In his 1997 letter to shareholders, Jeff Bezos said:
“We dramatically lowered prices, further increasing customer value. Word of mouth remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers have placed in us.
Repeat purchases and word of mouth have combined to make Amazon.com the market leader in online bookselling."
Over twenty years later, this strategy holds true.
Attract customers, deliver value that keeps them coming back, increase order value by expanding options and convenience, and develop the most powerful logistics machine in the world.
The challenge that many merchants face is unlocking sustained growth. How can you make smarter investments to grow your business both now and in the future?
We assembled an all-star cast of ecommerce experts to create a universal overview to help you increase your revenue in a scalable manner.
Revenue in online retail comes down to several fundamental aspects:
With this framework, you will be able to continually expand your customer base and build loyalty among these shoppers, essentially mechanizing profitable growth.
Often, customer acquisition is ubiquitous with revenue growth.
Customer acquisition consists of finding new prospects, bringing them to your site, and converting them to a purchasing customer. It's the primary way in which companies expand their customer base, and it's critical in order to avoid stagnation.
As Divya emphasizes, customer acquisition is truly a continual process. In order to appeal to potential new customers, you first must understand them.
That's because in ecommerce, acquiring new shoppers can be much easier said than done.
D2C brands are forced to contend not only with the ecommerce giants such as Amazon and Jet.com, but also with one another. And as a result, customer acquisition costs have continued to soar in recent years.
Dan highlights that many businesses cannot afford to pour money into advertising and hope for the best. He states the importance of investments, both in terms of money and attention, in the experience and brand itself.
This approach will take time, but having a distinct brand is central to success in ecommerce.
The purpose of establishing a brand is to give shoppers a reason to buy from you. Your brand is shaped by your story, mission, value proposition, and the experiences you create.
Invest in a functional and good-looking website. Develop the story you want to portray, and the copy to resonate with visitors.
But as we know, it's not enough to just resonate with shoppers. We ultimately want them to convert to paying customers.
Tools like Privy are designed with this objective in mind. When a new shopper visits your site, you want to excite her, engage her, and give her a reason to either revisit soon or convert at that time.
Divya and her team leverage this power to help clients grow their customer base. She specifies that the nature of the customer interaction can make a big difference.
New visitors don't particularly want to feel like you're selling to them - they would much rather feel like you're talking to them.
This is the premise of conversational marketing.
Once you have the foundational experience and systems in place, it's time to optimize for conversion. The best way to learn is to experiment.
Test out different messages, mediums, and offers to see what works best for your business and your customers.
If you can convert shoppers without discounts, then absolutely do so. But percentage or fixed discounts can be an effective offer to push a new visitor to take the next step in the customer journey.
In terms of particular campaigns, Dan suggests a welcome discount as the first you should establish.
Offer some sort of incentive in exchange for a visitor providing their email address.
Not only does this campaign drive new sales, it gives you new contact information. Then, you can continue to engage those new customers, and nurture them along to their next purchase.
But after a shopper purchases, when should you start to re-engage her?
By maintaining this excitement early on, you can prevent buyer's remorse before it fully manifests itself.
This is a good time to help the shopper get to know your brand, your story, and what makes you unique.
The brand connection instantly sets you apart from the facelessness of ecommerce giants. It gives shoppers a reason to come back.
Be sure to engage with your shoppers while they're engaged with you. A great example of early engagement is an order follow-up message.
Go beyond simply confirming the order - add a useful tip or suggest a complementary item for the shopper.
Care instructions or a style guide would be excellent for this purpose.
Small details like this can encourage new shoppers to become repeat buyers, and also set them up to be brand evangelists.
Customer acquisition traditionally focuses on converting new shoppers. But we want to fuel an effective acquisition mechanism that feeds directly into customer retention.
Customer retention is all about engaging your existing customers and creating more value for these individuals.
The importance of retention in ecommerce cannot be understated.
For one brand we partner with, multi-purchase shoppers have spent an average of 4 times as much as one-time shoppers, even spending an average of 13% more per order.
Often times, multi-purchase shoppers are disproportionately more value than one-time shoppers. This is due to their propensity to make additional purchases, and willingness to spend more per purchase.
As ecommerce markets mature, and acquisition costs continue to rise, customer retention is becoming more and more of a priority among retailers and marketers alike.
It is extremely difficult to continually scale a business just by placing ads and acquiring customers via social media.
Repeat purchases are key, often contributing nearly half of a brand's revenue mix, particularly in the apparel market.
Customer retention is all the more important in highly competitive markets.
If your typical customer acquisition cost exceeds your average order value, you need to retain shoppers just to break even.
So it's critical to have a comprehensive understanding of both CAC and AOV in your business.
Keep in mind that effective customer retention is not free. We can't simply expect first-time buyers to come back and purchase again without engagement and intervention.
Be sure to allocate both attention and marketing budget to retention.
Notice that Nick phrases the goal not just to retain but to re-acquire shoppers.
That's because customer acquisition does not truly end at the first purchase. One purchase does not indicate that the customer is now a loyal shopper.
This graphic illustrates the drop-off of shoppers between purchases. It presents both the percentage of customers that continued from one purchase to the next, as well as the overall percentage that continued to a given number of purchases.
Across merchants, we see that the greatest drop-off, or churn if you will, occurs between the first purchase and second purchase.
A customer is not fully acquired after one transaction.
But how can you help a shopper get from the first purchase to the second purchase?
According to Amit Bivas of Optimove, the shopper's experience during and after the first purchase is pivotal.
The first purchase really is a make-or-break point in the customer relationship. Strive to create a consistent, positive experience during and after a customer's first transaction.
But it's not time to celebrate yet - soon, you should turn your objective toward setting up a second purchase.
But when should you start retargeting customers?
Engage shoppers while they're engaged with you.
It's important to re-engage customers soon after their purchase. We see that customers are most likely to buy again immediately following a purchase.
This graph illustrates that, for one brand, around 40% of repurchases have occurred within 25 days of the initial purchase.
While this is bound to vary by business, it paints a clear picture: When a customer purchases, capitalize on that moment. If she is going to buy again, it's likely going to be soon thereafter.
Retailers implement a variety of customer retention strategies in order to excite and re-engage their existing customer base.
CRM platforms, such as Optimove, empower merchants with the technology to segment, experiment, and automate their retention efforts in ways that were previously unattainable.
Each shopper is different. They have different interests, shop in different ways, and respond differently to your touch points.
Segmentation allows you to classify shoppers by their needs, interests, or patterns in order to best serve them at scale.
CRM technologies, often fueled by artificial intelligence, provide flexibility for shoppers to interact with your brand as they wish. And it will send them the messages and offers expected to drive the greatest impact.
Establishing a community of shoppers can also be highly effective for retaining shoppers. It brings these individuals closer together and closer to your brand.
But, at times, it can prove difficult for retailers to leverage an active base of customers.
In order to be effective, a customer community needs to be more than a list of shoppers who have purchased from you. It should be something real.
Customers made their first purchase because they liked your products and resonated with your brand. The second, third, and additional purchases are no different.
The power of a community is its ability to unify and excite its members.
Create value for members in exchange for their continued engagement. Prioritize the relationship and activity rather than simply driving purchases.
You can even leverage these active shoppers to grow your customer base with referral programs.
At the end of the day, retention is about relevancy and creating value for your customer base.
As long as you are being relevant to shoppers' needs and interests, they will continue to engage with you.
So take the time to understand why customers are interacting with your brand. How did they find you? What about your brand and messaging appeals to them? What do they like about your products?
By catering to those needs and interests, you will continue to create value in the customer relationship. And your shoppers will create value for you.
Average order value refers to the average price shoppers pay per transaction.
Essentially, it's the average revenue from a singular purchase.
While AOV may not be referenced as often as customer acquisition or retention in the conversation of revenue growth, it is every bit as important.
As we mentioned, if your CAC exceeds your AOV, then customer retention is necessary just to break even.
But fortunately, you can influence each of these metrics - CAC, AOV, and retention.
The key to increasing your average order value is creating more value for the customer while she is shopping. As Nick articulates, prolong the purchase journey.
This, too, comes back to the on-site experience. Your website should be designed in such a way that products are not isolated, and the purchase experience isn't cut short.
It should be easy for shoppers to picture a product, and to envision using it along with other products. Lookbooks and product recommendations are great for this very purpose.
These tactics work to encourage cross-selling and up-selling, both of which increase the AOV.
But when the shopper is ready to check out, the objective shifts entirely.
Prolong the purchase experience until the shopper reaches her cart, then optimize the flow to purchase.
In addition, purchase data can highlight relationships between products so you can make smarter product recommendations to your shoppers.
Here, we see the number of transactions that contained possible product combinations for a women's athletic apparel brand.
But of course, each product has its own sales volume. So if you have two products with high volumes, you would expect that they are commonly purchased together. That doesn't make the product pairing remarkable.
Essentially, each metric captures a different part of the picture, a different angle of product relationships.
Support is the percentage of total orders that contain both Product A and Product B.
Confidence is the percentage of orders of Product A that also contained Product B. More or less, demonstrating how common the pair is considering the purchase volume of one of the products.
Lift is the percentage of orders that contained both products divided by the percentage of orders that contained Product A times the percentage of orders that contained Product B.
Lift is more complex as a metric, but it reflects how remarkable a product pair is considering the purchase volumes of each product it contains.
Notice that lift emphasizes entirely different product combinations than a straightforward count of purchases. These products do not have the advantage of high sales volumes, but are still significant product pairs.
Each metric highlights product pairings from a slightly different angle. They enable you to create more informed lookbooks and on-page product recommendations.
Regardless, the objective here is to increase the average order value. If shoppers spend more per transaction, holding acquisition and retention constant, you'll see a direct increase in revenue.
We've covered a lot of ground so far. But it's important to not exclude returns from this discussion.
As you may know, returns are a part of business in ecommerce.
Return rates often hover between 15% and 30% among online retailers. This means that a sizable percentage of your sales revenue is coming back to you as returns.
Of the products that are returned, typically less than half be resold at full value.
It's critical to have an effective returns management mechanism in place to help you handle the logistical and customer-facing challenges that returns create.
The truth is, returns management is a profit center, as well.
Keep in mind 40% of your shoppers have returned a product by their 3rd purchase.
Over 20 years ago, Jeff Bezos theorized how to effectively scale an ecommerce business.
There is no magic wand, no silver bullet - but these fundamental components provide a comprehensive framework for you to increase your revenue and mechanize growth for your business.
Ultimately, the goal in ecommerce is to create value for shoppers. In doing so, they will create value for you.