How apparel retailers have focused on growing their profits through converting first-time purchasers into recurring customers.
“You are not truly competing unless your customers are telling their friends stories and bringing in new blood. Focus on what you want your customers to remember and repeat.”Ken Schmidt, IPCPR 2019 Keynote
You spend a lot of your time and energy on getting new feet to walk into your store. Through events, special sales, workshops or maybe even an underwater basket weaving competition—all those fresh new faces represent a treasure trove of new customers. But the challenge—or really the opportunity—is how do you create repeat customers from those first timers?
Repeat customers are the cash cow of businesses, especially for brick-and-mortar retailers. Recently, a study of the retailer apparel industry dived into the numbers of how valuable repeat customers are and why a serious consideration of investing more time, effort and money into converting them was warranted.
According to the study, nearly 80 percent of retail apparel customers are one-time buyers. Digging into the numbers, it was estimated that if retailers converted just 5 percent of those buyers to come back, it would result in an additional $340,000 of revenue, assuming they spent the average of $100 per sale. But it gets even better with return customers. Beyond the immediate impact of that second purchase, repeat customers become increasingly valuable over their lifetime. For example, second-time buyers are 130 percent more valuable than one-time buyers (see chart for increase in customer lifetime value). This increase means that the additional spending of the second-time purchases would result in $210,000 on top of the $340,000 immediate impact.
What the research also found was that once a customer comes back, he or she is significantly more likely to return again for a third (or more) time. The study showed that one-time purchasers came back at a rate of 27 percent. That number jumped to 54 percent for second-time purchasers returning for a third visit.
Time is of the Essence
Out of sight, out of mind is true for customers and your store. Sixty percent of second purchases occur within 100 days. After 100 days, the chances of that customer coming back for round two in your store plummet to below 10 percent.
Moving fast just for speed’s sake, however, is not going to likely get you the results you seek. Slow is smooth and smooth is fast, as it were. Using similar customer engagement tools, which many of you use and will recognize, retailers have been able to grow repeat customers by tapping into their genuine customer service, playing to their strengths in customer experiences, and in providing the right kind of offerings that increase customers’ spend, and not simply offer discounts.
Top Three Ways to Create Repeat Customers
1. Personal Experience
This is your secret sauce. According to a Walker study, 86 percent of shoppers will pay more for a product if it involves a better experience. The big advantage retailers have over online competitors is human interaction. As retailer Joshua Evarts notes in his Tobacconist column in this issue, Amazon won and that tells us what we must do. What shoppers are lacking today in the modern shopping experience is a feeling that they matter, more than just a dollar sign, a cog in a machine or a line of code in an algorithm designed to suck out as much money from their wallet as possible. Customers are starving for attention, to feel special—and the retail store experience is the very best place for them to get that.
This means getting to know them and offering personalized recommendations. As a retailer, you are the tasting center for premium tobacco. This should be an integral part of your identity as it lets every single customer who comes into your store know that you are aware of what’s good, new, interesting, unique and, ultimately, what is best for whatever palate and occasion they are searching for. Be the cigar concierge and make them feel special because they know you thought about this particular stick just for them.
2. Vouchers and Gifts NOT DISCOUNTS
There are times discounts are great and useful. But using discounts to get customers to return and purchase again trains them to only look to you for discounted items and this mentality too early in the relationship sets you up to slip down into the discount death spiral. Instead, many retailers offer time-limited vouchers or gifts. I mentioned in my previous article that I had recently purchased a suit. I received some vouchers to use at the store but needed to be used by a certain date. And I am happy to say that I did indeed return and spent nearly twice the voucher’s amount.
Another great tactic was offering a “gift” instead of a discount. Many successful retailers tie their BOGO offers to a gift, representing a one-time special recognition as a customer. Rather than cheapening their store or products in the eyes of the new customer with discounts, a gift was offered. The present made customers feel special and wanted, and they returned at rates over 65 percent to redeem their gift. Some even tie the free gift into an action that must be taken by the customer, such as a check-in on Facebook or a Yelp or Google review. Turn good customer experiences into your ambassadors, and that can in turn bring in more new customers for you to transition to regulars.
Gamification takes customer loyalty programs to a whole new level. While there are many tobacconists that I have visited and spoken with who have great loyalty programs with points for purchases, adding something as simple as scavenger hunts in your store (maybe to push specific products) or even trivia engages all customers, from first timers to those who are at your store so much you should be charging rent. Extending the game over the course of days, weeks or even months provides fun incentives for folks to keep returning. It’s the next generation of Ralphie’s Ovaltine decoder ring.
Many businesses spend significant portions of their budgets capturing new customers and this is not wrong. But looking at the lifetime value of returning customers and how much revenue could potentially jump by turning one-time buyers into a second-time buyers, maybe it’s time to invest some resources into transitioning those customers.
It must be noted that segmenting those buyers into the correct buyer persona will be critical before pursing any such strategy, as the wife buying a gift for her husband’s birthday or adult children buying dad a Father’s Day gift or the bachelor party or birth of a child purchase all require some specialized marketing. But, as the master Dave Garofalo has pointed out, if you buy a cigar, you need to cut it and light it, somewhere to put the ashes, and something to freshen the breath and even mitigate the smell. Finding the right carrot means that 5 percent of those customers will come back and give your revenues a nice boost.