While all retailers strive to capture new customers, gaining more business from current clients is an easier and less expensive way to boost revenue and profits. After all, current customers — including those who have visited a retailer’s website and left an e-mail address, but have yet to make a purchase — already know the company and presumably have some interest in its products.
The Honest Company, a two-year-old purveyor of eco-friendly baby, health-and-wellness and cleaning products co-founded by actress Jessica Alba, was spending quite a bit on member and customer acquisition. Once potential customers registered on the site by providing an e-mail address and password, the company still needed to determine how to activate them. Like many retailers, The Honest Company tried a number of different offers. These usually started with a free trial; if a customer still didn’t buy she would receive additional offers such as 25 percent off a purchase or free shipping. The offers often increased in value over time.
That’s an expensive way to capture customers and sales. To better target consumers and drive more purchases, Honest brought in Retention Science, a platform that helps companies gain more business from existing customers by employing software that leverages “machine-learning algorithms.” That is, the software can analyze and learn from customers’ previous history on a website to help retailers determine how best to re-engage them, says Jerry Jao, Retention Science CEO and co-founder.
Jao previously co-founded two other e-commerce marketing technology companies, and also sold comic books and video games online. Those experiences showed him that the constant chase for new customers left little time for building a more loyal customer base. “I realized how important retention marketing was, as I searched for ways to build a more sustainable business,” he says.
Moreover, Jao noticed a gap in the market when it came to solutions that helped retailers understand and ultimately keep their clients. He and co-founder Andrew Waage plan to change that with Retention Science. “We help ensure that customers make multiple purchases,” Jao says, “so you can make money on the time and money you spent acquiring them in the first place.”
Price vs. premium shoppers
Retention Science works with both Internet and bricks-and-mortar retailers, and its clients share several common traits. For starters, they are “looking for a more sophisticated way to market” to current and potential customers, Jao says. Most also have more than 1 million customers in their databases; that volume is needed in order for Retention Science to be confident in the predictions it makes. In addition, the retailers offer a variety of products, most of which consumers purchase at least once a year.
Clients also need customer permission to market to them, Jao says. Technology today — including that offered by Retention Science — can truly enhance the customer experience, he notes, but can feel “Big-Brotherish” when not done correctly.
Retention Science’s platform leverages a range of data points to help retailers identify the messages most likely to resonate with customers. “We provide the in-store experience that’s often lacking” online, Jao says. For instance, a customer who spends a great deal of time clicking between different pairs of dress shoes and reading reviews likely will respond more favorably to a promotion tied to footwear than to an ad for sweaters or coats.
Similarly, the software can examine customers’ purchasing history, including their sizes, order size and responsiveness to sales, to determine how best to reach them. Among other things, this analysis can help distinguish shoppers focused on price from premium shoppers, Jao says.
Beyond data, Retention Science provides recommendations on the best course of action. “We don’t just show pretty charts,” Jao says. “For us, it’s all tied to campaign generation … turning data into action.” So, if the analysis shows that a particular customer is a premium buyer, Retention Science may recommend a promotion offering just 5 percent off, rather than 20 percent.
Retention Science’ solutions are offered as software-as-a-service, and integration to a retailer’s existing e-commerce system is required. “We have to get the data to make suggestions,” Jao points out.
The Honest Company is using Retention Science’s Customer Profiling Engine to identify when to reach out to customers, the promotion most likely to resonate with them and the ideal schedule for re-engaging with them. While it had been able to do this on a macro level, the company now can focus its efforts more narrowly, says Sue Cho, manager of e-mail marketing.
The Honest Company brought in Retention Science to help determine how to convert e-mail members to paying customers as quickly as possible. Retention Science tested several dozen product bundles and promotions to see which ones worked most effectively with different customers, and to suggest the best courses of action.
Among other things, Retention Science looked at potential customers’ click activity on the site. If a customer spent a great deal of time in the cleaning section, she might receive an offer focused on products from that category. Retention Science’s software also looked at the time of day during which customers opened previous e-mails The Honest Company had sent, and used that information to schedule subsequent messages.
Many of Retention Science’s clients enjoy sizable increases in orders from existing customers. “It’s definitely working,” Cho says. “Now our program is customized at the individual level, versus just looking at overall numbers.” Conversion rates have jumped by 170 percent, while the average order size has increased 80 percent.
In addition, customer promotions are more targeted: An offer for 40 percent off a purchase might be limited to one of the product bundles offered on the site — the most expensive, for diapers, currently runs about $80 per month — reducing the chance that the offer would be applied to a low-cost item like a scrubber sponge. As a result, The Honest Company has been able to reduce the value of the offers it sends by 10 percent, even as it converts potential customers more quickly.
So far, The Honest Company’s work with Retention Science has focused on more rapidly activating new customers. Going forward, Cho says the company plans to expand its partnership to lifecycle campaigns. Again, the goal is to optimize the offers that go to customers based on their click patterns and purchasing history.
Retention Science’s ability to quickly analyze the behavior and histories of large numbers of customers to come up with more effective and targeted marketing promotions “has been a lifesaver,” Cho says.