[Case Study] How to Create a Customer Retention Strategy ft. e.l.f. Cosmetics

We've covered how effective retention marketing strategies are at:

  • Multiplying LTV - By generating multiple purchases
  • Increasing AOV - By collecting customer data and using it to create more effective offers 
  • Unlocking New Acquisition Channels - With each customer generating more revenue, you can now increase the maximum cost per acquisition and open up additional acquisition channels.

Today I want to go over how to construct a complete customer retention strategy for your eCommerce store.


To do so, we are first going to break down how a hugely successful cosmetics company retains customers. Then we’ll look at some specific strategies and tactics ​to increase your customer retention rate.


Let’s begin!

Customer Retention Strategy Factors

The cornerstone of a successful retention strategy is the customer.

Customers want great products. They want excellent customer service. They want convenience. Increasingly, customers want a personalized shopping experience.

The challenge for eCommerce stores is adapting new technology fast enough to meet these expectations.


Before you design your own customer retention programs, it is important to understand the most important factors that contribute to repeat purchases.

Why  Product Value Is a Necessary Condition for Customer Retention Strategies

Product value is the primary driver for customer retention.


If a customer is dissatisfied with their purchase they are unlikely to come back. But even beyond that simple statement, it turns out product value creates loyalty. 

  • 64% - Of customers identify value for money as an important factor in brand loyalty (source).
  • 50% - Agree that if a brand offers the best quality products and services they will purchase again (source).

While the "how-to" of sourcing and creating great products is beyond the scope of this article, nothing else here will work without getting it right.


If you want to create an effective customer retention strategy, it starts with understanding what your customers value and providing a product that matches that.

"If you want to create an effective customer retention strategy, it starts with understanding what your customers value and providing a product that matches that."

Personalized Customer Experiences Are Increasingly Necessary for Customer Retention Programs

Chances are you serve multiple customer segments.

Not every item you have will be interesting to all site visitors. And the truth is… customers don’t want to look through countless uninteresting items before finding what they are looking for.

After product value, personalization is the next important factor in a customer retention strategy.

Customers want personal offers - products that are relevant to them. They want products they care about.

Independent customer surveys point to customers increasing demand for personalization. 

  • 54%  - Want brands to personalize loyalty rewards based off of past purchases (source).
  • 44% - Indicate that they will purchase again after a personalized shopping experience (source).
  • 71% - Of Shoppers experience frustration when their shopping experience is not personalized (source).

“Winning and retaining customers in the digital era requires a mix of personalization, relevance, exclusivity, and engagement across all the different channels. "Deloitte Consumer Review

Today there are so many options for eCommerce stores to successfully create personalized customer experiences.


Personalized product recommendations, dynamic content, tailored rewards, triggered emails, and so many other customer retention tactics are easily implemented with the right platform.

A Few Customer Retention Statistics

During research for this article, I came across an in-depth review on customer loyalty programs by Deloitte. 


I found the results of their study telling. 

It's obvious that customer loyalty depends on more than just financial incentives. 


It is part brand. It is part experience. Above all, it is a big dose of relationship through consistent communication, influenced by understanding who the customer is. 


Honestly, it is difficult to talk about it without a detailed case study. Which is why I chose to break down a company whose business model depends on loyal customers, repeat business, and customer retention: e.l.f. Cosmetics.

 

How e.l.f. Cosmetics Creates Loyalty with Customer Retention Strategies

I want to illustrate a developed customer retention strategy by breaking down e.l.f. Cosmetics. 


e.l.f. Cosmetics generated over 265MM last year. Their core offerings are trend-inspired products across "eyes, lips, and face and tools...". 


Modeled after fast-fashion brands, e.l.f. creates value by creating trend products at significantly lower prices. However, this type of strategy demands high customer retention to work. 

How e.l.f. Manages After-Sale Customer Service

Mistakes will happen. 


Successful e-Commerce stores address mistakes head-on, and use customer service as an opportunity to maximize future sales. 


As the study above showed, 41% say directly that having great customer service is necessary for brand loyalty

Customer Retention Tactic 1: Leveraging Transactional Emails to Generate Referrals

Double sided referrals are increasingly popular.


However, few execute this retention tactic better than e.l.f.


e.l.f. takes advantage of timing to maximize their standard referral bonuses. 


Understanding that recent purchases are a key leading indicator for future purchases, they embed their referral incentive in the very first transactional email they send.

In e.l.f.'s case, they are incentivizing joining their loyalty program, "Beauty Squad", not a single transaction.


They also create various types of incentives. You get $5 off. You get free shipping. 50 points are added to your account - ANDY you get the option for a free full size item. 


This layering of incentives is a common theme in e.l.f.'s customer retention strategy.

Customer Retention Tactic 2: Overcoming Bad Experiences with Pre-Emption, Apology, Free Shipping, and Free Moneys

How do you handle late shipping times?


e.l.f. recognizes when a shipment is delayed. And they don't pull any punches in their response. 


Here is a screenshot of the email they send out. 

Notice how they take a bad experience and use it to ensure a repeat  purchase. 


They apologize. They recognize me as a first-time customer, and stand by the value they create in generally on-time deliveries. 


And then, they incentivize a repeat purchase with both a $10 coupon code AND free shipping.


All of this is done without complaint from the customer. Instead, it is triggered when there is a delay in shipping. 


This is key. 


Customer's don't always voice their displeasure. Taking initiative is key to customer retention.

Customer Retention Tactic 3: Creating a Tiered Loyalty Program that Rewards Lifetime Value, not Transactions.

Loyalty programs should focus on lifetime value, and hedge against rewarding transactional behavior.


e.l.f.'s loyalty program is a fantastic example. It uses a number a tactics, including:

  • Status Symbols - Each tier is labled, and given various status rewards
  • More Than Points- Second, e.l.f. creates a variety of reward types to maximize customer retention - from early access to sales free beauty sets, and full sized products.
  • Tiers - The program is split into three separate tiers which reward long-time customers and give new customers something to work towards.
  • Life Time Value Focused - Lastly, each reward tier makes it easier and more beneficial to make repeat purchases.  While less loyal customers are only rewarded 2 points per dollar, top-tier members are rewards 3x as much.

Customer Retention Tactic 4: Sparking Repeat Purchases with Scarcity & Dramatic Discounts

Scarcity is a popular tactic since Cialdini brought it everyone's attention. 


I see a lot of e-Commerce stores using scarcity in the form of expiring offers to urge customers to buy. However, it is rare that this tactic is paired with dramatic enough offers to inspire action. 


e.l.f. doesn't hold any punches. 


It offers a giant 50% off. 


And, with such a compelling offer, they are able to impose a $30 hurdle to help manage costs. 


Of course, they also wait until the last minute to tell clients about it to maximize effectiveness. 

Customer Retention Tactic 5: Generating Demand With Scheduled Offers & Free Gifts

Price discounts are not the only tactic e.l.f. employs.


Every month, they give customers a chance to earn a new free gift. These gifts help protect margins, preserve customer's perception of value, and perhaps most importantly, exposes them to new product categories. 


I love how e.l.f. communicates to their audience, validating them while simultaneously celebrating the benefit of the offer.

Customer Retention Tactic 6: Leveraging Loyalty Programs to Spur Repeat Purchases 

Managing lifeime value with high rewards is  a key ability in e.l.f.'s customer retention program.


This is one of my favorite examples. 


Instead of diluting their offer to make the numbers work, they add a few hurdles. 


First, the customer has to have over 100 points to unlock the reward. 


Second, they need to order again. And third, the order must be $10 or more to use it. 


This approach aligns the customer's objective with e.l.f.'s.

Next Steps...

To successfully build your own customer retention strategy, you need to focus on three things.

  • High Value Products- Customers will not come back if your product fails to deliver on its promise.
  • Personalized Customer Experience - Customers expect seamless, personal shopping experiences that lead them to the right purchase.
  • Relevant, Inspiring Offers - Many customers require outreach and nurturing relationships to get them to come back.

Barilliance partners with hundreds of e-Commerce and omnichannel stores


We enable a complete, 360 degree view of each customer - including what products they've clicked on, which ones they've added to their cart, what emails they open and past purchases. 


We enable our partners to use this data to create personalized customer experiences and relevant, inspiring offers. 


If you'd like to learn how we can help you multiply your customer retention rate, request a demo here.