Turning Your First Time Customers Into Your Biggest Fans

Nick Hinsley is the VP of Retail at Lexer. Here, he looks at the challenges of driving a second sale and explains how brands can turn a one-time customer into something more.

We often hear retailers referring to the importance of ‘making a customer, not a sale.’ Why? Because a loyal customer provides substantially more value to your company than a one-off sale ever could. Every time a customer comes back to make a repeat purchase, they’re drinking up their customer lifetime value with no additional acquisition costs. 

In the wake of the pandemic, Gartner predicts that the majority of retailers will turn to their loyal customers to drive sales rather than focusing on customer acquisition in new markets. 

With customers in control, retailers must turn their attention to nurturing relationships, rewarding consumers and creating targeted, highly personalised experiences to drive a following of loyal customers. But, creating these relationships in retail can be challenging without data. 

In today’s retail landscape, data provides the foundation to build a strong retention strategy that keeps existing customers engaged, happy and inspired to stay loyal. So,  how do you turn first-time buyers into loyal customers? 

Driving the second sale

Contrary to popular belief, it’s not the first but the second sale that is the most critical milestone for growing your customer lifetime value (CLV). Research shows that two-time buyers are nine times more likely to make repeat purchases than one-time buyers. With those odds, driving the second sale is a growth strategy that retailers simply can’t ignore. 

Yet, when we first started working with retailers, the vast majority had staggeringly high one-time buyer ratios. On average, 50-80 per cent of their customers purchased once and never again. So, what is it about the second sale that makes it such a common roadblock to developing loyal customers? It’s clear that converting first-time buyers into two-time buyers is no mean feat and the more time that passes after the first purchase, the more difficult it becomes to win the second.

Every time a customer comes back to make a repeat purchase, they’re driving up their CLV with no additional acquisition costs. In this way, CLV can be used as a partial measurement of customer loyalty. Drawing on an example, the ASX listed company, Super Retail Group has a thriving customer loyalty program which it nurtures to encourage repeat purchases. In the last year, its active club members have grown by more than 20% to a total of eight million loyal customers. 

For example, as part of the Super Retail Group, ‘rebel active’ members enjoy member only pricing with exclusive monthly offers, access to exclusive giveaways, prizes and game tickets, VIP experiences such as celebrity appearances and shopping events, as well as the automatic saving of receipts for peace of mind and easy returns. 

We know more than half of customers who make the second sale will do so within the first 90 days. This means that retailers must strategically engage new customers with personalised, targeted and timely marketing messages. These tactics will help retailers maximise conversion to the second order, drive customer loyalty and  increase overall CLV. 

Leaving your customers wanting more

Customer acquisition costs have increased 50 per cent in the last 10 years. The shift to online shopping has grown tremendously, and most consumers now prefer to shop via digital devices. Although for retailers this means that there’s ample opportunity to reach new customers, it also means that customer acquisition costs (CAC) have increased. 

Keep in mind that potential customers can go to various online stores before deciding on a particular brand or product. So, while CAC soars and competition for new customers becomes increasingly difficult, savvy retailers must prioritise building a loyal customer base. 

Leading Aussie retailer and part of The PAS Group, Review has a strong cohort of loyal customers (or VIPs) called Dress Circle. Last financial year amidst the economic impact of the pandemic, Dress Circle customers drove a whopping $4.8 million in revenue, revealing the strength of a loyal customer base and cohort of customers wanting more. 

At the end of the day, retailers who don’t understand their customers can’t engage them properly and are unlikely to have a loyal customer base. In today’s digitised world, the best way to engage with customers is through data. On average, only 5-15% of transactions in-store are linked to a customer profile, so a strong loyalty program uses data collection and insights to help streamline the overall customer experience.

Thanks to data-driven insights, retailers  can develop timely and targeted programs to keep customers engaged and make strategic assessments as to which products have the highest likelihood of converting a second-sale. Combined, these efforts work to increase overall revenue, drive loyal customers and support business growth. 

Incentivising loyalty through rewards 

Cultivating a new customer relationship can cost up to 16x more than developing the loyalty of existing customers, and repeat customers can provide as much as 10x the value to your business than one-time buyers ever will. Giving customers an incentive to come back through rewards programs will have a significant impact on customer retention rate, and will therefore have direct and material impact on your profit. 

As one of Australia’s largest cinema retailers, Village Entertainment is committed to providing the highest quality experience to customers through its loyalty rewards program. As customers of Lexer, when Village Entertainment transitioned to a consumer-led strategy, they achieved a record-breaking growth in revenue and increased their active loyalty base by 62 per cent year-on-year. 

By implementing a loyalty strategy, retailers  can develop a richer understanding of their customers beyond current transaction history. This data collection allows retailers to predict the annual value of individual customers and identify the gaps to reduce the risk of customer churn, while also providing the insight to recognise and reward the highest value customers. 

As CAC continues to grow, retailers need to increasingly embrace loyalty as a top priority. Although implementing a loyalty program can seem like a huge undertaking, especially for small and emerging businesses with limited resources, it’s entirely possible to create a simple, effective rewards program with the right data and tools which will ultimately work to drive business growth. Instead of trying to implement a complex rewards program all at once, you can start with a few tiers based on customer lifetime value and automated reward triggers. When done successfully, this easily-managed rewards strategy based on customer data can drive incredible results.