Building a Customer Retention Strategy

Most CPG founders are so focused on acquiring new customers that they don’t spend enough time and energy retaining their existing ones. According to Neil Patel, “The probability of selling to an existing customer is 60-80%, while the probability of selling to a new prospect is 5-20%.” On top of this, customer acquisition costs for new customers are much higher than for existing customers.

Are you building your strategy around retention first and acquisition second? If not, you should be as it’s the foundation to building a successful business.

Let’s break down what a retention first strategy looks like and how to build one for your business.

First, let’s look at a traditional marketing funnel.

Marketing funnel

Ideally, each potential customer moves from awareness down to advocacy. Now it’s called a funnel because at each stage you’ll have fewer and fewer people moving to the next step. Sometimes it’s because the product isn’t a fit, while other times people are simply busy and forget. As a company, your goal is to:

1) Build as many advocates and loyalists as possible, and 

2) Increase the number of people moving from one stage to the next without exiting the funnel

Why? Advocates and loyalists drive more revenue at a lower cost than new prospects. This means higher profit and faster growth for your brand.

With funnel understanding, you can build a customer retention strategy for e-commerce and retail. Let’s take a closer look at what that can look like. 

Customer retention in e-commerce

E-commerce retention starts the moment a customer makes a purchase (in the diagram above that would be the Decision step). There are three critical points in the customer’s post-purchase journey to address.

After first purchase

At this point, the customer is taking a risk that your product will satisfy their needs while aligning with their values. As a company, you need to assuage any anxiety on both of these points.

Welcome series – Welcome new customers with an automated email and SMS sequence using a tool like Klaviyo. It should include:

  • Welcome message from the founder
  • How to use the product
  • Testimonials from other users

Product experience – Make sure you have a top-notch product experience. For food and beverage companies, for example, first and foremost your product should taste great.

Unboxing experience – Your product should arrive in good condition and be what your customers expect or more. Make the experience memorable by matching your branding with the packaging.

Getting to loyalty

Loyalty starts at the second purchase. Don’t assume the customer will come back on their own, you need to nurture them. The number of customers who purchase twice determines how well your product is satisfying their needs.

Second purchase email automation – Use an automated email to nudge them to purchase again 3 to 4 weeks after their first purchase. Sometimes you can encourage that second purchase with a discount. While you don’t want to train customers to always expect a discount, getting that second purchase can go a long way to building usage habits. 

Personal outreach –  Write a text-only email “from the founder” to help each customer feel individually welcomed. People buy from people they like, so build a connection with each customer. This  can still be automated, but try to respond to each outreach.

Rewards program –  This can be a points-based or automatic system. I recommend sending automated rewards after key purchase milestones, ie., 2nd order, 5th order, and 10th order, so customers don’t have to do any work to manage their rewards. You can nudge them to get to the next milestone.

Advocacy 

The best customers are those who not only regularly use your products, but tell all their friends about it as well. Encourage your best customers to share your products and reward them. Here are some ideas:

Subscription upsell – After the second purchase, encourage your customers to sign up for your subscription plan so they won’t have to worry about running out again. 

Referral program – Create a referral program that rewards customers with money for each new referral of a friend or family member. Incentivize both the giver and the recipient. 

Video testimonials – Ask customers to record a video testimonial and share it on social media. Then get their permission to use the video for your paid advertising campaigns. UGC (user generated content) ads are some of the highest converting right now.

Branded swag – Send customers branded swag to wear and use out in public (but please make it really cool).

Customer retention in retail

Build a retail retention strategy in the same way you build an e-commerce retention strategy. While harder to track, it’s important to implement strategies to retain customers. Think of each individual store as having new customers for potential trial, customers who have purchased once, and repeat customers who purchase multiple times.

Quarterly promotions – Many retailers require you to offer a quarterly discount of 15-20% to drive new customer trial, and encourage repurchases. At first glance, this can feel like a retailer taking money out of your pocket, but think about it as a customer acquisition and retention strategy. On the retention side, the sales tag can help your product stand out from the shelf and incentivize previous customers to purchase again, or purchase in bulk. 

Demos – In-store sampling is a great way to increase trial, but you should also leverage sampling to build first-party customer data. How? Offer a $1 rebate on the purchase when a customer signs up for your email list. The customer sends you a photo of their receipt and you Venmo them the rebate. Tag customers in your CRM based on the store they purchased at. Send after-event automation emails, educating consumers about your brand. If sales are slowing at a retailer, you can email those specific customers to drive velocity with an offer.

Customer requests – Do you know what stores your e-commerce customers shop? Most people still prefer to do the bulk of their food and beverage sales in-store. So are you available where they shop? Ask your digital customers where they shop using a tool like WeStock, where customers can “request” that your product be sold in the store they shop in. Your digital customers may purchase more frequently in grocery, driving retention.

Coupons / rebates – You can leverage your customer shopping behavior data from the two tactics above to then offer targeted coupons or rebate offers to drive your digital customers in-store. Why might you do that? You can drive velocity at certain retail partners and leverage that data to expand in more stores. Customers may purchase your products more frequently if they don’t have to pay high shipping costs or minimum order quantities online. 

Wrap up

The best way to grow your CPG business is by retaining as many existing customers as possible before attracting new customers. Use the strategies and tactics above to build an automated and effective retention process. Once you have this process in place, you will maximize the number of customers moving to each step and ultimately drive brand advocates. Now, every new customer you attract with awareness and consideration building activities will have a higher likelihood of becoming a paying customer.

Melinda Krah

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