Engaging Customers

Customer Retention

We will:

• Explain why it is critical that companies not only acquire new customers, but also retain existing ones.
• Understand and describe different digital marketing strategies that can help companies engage consumers to reduce churn.
• Apply these strategies in different contexts.

We learned how to use digital marketing to target consumers at the awareness, consideration, and conversion stages of the marketing funnel. Our focus so far has been on acquiring new customers. But we need to retain existing customers as well.

However, not all current customers will repurchase in the future. Some will be lost. We call this "churn." This can be factored in by extending the marketing funnel to include retention as an additional step after conversion.

Churn is a serious issue, even for the most successful companies. Netflix lost over a million subscribers in 2022 as it cracked down on account sharing, discontinued service in Russia due to the war in Ukraine, and competition from Disney Plus, Prime Video, and HBO Max intensified.

Churn rates can vary by industry. And in some industries, they can be very high. For example, in the United States, companies in the cable and credit card industries lost a quarter of their customers in 2020.

Acquiring new customers is costly. It costs far more to acquire a new customer than it does to retain that customer. In other words, it is much more efficient for companies to retain customers.

Customer retention is often measured by retention rate, that is, the percentage of customers who stay with a company in a given time period. For example, one year. Churn and retention are inversely proportional. Churn rate is equal to one hundred minus the retention rate.

If a company has a 70% retention rate, it effectively loses almost a third of its customer base every year. That means this company would need to reacquire its entire customer base almost every three years. And this, of course, is very expensive.

Retention is the key driver for customer lifetime value, or LTV. It measures the long-term profit from a customer. We'll cover LTV in more depth later. For now, it is important to understand that it is one of the most important metrics in measuring the long-term health of a company.

Kate from OOFOS explained that owned media, and emails especially, are an effective and inexpensive way to retain existing customers by engaging them after their first purchase.

In addition to owned media, other forms of digital marketing can be employed to engage and retain customers. We will cover three major strategies companies use to boost customer engagement, which in turn reduces churn and increases retention. These strategies are personalization, story-making with customers, and building customer communities.

The first company we'll examine is THE YES, a specialty e-commerce clothing company for women's fashion, built on the premise of using AI-driven personalization to engage and retain customers.

Personalization is the practice of customizing products, services, and interactions with each individual customer to suit their needs and enhance their experience.

Julie Bornstein, the CEO and founder of THE YES, told how THE YES used personalization to set itself apart from other fashion e-commerce platforms.

In 2022, THE YES was acquired by Pinterest, the image-sharing social media site, which was impressed by the company's fashion expertise and its approach to personalization. Pinterest intends to integrate THE YES team and technology with the goal of building THE YES' shopping and recommendation capabilities into its platform.

Introducing THE YES

THE YES is a fashion shopping platform that uses artificial intelligence (AI) and aims to disrupt how people shop for clothes online.

Let’s meet Julie Bornstein. Julie’s years of experience in online fashion retail include building one of the first online fashion retail sites at nordstrom.com, setting up e-commerce at Urban Outfitters, growing Sephora’s digital media footprint, and preparing Stitch Fix to go public as its COO—all before founding THE YES in 2018 with Amit Aggarwal.

Julie will explain the problem that she aimed to solve with THE YES.

My name is Julie Bornstein, and I am currently the founder and CEO of THE YES.

The problem we're trying to solve is that shopping is really overwhelming, and especially with a category like fashion, when you can't try it on, and you can't touch and feel it, how do you make sense of an overwhelming amount of options online?

And so really what we're trying to do is take the universe of products that exist and basically cull it down in an appropriate way for each shopper so she can see what's most relevant to her and buy in an easier way. We want to provide a much more intelligent, intuitive, and learning system for the customer as she shops.

The fact that we're surfacing the relevant things to you in your home feed is really valuable. This customer, the really knowledgeable customer, tells us she loves the fact that she can get all these brands in one place. She loves the fact that we're surfacing the products that are relevant to her right away and that she can keep tabs on everything quite easily.

And as she yeses and noes products, all the things she's yessing are saved in her list that she can quickly and easily go back to, either buy from or consult as she's thinking about what she wants to pair with things she's already bought.

We are offering personalization at scale based on all the nuances that each customer has and their preferences. When I look at my daughter's home feed and my home feed, they might as well be totally different stores, so to speak. There's nothing about them that looks similar.

The key innovation of THE YES is that the company created a platform that attempts to scale up personalization in a category—fashion—that is very subjective.

The details of what makes something personalized can vary greatly depending on many factors, such as product category, consumer preferences, or demographics.

One common theme, however, is that personalization is often used by companies as an engagement strategy. We’ll continue with this idea next.

Here is Julie on how THE YES approaches engagement and personalization.

I think the secret sauce for engagement is two things.

The first is that the first ten years of e-commerce, as an example, was a very one-way experience. There wasn't really input that we were able to take from the customer. Then when social media started to emerge, it became a little bit more conversational.

I remember at the time working with my colleague, Bridget Dolan, at Sephora, who's now at YouTube, and she and I were talking about how we could bring this conversation to the shopping experience online. How can we build a conversational tool where you can real-time ask questions, get answers back, so you can make a better purchase choice at that moment?

Since that time, the web has become a little bit more two-way. The question is, what is the right way to create engagement that feels worthwhile? It's all about getting something back. If you think about the places where consumers are spending the most time engaging, it's where they can respond and find things that are more relevant to them. The more they interact, the better the results get, and then they want to engage even more.

In our case, when we're thinking about shopping, the whole idea of being able to ask you the question, tell us yes or no, and with that, we’re going to show you better results, provides an engagement that is actually smart and worth my time as a user. If you're going to ask me questions, do something with that—just not in a creepy way.

For us, all of the data that we're collecting is just to improve your experience. We do nothing else with it. I do think that the key is figuring out how to pull the customer in a way that gives them more of what they are looking for. It has to be in a really focused way.

Based on what your business is, what is it that you can do to engage a customer in a way that helps make their experience better? If you can answer that, I think you create an engagement model that’s much more authentic and likely to last.

THE YES harnesses the strategy of personalization to engage its customers. The “yes” or “no” that a customer provides while shopping are used to make the customer’s experience unique to them and therefore more engaging. Next, we will learn more about how personalization works at THE YES and how it leads to customer engagement and retention.