Why are loyal food e-commerce customers so critical? valuable? interesting?
The blog is part of a generalistic analysis of the current situation in the food-e-commerce market. This blog series consists of 3 parts, from problem setting to solution setting, and forms an experiment. So any valuable feedback or engagement is really valuable for FunFoo.
In our previous post, we argued why some food e-commerce businesses are too acquisition-focused, while we know that it’s 5-25x cheaper to retain an existing customer than to acquire a new one. The initial upfront Cost of Acquisition (CAC) cannot be underestimated and need to be earned back before making money on sales. So it’s crucial to incentivize the customer to make repeated purchases. Otherwise, you’re losing money on every customer you attract.
The AAARRR funnel, also known as the Pirate funnel, is a framework used by growth hackers to grasp a company’s funnel better. Marketers, and so do many food e-commerce companies, are mainly focused on the first two parts of the funnel, Awareness and Acquisition.
This focus makes sense if the general public doesn’t know about your product and brand. You make them aware of your existence (Awareness) and guide them to your site and social media (Acquisition). The goal is to tell them about your offerings and convince them to do a first sign-up, comment, or basket filling (Activation).
But most food e-commerce concepts are already known by customers, who know what to expect. So the curiosity for people to check or try out your service is over. Still, standard food e-commerce companies are spending a significant chunk of their budget on quickly settled and tracked marketing campaigns. To overwhelm the critical customer with discounts, product features,…
Besides this, it’s becoming more expensive to advertise on social media. The competition is high, and the returns are diminishing. Additionally, the effectiveness of your campaigns and your data generation is in the hands of giant multinationals with a lot of power.
Also, what’s the goal of attracting people to make a one-time loss or break-even purchase for a non-differentiated product they can also purchase anywhere else? It’s attracting people while your door is wide open. This comes with a price war, where the brand with the biggest pockets mostly wins.
In a period where free money isn’t any more widely accessible and where new entrants are setting up daily, companies are urged to deliver more value for money. Customer expectations are high, and mobiles’ availability gives the customer a voice and easy options to shift.
The importance of loyal customers
It’s now vital to convince people of their perceived value creation compared to easy and habitual alternatives such as doing groceries. This can raise switching barriers, create less focus on price, and create happy customers. But before diving into how to create more value for your customer, let’s investigate why loyal and satisfied customers are so important.
1. Lower marketing expenditures
Loyal customers are already used to your product and convinced about the added value. The necessity of targeting them with discounts or other materials is low.
2. More engagement = data points
Loyal customers use your products multiple times, so they are more engaged with your product. It’s also likely that they’re more willing to share more data or even valuable feedback.
3. Higher NPS (Net Promotor Score) = Ambassadors
A satisfied customer engaging with your brand and offering is likelier to tell others (through Social Media or Reviews) about your existence and added value. Specifically if your brand has an important purpose to him/her. And you know recommendations of close partners are free and most influential.
4. Higher AOV (cross-selling and upselling)
Loyal customers are more likely to spend more because they trust the company and its offerings. As a company, you also have more contact points to convince them about complementary (Crosselling) or higher margin (Upselling) products.
5. Lower price (and fault) sensitivity
Happy customers value your offer and are less likely to switch if there are unseen circumstances (price increase or late or wrong delivery). In this period of high inflation and razor-thin margins, it’s vital to pass on some costs.
Additionally, loyal customers can generate other, perhaps less direct, business value. This gives FunFoo confidence that it’s worth spending more euros further down the lifecycle funnel instead of at the top of the AARRR funnel. With more focus on the lower parts (Retention and Referral), we don’t mean a customer retention strategy relying on “buying” loyalty with rewards, rebates, or discounts. It’s devaluing your offer and too costly. In addition, recent consumer research from Kantar Retail shows that 71% of consumers now claim that discount incentive programs don’t make them loyal.
No, we mean innovative, unexpected value creation for the customer in a cheaper way. In this new era of digital-based competition and customer control, people are increasingly buying because of a brand’s relevance to their needs at the moment. How we see this is the subject of the last part of our three partial blog series on food e-commerce.
FunFoo strives to generate more value for the customer in a cheaper way, so the customer is more satisfied and has a more emotional connection. Curious about that, book a chat or leave a comment/mail.