Online customer retention rate at record high

The latest data from IMRG and Capgemini has revealed some evidence that online retailers are focusing more on retaining existing customers than acquiring new ones.

The active customer retention rate reached a record high of 36.4% during the period May to July 2016, a full five percentage points up on the same quarter last year. This means that the percentage of customers making return purchases was at its highest rate since we started tracking it in 2010, while conversely the percentage of first-time customers was at a record low.

The costs associated with retaining customers are typically less than when acquiring new ones – which may involve bidding for expensive, high demand Google search terms for example – and this may have reflected a generally more cautious approach among retailers in how they used their marketing budgets during the period leading up to and including the EU Referendum.

The average selling price per item reached its lowest rate in over three years in Q2, down a full 9% on the same period last year – which suggests that there was a lot of discounting over the quarter which also featured Amazon Prime Day.

Tina Spooner, chief information officer, IMRG, said:

“The record high customer retention rate suggests a more conservative approach to how retailers are assigning their marketing budgets, and a number of factors may have influenced the fall in average selling price per item – disappointing weather in May and June, concerns over the referendum, Prime Day etc. Yet what’s interesting is that overall online retail sales growth performed well over this period (up +17% yoy), with July’s growth (+19%) the highest since November 2014. The average basket value that shoppers are checking out with – which may include multiple items – was also up, despite the fall in individual item prices. So ultimately, as unpredictable a period as we may now be in, this approach seems to have kept customers engaged overall so far.”

Bhavesh Unadkat, management consultant in retail customer engagement design, Capgemini, said:

“It is great to see that the active customer retention rate has reached a record high of 36.4% during Q2, up from 33.7% in the previous quarter and five percentage points higher than the rate recorded in the same period last year. Retailers in the past have concentrated efforts on acquisition which usually comes at a higher cost than retention, so a focus on retention is great to see and I am sure retailers will reap the benefits of this.

“It isn’t just big-business retailers which are refocusing their efforts. We’re increasingly seeing smaller retailers in the news as a result of their increased focus on improving customer retention, through investment in new cloud technologies. Customer loyalty and retention has implications which reach every aspect of every business, and so we can expect to see retailers and other businesses alike continuing to rethink how they build both trust and consumer confidence in the coming months.”