of your profile photo, it looks like you use their... you're a customer.
Alex: I am a customer.
Kunle: [laughs] Okay. Let's talk about other people's brands. Merchandise. So people who sell, or retailers who sell other people's brands but versus retailers that sell their brands. What are your thoughts? Because I think eventually you should make that transition to selling your brand, but you know you might have a different opinion. What are your thoughts on selling other brands versus selling your own brand?
Alex: There's pros and cons to both. So if you're starting up an e-commerce store tomorrow, it's going to be a lot harder for you to kind of show the value of your own brand, establish a name for that brand. It's not impossible, it's going to be a little more difficult. I've seen a lot of success with people starting to sell established brands in whatever they’re selling. If they’re selling makeup, having established brands there and then over time as you start to get a bigger customer base and people are starting to become more loyal, more engaged with your site, then you can start to introduce maybe like I said before like one product that you make and try to push that when people are buying the other ones. And then you can start to slowly establish your brand over time. So I'd say that the best course of action, if I was going to start my own hair company tomorrow I would be selling other people's products and then try to slowly introduce my own brand.
Kunle: Exactly. And they give you feedback to know exactly how to launch your brand eventually.
Alex: Exactly. You see what they're buying and you can see what they're interacting with, and you can tailor your brand to your customers specifically.
Kunle: Exactly. Exactly. Finally what win-back tactics can e-commerce businesses employ to retrieving lost customers?
Alex: So this is an interesting topic and one that I love. So you can basically look at your customer data and determine what the average time someone goes between making a purchase is. And then you can basically determine what you would consider lost. When someone has become lost, my view on it is basically I'm going to assume that they're never coming back. And you got to implement that win-back tactic and this is where you can kind of offer may be like a steeper offer than you normally would. So maybe it's a discount or coupon or something along those lines where it's a little more than you would generally be comfortable with, but if it's effective in bringing this customer back then that is just a huge bonus because in your mind that customer was long gone. And yeah, you cut into your profitability, your margin on this one, but if you got them back and they're coming back again, then you started that CLV cycle all over again.
Kunle: The challenge I find is, how do you take action? Would it be on an individual basis or would it be more or less from a segmented basis? You know because it is a lot of hard work trying to win back customers on a one to one basis, you know on a case-by-case basis. So from your experience and from your perspective, how would you go about winning lost customers? How would you address it? What platforms will help you address it effectively and yet not very time-consuming, if that makes sense?
Alex: Yeah. There's always going to be a relationship between the effectiveness and how time-consuming it's going to be. So obviously the best course of action would be to get in touch with everyone on an individual basis and find out as much as you can and speak to them at the individual level. But no one is going to have time to do that so looking at a segment is the best way to do that. So figuring out what that metric is that you're going to consider a customer lost and looking at them as a whole. And trying to figure out okay, what elements among in this segments are similar? Like how can we speak to this segment on the most personal level we can with the information we have about them as a group? Because talking to every single individual customer is going to be way too time-consuming for the average e-commerce merchant.
Kunle: Exactly, because your customer lifetime value has to be really huge for you to justify that. Like the piano example you gave, so I guess you're only way might be marketing up automation. I asked someone else the other time and yeah, he was in some of your opinion with you in terms of like segments. So yeah, okay. Now the evergreen questions. If you had one piece of advice to mid-tier retailers looking to rapidly grow their e-commerce ventures or venture, what would it be? Just one piece of advice, please?
Alex: Customer retention. If you're only focused on getting a customer, you’re never going to realize the full benefit of having that customer worth a lot over long course of time. So basically, looking at retention tactics is the number one way to grow.
Kunle: Fantastic. Okay. What about a book or resource that has made the highest impact on how you view building e-commerce businesses and growth?
Alex: So, I actually have two. There's a book called Influence by Robert Cialdini and it's basically looking at the power of persuasion and psychology. And it's not necessarily related to e-commerce directly but the learning you can get out of there to basically use psychology to your advantage online is huge and I've definitely recommended reading it. I also have a blog post about it that kind of relates it to directly to the e-commerce world so I can share that. My other favorite one is called The Click Moment. It basically talks about how there's more luck in business involved in business than people like to give credit for. So it's just kind of a good eye-opener with, yes it's going to take hard work but there's also an element of luck in everything. And the book talks about how to set yourself up to be more lucky.
Kunle: Nice. Nice. I'm actually viewing it... by a gentleman by the name of Fran Johansson. Okay, I'll definitely check that out, I'll link that through the link notes. Okay. What about your three indispensable day-to-day tools you use out there in Sweet Tooth?
Alex: From my standpoint, my three tools are Google Analytics, which I'm sure everyone says. HubSpot. And Slack.
Kunle: And Slack. Okay. What Slack groups are you a member of?
Alex: For Slack we mostly use it here as an internal communication tool. But I am a member of some Slack groups so there's a Slack group around here for kind of like the tech businesses in the cities, so I'm a member of that. There's a Magento community Slack as well. So it's just a great tool to, one, communicate with everyone in your own organization and get everyone on the same page, and communicate with everyone in external as well.
Kunle: So think it's going to replace Twitter?
Alex: I don't know about that. I think it would be a little bit of a pivot for them. They are kind of more focused on that enterprise business side of things right now. But they are a bunch of smart people so I don't put it past them to take the world by storm.
Kunle: Because I was in the early days of Twitter and you know just the noise, it's so similar, the noise around Slack is so similar in the early days of Twitter in 2006 or 2007, 2008. Yeah, let's wait and see. Okay finally, how could our audience like to follow you, get to know you, reach out to you?
Alex: Sure. So on Twitter you can follow me @alexmcea. You can also reach out to me on LinkedIn. And if you want you can subscribe to the Sweet Tooth blog so when you subscribe there you're going to get my personal email, so we can shoot ideas off each other as well.
Kunle: Great stuff. And you're guest blogging on the 2X eCommerce website very, very soon aren't you?
Kunle: Okay. Fantastic. It's been a pleasure having you on the show, Alex. Thank you for coming on.
Alex: Thank you for having me.
[End clip] Thanks for listening to this episode of 2X eCommerce. To help you get more actionable insights and eCommerce growth hacks that will help you 2X your online retail business, hop over to 2xeCommerce.com
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