Steen Rasmussen the market is saturated
Customer experience, Customer Retention, Customer Retention Strategy, Ecommerce Growth, Growth Interviews, Retention Rate Optimization

Steen Rasmussen: Increasing Profits By Focusing On Customer Retention And Lifetime Value

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Welcome to Growth Interviews!

Welcome to Growth Interviews, the fun, stimulating and engaging series of conversations driven by digital business growth.

Our mission is to provide insights and ideas from world-class professionals on the topic of growth and to cut through the noise of so-called marketing tips and tricks, revealing the money-making strategies behind e-commerce.

Each episode is an intriguing challenge involving an insightful expert who reveals some of their best-kept secrets, which you can use right away to boost your business.

In this week’s episode of Growth Interviews, we invite you to join our conversation with Steen Rasmussen, the founder of IIH Nordic, an Analytics Optimization expert who specializes in transforming digital analytics data into specific business actions.

Steen is an international speaker recognized as a leading authority in digital analytics. He has spoken at the biggest conferences in Silicon Valley, New York, London and Barcelona, and has given lectures on data-driven e-business at both the University of Copenhagen and the University of Southern Denmark. His work as a data-driven digital marketing evangelist has earned him three nominations as ‘World’s Best Analytics Practitioner’ by the Digital Analytics Association.

In this week’s interview, we chat with Steen about how to boost your Return on Investment, the importance of customer lifetime value, and how e-commerce businesses can grow their margins in 2019. Get ready to take notes because the next 11 minutes are full of inspiring ideas.

 
 

The interview with Steen Rasmussen reveals so many valuable insights that we’re sure you’ll want to write down, so make sure you have a pen and paper nearby.

Beginnings and focus on Return on Investment (ROI)

Who are you and what do you do?

Steen: My name is Steen. I’m a senior partner at IIH Nordic and in reality, I’m an Analytics Optimization application specialist. I make Analytics do stuff, so I don’t do implementations. It’s not technical, it’s about turning data into value and money.

How did you get into data and conversion?

Steen: It’s a classic story about when I started out doing content for websites back in the day. If you do content, you have to do usability. Then, I was ahead of this ability and I was really frustrated with being the ‘ambassador for the user’, because nobody was being an ambassador for the business! So, we started looking into, ‘How do you measure the business value of a website?’. Then, we turned to the fact we had this data available about how people were using it. It was a really good point in opening out conversations with companies.

This is because you can give them one really critical question, because the data doesn’t make sense without the question being asked: ‘You invested a million euro in a website. What do you expect to get out of it?’ The website and all activities are basically an investment. So, if you invest that money in a website, you must have some idea about how you measure the return on the investment. It’s just like, ‘Well, it seemed like a good idea at the time.’ That’s not a business rationale. I know that you talked about it in your presentation, that we make decisions emotionally and that also goes for B2B, and very often the answer we got was, ‘Well, we have one because other people have one.

So, it wasn’t really a business decision to get the website, it was more like an emotional thing. Making sure that they understood that was actually something that needed to be focused on, so it could be rationalized saying, ‘What is this? Why do we keep putting money into this, because there would be fixed costs to this website forever? Why keep putting more money into it?’ I think that was a good place to start in relation to actually understanding websites as businesses and not just as pamphlets or something.

The Return on Investment (ROI) is one of the most important KPIs e-commerce businesses should consider, because it’s the metric that shows the profits generated by a specific marketing action.

The formula for calculating the Return on Investment is:

ROI = (PROFIT – INVESTMENT) / INVESTMENT x 100.

Revenue is perhaps the easiest way to track ROI and how your business growth is progressing, but there are several other metrics e-commerce businesses should consider, such as cost of acquisition and lifetime value.

The market change

What are e-commerce owners and managers missing out on?

Steen: I think e-commerce has been too easy for a while. In a sense, it’s like when we talk to a lot of e-commerce people now, they’re still looking at this double-digit growth, saying, ‘Yeah, the last 10 years we’ve been doing at least 30 percent growth and now this year we’re going to do 40.’ It’s always trying to just continue things and not looking at the reality around you, because you have this saying, ‘Yes, but because you could do it five years ago, doesn’t mean that you can do it today.

What we see is that the market is basically saturated. The market is changing from people being your… in Denmark, we have a term called con-colleagues, because you can’t have colleagues since the market is so big. They’re going to have to move from being con-colleagues to being competitors.

I think that is the thing that e-commerce has to live up to and understand, because now suddenly the business is becoming much more critical in thinking. It’s no longer just about getting more traffic – like Andrew talked about this morning, the market is saturated and you are not going to get more people to come online.

So now, it’s a competition for the people who are already there, not just about growing and getting more people there. I think that change is something that people have to realize. You’re saying that it’s actually a completely different game than what it used to be. You could have been really amazing in e-commerce five years ago, but doesn’t help you anything today.

The reality of today’s e-commerce market:

👉 The market is becoming saturated;

👉 E-commerce has been easy so far, and businesses were able to grow fast. But now that the market is saturated, businesses cannot expect the same growth rate;

👉 Businesses are becoming more critical in thinking because they know they can’t only focus on getting more traffic;

👉 Today’s e-commerce is about reaching the people who are already online, not about getting more people online.

How to grow your margin in 2019

What insights do you have from your presentation?

Steen: One idea from my presentation was “Seven KPIs you didn’t know you should be tracking in e-commerce”. In reality, they were all centered around your margin and how much you’re making on the individual products. So, are you making money or not?

I was opening up and really pushing back in relation to e-commerce as something fancy, because we’re doing a lot of website optimization, and a lot of online marketing activities and measurements and stuff. A lot of consultants like us go out and tell people, ‘Yeah, I’ll improve your bottom line’, but the problem is that that’s not what we do. We improve people’s top line. People’s bottom line is really defined by how they run their business.

This is old school businesses just saying you have to negotiate with a supplier, get some products, keep it in stock, pack it and send it, do invoices and manage your house.This is the difference between what you sell and how much it costs to run the operation. This is where your business is. The only thing that’ll improve your bottom line is by selling products with a margin that is high enough, so it’s higher than the cost of running the business.

But very often if you go to most systems today, they look at optimizing for turnover and stuff, but in reality that could just be killing you as a business. If I tripled your sale – I can triple anybody’s conversion rate by lowering their price by 60 percent –  it’s not good business, but I just improved their conversion rate. It’s sometimes understanding that this is about money and being able to be a business in the long term. That’s really important.

Are e-commerce players focused on grabbing insights about their customers?

Steen: We see it in markets where it’s either about very competitive products or they have within their own inventory the ability to shift products. If you are a clothing brand, then suddenly people can get the exact same products somewhere else at a cheaper price – the margin side is decreasing. So, it’s becoming increasingly important to monitor them, but also having other products in your inventory.

For instance, we have a customer that sells basically identical products, so they will go in and suggest customers changing their products. We settled on a lifetime basis. They know it’s about customers that will come back and buy a product, so they shift them to a product with a higher margin that is basically identical.

Amazon does the same thing basically, a little bit in the sense that they will go in and take resellers and then they will exchange the results products with Amazon products, because they make a better margin on that.

To make sure you get the most out of your investment, keep track of the right key performance indicators. Here are some E-commerce KPIs you’re probably not tracking, but should:

👉 Purchase intention (PI)

👉 Search penetration index (SPI)

👉 Visitor satisfaction index (VSI)

👉 Customer satisfaction index (CSI)

👉 Net promoter score (NPS).

Keep in mind that e-commerce is not only about tracking and measuring KPIs and optimizing your conversion rate. It’s about being able to do business in the long run and thinking about lifetime goals.

The price and know-how of lifetime value

What is your take on the importance of customer retention?

Steen: One of my slides was basically this traditional model about having acquisition as a cost and then profit afterward. I think that, as an industry, we are way too focused on acquisition and not focused enough on lifetime value.

There’s a shift going on now. We feel a lot of attention to the lifetime value, but people are still really insecure about how to tackle it, because there is the attribution question about ‘What channels did I get in?’ Now they’re still focused on acquisition, because they don’t understand where people are coming from. So, it defocuses them.

Also, a part of the issue is that a lot of the people here will say they are digital marketers. As marketers, we don’t like to talk about sales, because sales are for the other guys. They are looking for the fast money, just in it for the buck and tit has to make it a profit. But we have some KPIs, we’re not really addressing the elephant in the room about profit and lifetime value, because we’re all talking about, ‘Let’s do a creative campaign bringing in more people and making them more aware of our brand.We see a shift and much more interest in the lifetime value because people are starting to hurt on earnings and expecting to grow a lot. They cannot grow a lot anymore and now they have to focus on the business.

Most e-commerce businesses spend more money on customer acquisition because they view it as a quick and effective way of increasing revenue. However, customer retentionis often faster and, on average, costs up to seven times less than customer acquisition. Selling to customers with whom you already have a relationship is a more effective way of growing revenue because you don’t need to attract, educate, and convert new ones.

How do you calculate the lifetime value? The simplest formula would be:

CLV = customer revenue – the cost of acquiring and serving that customer

However, businesses are usually more complicated than that, so this simple formula doesn’t always apply. For most businesses, it’s necessary to calculate a historical or predictive CLV.

What kind of strategies or tactics do you recommend for e-commerce owners to improve the lifetime value?

Steen: It’s really simple because it’s about segmentation. It’s understanding the users you have, in the sense that we see a lot of people running their business. When you talk about this, you have this customer journey and just saying ‘customer journey’ in the singular, it’s actually where their first problem is. It’s not one customer journey, you actually have multiple customer journeys. Some of them will overlap, some of them you can cluster and you will have similar patterns, but there are very few organizations, if you look at it on a lifetime basis, that just have one process.

We tend to underestimate the complexity of the customer. We just set things up to having marketing automation – one sequence. So, after three weeks we send people one mail and then after six weeks, we send them another mail. People are much more complex than that and the way we buy is much more complex than that. So until we can meet the customers on their own terms, it’s going to be a challenge.

I think we had a conversation about this a long time ago, about A/B testing. In reality, we’re killing our own business by doing A/B testing, every time we go in and say, ‘Version A is better than B, so we remove B.’ It should actually be a segmentation issue. What I found out is that a part of my users prefers version A while another part prefers version B, but by throwing out version B, I’m actually also throwing all the people out who prefer version B.

So, we have this focus on saying the technology is so good now, that it’s not ‘either or’, but an end. In reality, the objective should be saying, ‘Yes, we need to build relations with everybody coming in.’ And we need to build relations with everybody coming in because we can match their needs and address them on a personal basis.

I see personalization as the key thing in building your relationship with people, and to personalize, we need to know who people are. Segmentation is the first step toward personalization – more like pseudo personalization, because it’s not really personal – but if it’s close enough, you’re not going to notice.

Four strategies to improve your customers’ lifetime value:

👉 Segmentation: make sure you know who your customers are, and market to them accordingly;

👉 Customer journeys: most e-commerce businesses think they only need to map out one customer journey, but that is wrong; each customer has his own unique journey. Some journeys might overlap and they can be grouped, but even so, e-commerce retailers need to keep in mind that they need to map out a customer journey for each customer group;

👉 Marketing automation: don’t oversimplify processes. Marketing automation is only helping your business as long as you don’t underestimate the complexity of the customers. Not all customers are the same, so not all of them will respond to the same tactics;

👉 A/B testing: A/B testing and segmentation go hand-in-hand. It’s not always about what performs best; it’s about what a segment of your audience prefers compared to the other segment. So, don’t rush to throw out the version that performs the least, just make sure you are redirecting the right traffic to it.

Conclusion

So, are you ready to implement all these lessons? For more valuable insights, make sure you come back to check out our next Growth Interviews as well.

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