In the midst of tough competition, online retailers must focus on two key objectives –maximising sales per customer and minimising churn. To achieve this, customer engagement marketing is essential to segment an audience and target them throughout different stages of the lifecycle. Steven Ledgerwood, UK managing director, emarsy, looks at how online retailers can use digital marketing strategies to expand horizontally and build customer loyalty.
The retail industry is faced with a never-ending deluge of competition. In fact, a recent study by Barclays found that British online businesses are growing more than 50 times faster than the economy as a whole. In the face of fierce competition, the collapse of retailers such as Barratts and Blockbusters haven’t gone unnoticed, and it’s an ever-increasing reminder that they must do everything they can to retain customers.
Today, retail giants like Amazon are luring in seas of customers on a daily basis with their broad catalogues, and as competition continues to intensify, building customer loyalty is imperative for survival. To do this, online retailers must begin finding ways to expand horizontally, offering customers broad product ranges that complement what they already sell, to not only engage new customers, but also to increase each existing customer’s lifetime value.
Expanding horizontally
Horizontal expansion requires retailers to get the most out of big data – to segment an audience and target them throughout different stages of the lifecycle while also suggesting relevant items through predictive recommendation technology, ultimately enabling merchants to increase each customer’s lifetime value. It’s this type of personalised customer engagement marketing that will keep customers coming back for more. For example, if a customer views or purchases a dress, an online clothing retailer such as ASOS will use this information to target the customer with related accessories such as shoes, handbags and jewellery to help them ‘complete the look’. In addition to this, the most sophisticated predictive analytics technology enables online retailers to suggest products to customers based on their behavioural patterns and preferences data.
These types of personalised interactions can also help retailers upsell while demonstrating to customers that they have considered them as an individual rather than just another sales number. For instance, when clicking onto the website, retailers such as John Lewis and Amazon will recommend products to customers dependent the individual’s browsing or purchase history.
However, when using technology to expand horizontally, merchants must be careful that they don’t stray too far away from the products customers are viewing. An online grocery retailer may suggest wine glasses or decanters to a customer viewing or buying wine, but if they stretched so far as to recommend other kitchenware, they could risk irritating or disengaging the customer. Predictive analytics technology on the market today has much more sophisticated algorithms in place, however, to ensure online retailers don’t fall into this trap. In fact, the average uplift in sales from successful horizontal expansion is around six per cent – which, for a retailer selling £500,000 worth of shoes a day, could be the difference between a smaller or larger market share than its competitors.
Keeping customers active
With predictive recommendation for horizontal expansion, retailers must tailor their communications based on each customer’s position in the customer lifecycle. This insight, combined with information on individuals’ spending profiles, can then be used to help retailers promote products differently for each individual customer, ensuring they successfully increase each customer’s lifecycle value and use tactics that reawaken dormant customers to ultimately increase market share.
For new customers, a retailer could use predictive analytics technology to recommend popular products that new customers tend to buy. For example, a clothing retailer that finds that its jeans are always the most popular with new customers could use this knowledge to recommend its latest line of jeans to new customers visiting the site. However, the same retailer would need to use a different tactic to interact with dormant customers. In the case of those that have browsed but not purchased within the typical lifecycle, the retailer could use campaigns to market products which are related to their purchase history or horizontally attractive, to encourage the customer to buy. This type of communication can also give retailers the opportunity to use horizontal expansion as extra ammunition to boost sales.
Data is the new economy
With customers becoming more and more comfortable sharing information via social media and the web, online merchants now have a vast pool of customer data at their disposal on current trends, customer patterns and preferences. In fact, according to research by MGI and McKinsey’s Business Technology Office, a retailer using big data to the full, by using strategies such as those outlined above, could increase its operating margin by more than 60 per cent.
In the face of tough competition, online retailers can use this information and sophisticated marketing solutions to better target customers, encouraging them to not only spend more but also to return regularly. It’s this type of thinking that will help retailers gain the necessary competitive advantage they need to survive.
By Steven Ledgerwood
UK managing director
emarsys
http://www.emarsys.com/en/