The ROI of Customer Loyalty in eCommerce

We have already discussed different eCommerce models on the basis of relationships with customers, as well as the importance of the degree of customer recurrence. Ultimately, the 3 models discussed are also closely related to the maturity of the online store, where the first steps typically focus on user capture, the second stage focuses more on improving conversion, and only once these aspects are under control can customer loyalty start to be carefully achieved.

But, to what extent is customer loyalty important in eCommerce?

Intuitively, everyone knows that customers who have already purchased add more value than new ones. However, much more money is invested in customer capture than in customer loyalty (80% as opposed to 20% according to Forrester), as if customer loyalty arose on its own…

A few months ago, Adobe published a study on the ROI of online marketing in eCommerce, where customers were segmented into 3 types: shoppers (visitors who have made no previous purchases), returning purchasers (customer who have made one prior purchase) and recurrent purchasers (with at least two previous purchases). The results of the study are clear, and prove the importance of investing a larger part of the budget in bringing existing customers back.

This study compares the results of the USA, Europe, and some European countries which do not include Spain, so we will use general figures in Europe as our reference.

Budgets and revenues are not aligned.

As we said, considerably more money is invested in customer capture than in customer loyalty, which amounts to just 20% of the budget.

However, the study shows that 41% of revenues come from customers who have made previous purchases, even though these amount to just 8% of total visitors.

Revenues per visit can be 7 times higher in the case of recurrent customers.

One of the main metrics for an online store is the Revenue per Visit (RPV), which represents the average revenue generated in a visit. The report shows that returning purchasers generate an RPV that is 3 times higher than shoppers (€5.34 as opposed to €1.75), and can be 7 times higher (€11.54) in the case of recurrent purchasers.

This metric can be calculated as the result of multiplying the conversion ratio by the average order value (RPV = CR x AOV), so it’s worth assessing whether differences are due to any specific variable. The answer is: it does. Even though both CR and AOV increase, the variable that increases most significantly is the conversion ratio, which can be up to 5 times higher in the case of returning customers and 9 times higher in the case of repeat purchasers.

It would be worth examining the reason for these differences in depth, but one of the main reasons, among others, must be the trust placed in purchases already made, familiarity with the brand and its products, the availability of user data in the store (so as not to have to go through a registration again), and the existence of data to better personalize the website for recurrent customers.

They generate even more value during vacations, but also during the crisis

These differences are even more significant during the Christmas season, during which period the RPV from shoppers increases by 4%, whereas that for repeat and returning purchasers are around 25%. It is particularly interesting that in Europe the RPV for return purchasers has grown from €10 to €15 during the crisis (between April 2011 an April 2012).

Conclusion

The study suggests that increasing the total number of visitors who become recurrent customers by 1% can increase revenues by 10%. It should be borne in mind that, in addition to revenues, there are benefits and the margin, and that the cost of customer capture is sufficiently high to become a reason to achieve customer loyalty. Even though attracting traffic is more frequent in eCommerce than achieving customer loyalty, these figures are significant enough to start to consider a change in our strategy.

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