SUMMARY
Studies show that repeat customers account for 40% of sales on average, while only representing 8% of all customers
Wakefit’s Chaitanya Ramalingegowda said the brand depended heavily on customer data and insights en route profitability
Startups such as MoEngage, WebEngage, 2Checkout among others are working with D2C brands in India to boost engagement and retention
The Indian ecommerce landscape has been on the cusp of a major revolution as the Covid-19 lockdown puts the onus on ecommerce to fulfil all the requirements of a consumer at their doorstep. For the direct to consumer brands, which depend on brand awareness for growth, the burden on supply chain and even restricted operations due to operational issues for non-essentials, the Covid-19 period brought the focus on reviewing the company strategy.
For most brands, today, doing digital marketing, having an ecommerce storefront and delivering the product in a D2C network isn’t really a strategic advantage anymore. At this point, the retention marketing strategy comes into play and it becomes more about bringing back existing customers than paying through the nose to acquire new ones. As logic dictates, anyone who has used the product or transacted through a D2C ecommerce platform would be easier to convince for repeat business, especially if the product meets the quality criteria. So in the new battleground for D2C brands, retention marketing is playing a huge role.
Retention marketing strategies are a series of tactics that transform visitors into repeat customers, which creates highly effective behavioural segments in the customer base. The most common metrics of a brand’s success are frequency of purchase, average order volume per purchase, and customer retention rate. Brands are tracking retention rate, selecting cohorts to target, and creating retention marketing strategies to widen the funnel and bring more customers into the high-margin bottom of the funnel.
A study by Bain & Company and Harvard Business School has said that a 5% increase in retention can improve profitability by as much as 55%. Another study by Adobe shows that repeat customers make up 40% of sales, while only representing 8% of customers. Other D2C brands have also opened up about how they have to spend so much to bring customers to the native platform, despite the low contribution from native sales to the overall income.
For Bombay Shaving Company, the native ecommerce platform accounts for only 25% of the overall revenue, but it spends 80% of its marketing budget on driving sales to this platform. This underscores just how difficult it is to go fully native and the costs that a startup might have to incur.
“All our marketing focuses on bringing people to our website. We are D2C from our branding and storytelling not so much with our product. Bringing customers to our website is the core objective,” said Shantanu Deshpande, founder, and CEO at Bombay Shaving Company, said in our new D2C Playbook for Inc42+ members.
Talking to Inc42, Fireside Ventures’ Vinay Singh said that a brand has to think from the repeat, retention, kind of mindset and justify the initial costs to get the opportunity to get customer data, experiment with product etc. Giving an example, Singh said that if a brand burns INR 7 Lakh to acquire 1000 customers creating INR 5 Lakh of a business in its initial days, it is not a bad deal. Because out of these at least some will convert into repeat customers, where the remarketing and retention marketing channels are fairly inexpensive.
To understand further the real-world challenges and plans for retention marketing strategies we talked to multiple D2C brands. For instance, Chaitanya Ramalingegowda, cofounder and director of mattress brand Wakefit.co told us that the company has an increased return on marketing investments due to effective and efficient targeting, acquisition, conversion and retention.
Ramalingegowda added that the brand depends heavily on customer data and insights. “The key is to listen to customers and build one-on-one relationships to deliver actionable consumer insights. Right from the pre-sales and sales experience to the post-sale usage experience, every single touchpoint must create a positive experience for the customer. Brand loyalty is priceless,” he added.
Bengaluru-based Wakefit, a new-age Indian mattress manufacturer, turned profitable within a few years of setting up shop. In the financial year 2019, the gross profit margin for the company stood at 41.2% compared to 38.5% in the previous financial year.
The company’s cofounder noted that D2C brands are in a unique position to offer affordability and quality and its imperative to create a customer relationship marketing strategy that is focused on brand messaging and customer service.
Similarly, Malika Sadani, founder and CEO of pregnancy and baby care brand The Moms Co says that nothing works better for retention marketing than having a product that works great, consumers love and keep coming back for.
“The fallacy a lot of D2C brands fall into is to keep acquiring customers and then spend on getting them to repeat with you, without checking how many of them would come back organically without any nudge. This becomes critical to know whether the consumer really likes the product you offer,” she added.
Startups such as MoEngage, WebEngage, 2Checkout etc are working with D2C brands in India to help in engagement and retention. For instance, WebEngage claims to recover almost 20% of the drop carts, increase by 15% in the cross-sell transactions, 12% increase in the 60-day repeat purchase on average for its 45K clients. WebEngage is an onsite customer engagement suite aimed at helping ecommerce companies better engage with users.
In some of its studies, WebEngage claimed that it has been able to drive user retention for its clients via user segmentation, personalization communication etc. For instance, for edtech startup Toppr it increased six-month retention to 78%, while for online video streaming platform ALTBalaji it improved day 3 and day 6 retention by 51% and 77% respectively.
Ana Maria Schlecht of digital commerce provider 2Checkout recently said that it typically costs five times more to acquire a new customer than to nurture an existing one. “Also, existing customers tend to spend 67% more than the newly acquired ones. Plus, retention is a great leverage for new acquisitions,” she added. As Jason Lemkin from SaaStr put it, “customer success is where 90% of revenue is.”
Varun Khanna, founder and CEO, nutrition brand Fast&Up tells us that the brand taps into global trends to fulfil customer needs. “Indian consumers have specific preferences which brands like us need to tune into. In our effervescent range of products, some flavours work here in India, which may not work in international markets and vice versa,” he added.
However, the retention rate as a metric varies in importance for different sectors within D2C. For instance, Jaineel Aga, CEO, merchandising platform Planet Superheroes highlights that repeat rate varies along with the nature of D2C brands and the retention rate of a good product or brand is far higher in terms of frequency.
“For brands like us which are at the cusp of the impulse-based market, the retention rate depends on the next big or the next unique or fresh product that may be launched after a few months. We do have users who have experienced the quality and like it, but they won’t be able to buy the same merchandise every month. I can’t expect the retention rate to be the same, I have to keep constantly moving with the flavour of the season. And if you’re able to do that, the retention is very high,” he noted.
Kuonal Lakhapati, cofounder and CEO, nutrition supplement brand 23BMI added that D2C approach helps understand consumer behaviour, get better insights about TG, and other useful data that can help businesses for the brand to position themselves, and sell better. 23BMI has chalked out exclusive budgets for content generation, social- media engagements, and online ads for expanding brand footprints and improvising customer retention. Brands are using the power of content to gather data around customer feedback, demand, after-sales, etc.
Lakhapati added, “The metrics/key factors for cracking D2C marketing would be customer relationship/loyalty, a clear understanding of the TG, robust supply chain, appropriate marketing channel, and consumer data.”
