There’s a (Big Data) Science to Keeping Your Customers

    By Adrienne Burke | Small Business

    Retention Science Uses Data to Keep E-Commerce Customers ComingIt costs significantly more to win new customers than it does to retain the ones you have, and it’s easier to get existing customers to spend more money than it is to sell to those who don’t know your brand. So why do so many businesses work harder on getting new customers than they do on retaining the ones they already have?

    E-commerce entrepreneur-turned-marketing pro Jerry Jao confesses he was guilty of the same. “I was constantly getting new customers, but I didn’t have any plan for retaining them. I spent a lot of time and 100 percent of my marketing budget on acquiring new customers through new channels,” Jao says.

    He cites Advertising Age data that indicates that repeat customers spend 33 percent more on brands than new customers do, and that 80 percent of a brand’s future profits will come from 20 percent of its existing customers. “Small businesses start off with a smaller customer base and are always thinking about how to grow, but they forget they have a gold mine to dig into and turn into brand promoters.”

    Winning repeat business, he notes, is different from winning loyalty. “Offering loyalty cards and points on purchases, such as “buy 10 get 1 free,” is not proactive marketing, Jao says. “Retention marketing centers around timely and relevant communication to generate repeat purchases. You have to know how to market to those customers in a way that’s relevant and with a value proposition that gets them back in the door.”

    He decided to make a business out of helping e-commerce entrepreneurs like him retain good customers. With some high-powered venture capital supporters and a mission to "help companies maximize customer lifetime value and retention with our predictive technology," Jao launched Retention Science three years ago, and is having success leveraging machine learning algorithms and statistical modeling to help small businesses keep their online customers coming back. During the company's beta phase 20 months go, Pando Daily reported that Retention Science "increased sales of participating e-commerce companies by an average of 133 percent." Jao's software-as-a-service "big data" offering comes as a monthly subscription with tiered pricing and fees based on the size of a retailer’s database.

    A key, he says, is to understand all you can about your customers: “You want to make sure you are putting the right offer in front of them at the right time. Do your customers respond better to free shipping or to 15 percent off, and how can you leverage that to be sure you aren’t giving away too much but still getting them to convert?”

    Granted, knowing your customers can seem to be a lot more difficult for e-commerce retailers than it is for brick and mortar stores. “Say we’re both walking through Nordstrom,” Jao says. “You’re carrying a Saks Fifth Avenue shopping bag and I’m carrying a Target bag. Those are signals that help a salesperson know something about the customer.” Online retailers don’t get such in-your-face clues about shoppers’ preferences or budgets, but their customers are leaving revealing data behind on their websites.

    Unfortunately, Jao says, most businesses aren’t looking at it.

    So, he helps them understand what data they should look into, and which data matters. “Not all data is created equal,” he notes. “For instance, a lot of businesses think they need to monitor demographic data, but if you’re selling a commoditized good, it doesn’t matter if your customer is older or younger. On the other hand, a consumer’s Zip code can tell you a lot.”

    He recommends starting out by looking at data points that are easy to collect, and tracking e-commerce users behaviors online.

    For instance, shopper #1 spent a few minutes on your website and browsed 10 products. If that customer had walked into Nordstrom, a sales associate could have observed that she picked up two pairs of shoes, compared them, and looked to see if her size was available. The associate could assume that the customer is fairly interested in the product and do whatever she can to make a deal.

    If you’re an online business, you want to be able to know when you need to go back to shopper #1 and offer a discount for the right kind of product. You can’t do that if you don’t track browsing, Jao says.

    He says Retention Science’s methods helped The Honest Company, an environmentally friendly baby supplies business, figure out how to re-engage existing customers and win 170 percent more conversions for every 1,000 offers it sent out.

    For the Los Angeles-based women’s fashion retailer Swaychic, Retention Science automated a way to identify the optimum email delivery times for each customer based on behaviors such as what time they had opened previous emails, what time they visited, and when they made their last purchase.

    “Swaychic used to reach out to customers by email early in the morning because they didn’t know any better and didn’t have a better solution,” Jao says. But with 12 new optimized email campaigns a month, Swaychic increased its average open rate by 40 percent and doubled its average click-through rate, according to Jao. “Now everybody is getting e-mail at the time they are most likely to open it,” he says.

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