Transcripts
1. Introduction: When people start their online business and it's very new, there is a lot of information out there telling you to keep advertising, more advertising, conversion rates, and if everyone's focused on doing that, no one's different. Retention marketing is the solution. I'm Alex McEachern, Head of Marketing at Smile.io. I love speaking on retention marketing and removing people's addictions to online advertising. I speak about these with university students all the time, and I'm excited to share the same insight with you. At Smile, I've helped thousands of businesses better their marketing efforts through building a community. I've actually done this for my own E-commerce site as well. My store was actually in the top 5% of Shopify stores, started in the same month without ever running a single paid advertisement. This is a class about marketing, but you don't need an MBA or a business degree for this class to make sense. In today's lesson, we're going to go over the changing commerce landscape and why retention marketing is important now. We're going to go over the pillars of retention marketing, how to get started with it, how it's going to work for your individual business, and how to define success. If your business is completely dependent on advertising and promotions, you're stuck in the illusion of growth. Through this class, we're going to help you break away from that. Excited to have you here. Let's jump straight in.
2. The Change in Commerce: So, notice a big change in the commerce landscape recently. People don't want to be sold to, and that looks like advertisements, putting a price out there and saying, "Come buy my product." But what people actually want is to come to their own purchase decision. They want to ask a question, find the answer, and make that buying decision on their own. So, the difference between selling and being informed, selling is an ad that puts a price out there and says, "Come buy this." Informing is all about that person being able to come to the conclusion on their own. When we think about being sold to, we think about things like used car salesmen, but that's not what it looks like online. Being sold to online looks like a generic online ad. So, these online ads can take a few different forms. It could be a banner ad, it could be a Facebook ad, it could be a page search ad, anything where it's statically shown to someone. In the past, these online ads were effective, because there was less competition online and customers were more receptive to seeing them. As a marketer, these online ads are becoming less effective for you. There's more competition online than ever, driving the effectiveness down and the prices up. These ads are getting increasingly expensive, 5x the rate of inflation each year. When you put your advertising budget together next year, it's going to do less and cost more. If you think about your online browsing experience, chances are, you have an ad blocker installed. In fact, one in four people do. But even if you don't have an ad blocker, you're not on the internet to see an ad, you're there for something else. This traditional online advertising model isn't working anymore, and smart marketers are realizing that they need to move from selling to their customer to informing customer. When was the last time that you clicked on an ad to buy something? When you went to buy, you probably did some things like looked it up on Google, asked your friends, or went and looked at the reviews. It's tempting to try to take your online messaging and hammer into the brains of your customer, but what you actually want to do is allow them to come to that purchase decision on their own. So, let's take a step back. Everything we've talked about so far is about selling to the customer, and the ultimate goal there is a transaction, getting them to buy something. But if we think about informing someone, the goal there is about establishing an emotional connection. When you focus on building transactions, you create artificial spikes. I run an online ad, I get a spike. Before it comes back down, I run a promotion to get another spike. But this is unsustainable, and I like to call this the illusion of growth. Here's a great way to illustrate whether you're stuck in the illusion of growth. If you run an ad next week and you get a spike, and before it comes back down, you run at 20 percent off promotion to spike it back up again, but now your customers are expecting 20 percent off. So, the next time you actually do a 50 percent off promotion, and you get stuck in this cycle of continually discounting and promoting. These spikes are all about creating transactions. But if you want to really grow, you need to raise the foundation, and raising the foundation is about getting more customers and getting meaningful connections with those customers. A simple way to think about this is like trying to stack cans on top of each other. If I want to build the tallest tower possible, it's tempting to stack one can on top of each other to get as high as possible, but that can quickly fall over. The better way to think about it is to build a strong foundation, a strong base, and build it up over time. So, why are we so focused on ads and acquisition? It's because it's easy and it feels good. When I run an ad or start a promotion, I get an immediate spike. But if I want to grow sustainably, I have to build that foundation. It takes more time, but it's worth it. To summarize, online ads are easy and that's why every marketer's doing it. But if you want to grow in a meaningful way, not have your sales plateau or even decline, adopting retention marketing is a must for your business. Today, we become addicted to these ways of selling and creating transactions, but if you want to grow in a meaningful way, you need to build your buying community through retention marketing. In our next lesson, we're going to dive deeper into what retention marketing looks like.
3. The Pillars of Retention Marketing: Retention marketing is all about your existing customer base. It's about getting them to buy more and more often. The best way to illustrate this is actually offline. If you think about when you go to your favorite coffee shop and they know your order and they know your name and every so often, they say, "You know what? That one's on us," that feels good. That's retention marketing. To go one step further, there's also a community aspect of going to that coffee shop. I know the barista, I know Jimmy who sits in the corner booth. I belong to something there. But obviously, this is a lot harder to replicate online. I can't jump through that screen and shake your hand and know your name, have that personal interaction. So, how do we do that? So, what does community look like? To truly understand that, let's take a step back. With online ads and selling techniques, I'm trying to get the customer to care about me. But when I'm trying to build a community, I'm caring about them. As an example, if I want people to care about me, I might run super targeted social ads. I might target Gymsharks in the New York area that are between the ages of 25 and 30. I'm trying to get this ad in front of them at the most opportune time to create that transaction, to get them to buy from me. On the flip side, if I'm going to care about them, I might put something together that lets them come to that decision on their own. Say, they're working out outside and they want to keep cool. I could put an article together about different types of materials and how they hold up in the heat. In this example, I'm not trying to get them to buy something in the moment, I'm helping them come to a buying decision on their own. Even though they might not buy from me right now, I'm building a framework and starting to build these emotional connections. This might seem a bit counterintuitive to some of you, but if you think about marketing, it's not for us, it's for our customers. Putting ourselves into their shoes lets us make the best marketing decisions possible. That's called empathy. Empathy is one of the pillars of building a community. If you want to establish an effective retention marketing strategy, you need to focus on empathy, value adds, and switching barriers. Let's start with empathy. I know I've been talking about it a lot but it really is core to building a community and an effective retention marketing strategy. So, let's start with a quick definition of empathy. Empathy is feeling for another person and effectively putting yourself in their shoes. If we can think and feel like our customers do, we can put the best marketing efforts together. It's easy to think that getting an online ad in front of someone at the exact right time is helping them come to that purchase decision on their own, but what you really want to be doing is building up the experience through the whole purchasing lifecycle. To bring this back to transactional versus emotional, transactional is just selling. Emotional is empathy. I'm helping them learn and come to a conclusion on their own. It's tempting to think that getting an ad in front of someone at the right time in the right place is putting yourself in their shoes but it goes further than that. It's about how do they think, how do they feel, how do they want to buy. It's not about getting that apparel ad on Facebook in front of them at the right time. It's about what this purchase means to them. Are they buying this because they want to be fashionable in their yoga group or is this strictly a performance purchase because they're training for a marathon? That's what being an empathetic marketer is all about. But now, let's talk about the second pillar; value adds. Let's start with a quick definition of what value add marketing is. It's all about providing something to the customer above and beyond the purchase itself. So, how do we create a value add? Let's go back to our fitness example. If we're selling shorts that we've learned are great for marathon runners, we might want to start a forum where people can share how training's going and post their times. As a customer, when I can go to those forums and see the times of other people, I start to feel like I'm part of something. If they're buying these shorts, I'm going to want to buy these shorts as well. This may seem distant from the purchase itself but that's the difference between creating a one-time transaction and a long-term valuable customer. Keeping a customer long-term actually plays into our third pillar which is a switching barrier. A switching barrier is something that is going to keep your customer shopping with you instead of choosing a competitor for their next purchase. If we go back to our example from before, we've understood how they think, how they feel, and what they want. We've introduced a value add; the forums for posting times. That has effectively created a switching barrier for us. They're less likely to choose a competitor in the future because they're bought into our community. By doing these three things, you've effectively built that community and you're going to be less dependent on advertising, promotion and discount which create those spikes. You're raising the foundation and on your way to profitable, sustainable growth. But how do you actually execute on this? What tools do you use? There's actually a number of different tools you can use, from content marketing to customer service to strong social accounts. But the one I want to focus on today is one I'm super familiar with, starting a rewards program.
4. Building a Community: So, what is a Rewards Program? At its base level, it's about providing incentive for someone to do an action. Make a purchase, earn rewards. Share on social, earn rewards. It also happens to be the easiest way to start building community. You can start a Rewards Program tomorrow and start building those repeat loyal customers. Any tactics you use to build a community are effectively going to start from zero, and they work off of the snowball effect. They pick up effectiveness over time. A Rewards Program gets us snowball rolling the fastest. So, why is that the case? It's because, it takes the least amount of time to get to critical mass. If you are trying to start a strong social following tomorrow, you need a certain amount of pictures on Instagram, you need a certain amount of posts on Facebook, or if you want to get the content marketing, I need a certain amount of blog posts, a certain amount of YouTube videos, before people are going to genuinely care. With a Rewards Program, I just need to incentivize that account creation, and I can create immediate value to joining the community. The best way to illustrate this is by showing what building a community with a Rewards Program looks like from start to finish. So, here's my three-step process for building a community with rewards. So, those three steps are: first, getting someone to join the community, second, getting them to engage inside that community, and three, is getting them to share that community with others. So, the first step in this model is getting someone to join the community. The best way to do this is with an incentive. Say 500 points, which equates to $5 off just for creating an account. The second step is about getting people to engage in the community. Now, that they have a point balanced, they effectively have a switching barrier, preventing them from choosing your competition. Getting them to come back for a repeat purchase. We can strengthen this through gamification. If we reward points for other actions like sharing on social or leaving a review, it becomes fun. Also, with VIP tiers, you get better and increasing perks for doing more with that store. The third step is about getting your existing community to share it with others. You can do this by rewarding points for sharing on social like Facebook or Twitter, or rewarding points for referring your friends. So, each of these steps plays into a complete cycle. I need to get someone to create an account and join the community. They're not going to become engaged with it if I can't get them in. Once they start to engage with that community, that's what I'm going to get them to refer their friends and get more people into the community. Let's think about these three points as part of an interconnected triangle. No one's ever going to engage in my community, if they don't join in the first place. No one's going to share with their friends, if they're not engaged. If no one's referring their friends, no one is going to join. When these are all working together, you're building a strong base of customers for your community. So, let's take a look at each of these steps when they're working really well. At the first step, it's a success if you have people registering for an account rather than checking out as guests. If people are checking out as a guest, you have zero ability to make things personal for them or do anything with that person in the future. What you can do if they have an account is, you can start to engage with them on a personal level. You know step two is working when your customers are doing actions that mean something to you. When they're leaving reviews, following you on Facebook or following your blog, and these happen organically as people tried to accumulate points, and move through VIP tiers. So, what our tiers? Tiers are milestones that your customers are going to progress through as they earn more points or spend more at your store. These are great because you can give your best customers increasing rewards. You know step three is a success when your existing community is acquiring new customers for you, effectively removing your dependency on ads. This is the crux of retention marketing. I'm using my community to grow sustainably rather than relying on transactional ineffective methods like ads and promotions. Building a community is an investment, one that sees your existing customer base and doing a lot of the heavy lifting for you.
5. The Retention Marketing Matrix: I hear all the time people saying, "Hey, retention marketing and building a community isn't going to work for me." The two most common things I hear for that are, "My items are too expensive or they're just not purchased frequently enough." But even in both of these examples, retention marketing is still something you can use. Let's say you sell grand pianos. Those are purchased infrequently and very expensive. There's still way for retention marketing to work. What you do is you reward points for that initial purchase. They purchased that grand piano and they get a big balance of points that they can come back and use at your store. Although someone might not come back to buy another grand piano, there's a ton of peripherals you can get them to come buy from you, replacement keys, replacement strains, cleaners. So, sometimes retention marketing isn't just about that core purchase. The additional peripheral products actually become value adds to that original purchase. So, what about for your business? Everything can be placed onto this matrix regardless of what you sell. So, lets dive a bit deeper into this matrix. On the y-axis, we have the item value and on the x-axis we have the purchase frequency. Items that fall on the right side of this matrix are a great fit for retention marketing, it's really easy to implement. If we look at items on the left side of this matrix, retention marketing is hard to get going, but the impact is massive. So, we already took a look at the top left quadrant with our grand piano example. Even though it's a high value low purchase frequency item, if we can get people to come back and purchase the peripherals for that item, we can increase the lifetime value of that customer. So, what about the bottom-left? Low purchase frequency, low value. If we can convince those customers to buy that item more often because it's inexpensive and go from one purchase to two purchases, we're doubling the lifetime value of that customer. In the bottom left quadrant, we have low purchase frequency and low item value. So, an example of this would be like a phone case. I might buy this once per year, but if we reward people for referrals, I can get that person who's bought to bring me another purchase. If I give them a nice reward, they're more likely to come back and buy that next phone case for me as well. So if we look in the bottom right quadrant, high purchase frequency, low item value. It's tough to draw the distinction between that and the bottom left quadrant. The difference here is because of the low purchase frequency, I need to convince that person to buy a phone case again. But in the case of something like coffee, I know they're going to be buying it in a repeat way, I need to convince them to buy from me again rather than from a competitor. So, great retention marketing effort here is to give a points balance on every purchase. If I'm holding that switching barrier, the points, I'm not going to go to a competitor. I'm going to come back to use those points and get future value. In the retail space, you see this manifest as punch-card type programs, where I buy 10 coffees and the 11th is free. In the upper right quadrant, we have high purchase frequency, high item value. So, these are your luxury brands. The best retention tactics for a luxury brand is actually VIP tiers. The more you buy, the more status you get, and increasing rewards you get. To summarize, every item can be placed somewhere on this matrix. Decide where your items fall so that we can give you actionable tips and tricks in the follow-up to this lesson.
6. Defining Success: In our last video, we left you with some actionable tips and tricks to start using rewards for the items that you sell. But how are you going to know if building a community and your retention marketing efforts are actually working? I'm going to give you a few metrics that you can use to calculate whether this is a success, as well as a couple just general pulse checks that require no calculations at all. If you're at all familiar with retention marketing, you know that the go-to metric is customer lifetime value. But it's also very complicated to calculate. A quick google search will show you all sorts of complex formulas. But I like to think of it in a much simpler term, customer value this year. In our last video, we talked about purchase frequency and item value on the matrix. When you take purchase frequency and multiply it by the average order value, you get your customer value. This is much easier to calculate than customer lifetime value, because it's looking at one year. Would you likely have data to support? It's much harder to try to forecast out exactly how long that customer's going to continue to shop with you, and customer value isn't even a consideration in our old way of thinking. If we think back to that transactional relationships of ads and promotions, I'm only looking at that one time purchase. There is no purchase frequency and I can't get them to buy more the next time. This is why you should be focused on retention. It's cheaper to get someone to come then traditional paid acquisition and advertising. They're more likely to purchase again, and they're more likely to spend more per purchase. I know customer value and customer lifetime value can seem a bit overwhelming. So, an easier metric to look at, is your repeat customer rate. Repeat customer rate is the percentage of customers who have already made a purchase from you, who are coming back to purchase again. This is easily seen in platforms like Shopify in the analytics section. So, those were a few quantitative ways to keep track of your attention and community building. But there's also some great qualitative ways to just keep a pulse on what's going on. Those include customers messaging you, engaging with you on social media, leaving reviews and general touch points between you and the customer. These are all products of building a strong customer foundation and show meaningful emotional relationships with your customers. So, all of those pulse checks are great ways to see the engagement of that community. But another great way to see how many people are joining the community, is how many people are checking out as a guest versus creating an account. When a shopper checks out isn't guest, that's a transactional relationship. But if they create an account, there actually joining your community. We've introduced a lot of metrics and pulse checks to see how you're doing, and it's very tempting to try to measure everything. But the most effective way to get started, is to choose a benchmark like a repeat customer rate, see what it is today, implements some of her tips and techniques, and see where you are in the future against the benchmark. It's a lot like going to the gym. If I start going to the gym today and work out for the next six months, six months from now, I will never see how far I came unless I have a picture of what it looked like at the start. So, make sure when you get started, you have a benchmark that you can compare to at a later date.
7. Final Thoughts: In conclusion, there's a massive change in how people are interacting with brands. We don't want to be sold to them anymore, and that's why traditional acquisition tools like paid online advertising and promotions are becoming less effective. Instead, we want to be focused on creating a sense of community. One where customers are buying from you again and again, and telling their friends. That's retention marketing. For building a community, we went into detail on using a rewards program. But there's a couple other tactics you can try as well, like strong social followings, content marketing, and proactive customer service. If you've been following along, the questions we've been asking are helping you along the path to creating a sustainable profitable community. In the project gallery below, I would love to hear from you. Let me know your initial thoughts on retention marketing and community-building. Post up what you're doing already, and let me know any results you see as a result of this lesson. Thanks for taking the class, and I'm excited to see how we can change the world of marketing.
8. More Classes on Skillshare:
Alex McEachern, Founder of Spark Retention
