Want to Retain Customers? Give Them a Reason to Come Back!
Hint: your business model may not be enough.
PHOTO CREDIT: Getty Images
A lot of people can be convinced to buy a product once. Retaining that customer is a different story however. They are not guaranteed to come back, so brands need to give consumers a reason to return. Unfortunately, we see company after company ignore this fundamental idea.
We don't regularly invest in software companies, but if there's one thing that we like about the space, it's the inherent stickiness of SaaS business models. Stickiness refers to a business' ability to lock in customers. Think of major names like Slack, Atlassian, and SalesForce whose business models revolve around retaining customers.
But consumer brands don't enjoy these innately high retention rates. It's because consumers are rarely locked in and can easily vote with their wallets, moving on to the next brand. Anybody can switch their toothpaste from Colgate to Crest, but switching your 200 employee company's CRM provider doesn't come as easily.
Then how can consumer brands make their products and services sticky?
An increasingly popular method to get consumers to return is to create a subscription service (similar to the SaaS model) where products are sold online direct to consumer (D2C). The past few years have seen a steady rise of D2C brands in the consumer space, from successful names like Harry's razors to Daily Harvest's frozen smoothies. It's easy to see why this model works: D2C offers convenience for consumers, and it boosts both retention and recurring revenue for brands.
While it can be effective, the D2C subscription model is not meant for every brand, and solely relying on it is no surefire means of keeping customers engaged. Forcing a subscription service (or relying solely on it and abandoning traditional distribution channels) can do more harm than good if incorrectly used. Why?
Too many brands overestimate the efficacy of D2C subscriptions, and it's easy to understand why. Subscriptions allow brands to capitalize on their highest lifetime value consumers, or whales, who continue to both use the product or service and provide recurring revenue. But the average consumer prefers flexibility and may not share this enthusiasm towards commitment -- sooner or later, he or she drops the service and churns out of the funnel.
At the end of the day, most consumers are more likely to purchase a great product over and over again because of its brand image, not because of its distribution model!
A D2C and/or subscription model may keep a consumer locked in for a period of time, but he or she will drop out without a strong brand image. (Brand image -- something that's easy to feel but hard to identify -- refers to everything from the value the product provides, to customer service and experience, all the way to packaging.) Beyond that, a strong brand image serves as a means of connecting the online and offline shopping experience, which drives customers back again and again. What do we mean by that?
Consider an example: women's shoe brand Rothy's launched as D2C only and has found success. But it has amplified its trajectory by capitalizing on its strong brand image to open its flagship retail location in San Francisco. The connotation of Rothy's -- its focus on sustainability and attainable luxury -- will help drive new and repeat customers into the store.
These investments in brand image can be hard to quantify, and as a result, founders are reluctant to focus on it, especially during the early stages. This is understandable -- they'd rather focus on something concrete, not an esoteric concept.
That said we cannot overemphasize the importance of nailing brand image. While admittedly difficult to quantify the ROI, brand investments will lead to marketing efficiencies and increased sales across all distribution channels, ultimately making consumers more likely to return.