As the economy faces a potential recession in 2023, businesses across many industries contend with retaining their customers amid financial uncertainties. For eCommerce brands, customer churn can be a significant threat as consumers tighten their budgets and cut back on discretionary spending.
To prevent turnover, it’s essential to understand its causes in eCommerce. Common factors include poor customer experience, uncompetitive pricing, lack of relevant product offerings, and insufficient support, which can be exacerbated during a recession. In this post, we’ll dive deeper into these issues, then explore strategies for reducing eCommerce customer churn in a recession.
In eCommerce, customer churn is a critical metric that indicates the percentage of customers who stop purchasing from a business over a given period. It’s an important factor that impacts business revenue, profitability, and long-term sustainability. Pinpointing its underlying causes is essential for eCommerce brands to take steps to mitigate it and increase their customer retention.
In today’s highly competitive landscape, customers have a wealth of options, and multiple factors, both large and small, can easily drive them to your competitors. We’ve found the main culprits to be:
The possibility of a recession setting can have a significant influence on eCommerce customer behaviors. As people become more cautious and limit their spending, eCommerce businesses may find themselves facing increased competition, reduced sales, and higher than normal customer churn. Other effects are:
This, in turn, could lead to greater competition, particularly among those that sell essential products or services. Companies that offer the best value and competitive pricing are likely to see an increase in customer traffic and sales.
No matter how stellar your offerings or how optimized your operations, some customer churn is to be expected, though the rate varies by industry and product type: For subscription businesses, a 5% monthly churn rate is considered average, while single-purchase businesses (e.g., skin care, fashion, lifestyle, personal products) should expect a much higher churn rate at roughly 75%. This equates to about one in four customers returning.
During times of financial uncertainty, such as a recession, customer and buying behaviors inevitably shift. For eCommerce businesses, this might look like higher than usual rates of customer churn, which impact your customer lifetime value (CLV). Because this metric is important to your profit margins (and because it costs more to attract new customers than to keep existing ones), ensuring you reduce churn is especially crucial. Check out our recommendations below to maintain a healthy consumer base.
Running out of stock of a particular product is a major contributor to churn in eCommerce. When customers are unable to purchase the products they want, they grow frustrated and are likely to turn to competitors who do have the items in stock.
To avoid this issue, regularly monitor your inventory and ensure you have enough stock of your most popular items. Additionally, communicate with consumers when you restock items; this encourages them to come back and make a purchase.
If you find yourself back-ordered, don’t despair: You have a few options to manage backorders more easily.
Providing loyalty benefits and rewards incentivizes buyers to remain loyal to your business. By encouraging customers to subscribe to your products or services, you can increase customer retention and reduce churn.
For instance, you could offer a discount or free product to customers who make regular purchases or reach a certain spending threshold. The more shoppers feel appreciated and rewarded for their loyalty, the more likely they are to make repeat purchases with you.
For a great subscription program to copy, check out Amazon Subscribe & Save.
High shipping costs can be a significant barrier to entry for customers looking to purchase. Offering free shipping reduces the likelihood of people abandoning their carts due to expensive shipping fees. It also increases customer satisfaction and loyalty, as they feel they’re getting a better deal and thus a more enjoyable shopping experience.
Want to really wow your customers? Offer free returns too.
While price is a significant factor in a purchase, highlighting the value of a product or service over its price is also an effective way to reduce churn. Emphasize the quality, benefits, and unique features of your items both to differentiate yourself from your competitors and justify higher prices.
Customers who feel they’ve found a high-quality product that meets their needs and brings additional value stay loyal to a business longer. This avoids having to race to the bottom on pricing and potentially cutting into your profit margins.
Bundles of related products or exclusive items give customers something unique and appealing that they can’t find elsewhere. For example, include an item you don’t sell regularly in your product catalog. This encourages them to make additional purchases and stay loyal to your brand. Bonus: Bundling is a great way to boost your average order value.
Reducing customer churn in eCommerce requires a proactive and customer-centric approach, especially during a recession. You can increase your retention rate by ensuring stock availability, encouraging subscriptions and loyalty, offering free shipping, highlighting value over price, and assembling bundles and exclusive items. Invest in these strategies to nurture a loyal customer base and drive long-term success throughout various economic ups and downs.