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Why Academics’ Findings on Customer Retention Might Surprise You

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If you run a Google search for the phrase “what drives repeat spending”, you’ll find all kinds of compelling suggestions.  “Start a loyalty program!” seems to be a popular option.  “Build a community!” is also relatively prevalent.  A Harvard Business Review article says that it’s all about creating a great “customer experience”…can’t argue against that, right?

On the face of it, the tactics that the Google search turned up seem like they would probably work (at least to some degree), and it’s pretty likely that most of us “growth hackers” out there have tried at least some of them.  The pieces that advocate for one tactic or another are written by thoughtful individuals who are experts in their fields (and whom we have tons of respect for).

There’s just one problem:  even in the marketing space, which has become a data-driven discipline these days, too many of us are eager to claim that something works by fitting the data to a predetermined solution.  The problem could be the result of cognitive dissonance, small sample sizes, or just the fact that producing content is time-consuming enough in its own right without having to run sophisticated analyses which further distract us from our other responsibilities.


 

Even in the marketing space, which has become a data-driven discipline these days, too many of us are eager to claim that something works by fitting the data to a predetermined solution.


 

Case in point:  The HBR article, which examines the impact of customer experience on repeat sales and subscription renewals, pulls from many customer data points.  However, the study only looked at customer experience across two organizations.  Can we be sure that their findings would really play out across a broader set of companies?  What if there were unique circumstances at one of the companies that disproportionately impacted findings?  Even in a relatively quantitative article, it’s easy to see how not having the time to conduct a broader study could impact results.

Luckily, there’s a discipline devoted entirely to sacrificing nothing for the sake of quantitatively-rigorous results:  academia!  In the interests of gaining some fresh perspective, we decided to step back and spend some time digging through research papers to see what the academics had to say on the subject.

We Found Two Academic Papers Particularly Informative.

Unsurprisingly, we found lots of good information that’s been overlooked simply because it’s not published in the highest-trafficked corners of the web.  While academic papers may lack concise, gripping prose, they more than make up for it in scientific method; whereas anybody could run plenty of Google searches to come up with lots of compelling ways to drive repeat spending, academics have taken the time to prove out the statistical significance of some of these methodologies.

One paper written at the National University of Ireland examined the role that various factors play in customer retention for online businesses.   They looked at 12 factors, asking study participants on a scale of 1 – 5 how important each factor was in their decision to keep coming back to a store they’d bought from online.  The top 5 factors, in rank order, were:

  1. Security and privacy
  2. Convenience
  3. Web usability (i.e. the site not crashing during use)
  4. Fulfillment
  5. Trust

What’s arguably more interesting about this study are the factors that didn’t crack the Top 5.  For example, the lowest-ranking factor was “Community Building”, or the need to feel kinship with other customers.  Does this mean that companies shouldn’t worry about building a social media presence?  Probably not, because social media is an incredible way for companies to communicate directly with their customers.  What it does mean though is that it’s probably not as important to invest your time in ways for your customers to connect with one another, such as via a forum.

The second paper also sought to understand what drives consumers to buy repeatedly online
.  It broke consumer values out into three buckets:  utilitarian value (products, product info, savings, etc), “hedonic” value (i.e. the feeling that buying creates for you, such as the thrill of getting the best deal or being able to brag about the deal to your friends), and how risky people felt buying online.  While the authors hypothesized that risk would be the dominant factor, they were surprised to find that people weren’t as concerned with the security risk inherent in online shopping.

Instead, it was the “utilitarian value” category that carried the most weight.  Within that category, two factors stood out above the rest:  product offerings and product information.  In fact, those two factors far outweighed others which most of us assume are important, including convenience and monetary savings.

To us, this study underscores the importance of having not just a quality product lineup, but strong copy that clearly describes each product.  Given that product descriptions are so important, you could try some A/B testing with the copy on some of your product pages to see which one leads to the most conversions.

What Does It All Mean?

At the end of the day, the topics on this list probably aren’t a big surprise.  But what did surprise us were the relative importance of some compared to the rest of the list – we wouldn’t have guessed that product information played a larger role than discounting, for example.  These studies are an important reminder that those pieces are only important if we can first satisfy some of the more basic ones such as website uptime, product information, and having a trustworthy and professional appearance.

academicscommunitiescustomer retentiondataproduct informationrepeat spendingsecurity

Josh Enzer • July 21, 2015


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