James Hurman this month stunned a packed hall of marketers with new data from Klaviyo and its agency partners Overdose Digital and Andzen that busts the myth that customer retention equals growth – at least for ecom pureplays.

“What matters is not how many customers we retain, but what we do with them, how we expand the spend of those customers over time,” said Hurman.

To prove it, he unpacked a study of dozens of ANZ online retailers representing circa $1.2bn in spend across 1.7 million shoppers.

The data showed retailers with high customer retention rates – upwards of 45 per cent – actually grew revenue far less than those with lower retention rates.

Just as importantly, the study, combined with a survey of online shoppers, suggests they see customer experience as the single most important factor in how they feel about a brand, positive or negative.

Those findings align with an earlier study from US analytics firm Motista that suggests customers that were “more emotionally positive towards a retailer spent twice as much with that retailer than those that were just rationally satisfied,” per Hurman.

“This is something that we've seen again and again in all of the marketing science and effectiveness research that I've been a part of: When you drive a better emotional connection, your customers are willing to spend more with you and pay more for you,” said Hurman.

“Emotional connection is key to increasing customer spend. Increasing the spend of the customers you retain is the most important thing that you can do for the overall top line revenue growth of your company, and the way to do that is by connecting emotionally,” he added.

“That is the real key to unlocking profitable growth.”
 

Avoid experience fails

According to the survey, “the quality of customer experience is the number one driver of emotional positivity towards a company. It's also the number one destroyer of that emotional connection,” said Hurman.

Chief bugbear is “never hearing back after a customer service inquiry”, followed by waiting too long for a response, followed by being passed around, followed by not being able to talk to a human when you want to talk to one.

“The important thing here is avoiding these things – and where Klaviyo comes in is having software that actually helps you understand when these things are happening, respond to them really quickly, or avoid them happening in future,” said Hurman.

“That becomes a really powerful tool to make sure that you're not doing things that will erode the emotional positivity you have with your customer base and lead to them spending less over time – which leads to your business becoming not a growth business anymore.”
 

Loyalty oversold?

The ANZ ecom data also suggested the benefits of loyalty programs may be oversold.

“We found something really interesting. Firstly, yes, loyalty programs can help you improve your retention rate: Those using a loyalty program had about 30 per cent retention and those not using a loyalty program had about 20 per cent, so the loyalty program makes a difference,” said Hurman.

“Is it that big a difference? Probably not, does it matter? No, it doesn't, because the companies that did not use a loyalty program were experiencing 48 per cent annual revenue growth, and the companies using a loyalty program only 14 per cent,” he added.

“It's not that loyalty is not important or doesn't exist. It's just that [loyalty programs] are not the massive growth driver that we thought.”

Plus, they can create drag.

“One thing that loyalty programs do is they take our eye off what's important. Just retaining customers is not the important thing. It's expanding their revenue. And we can use a loyalty program to try to do that, or we can use our customer service experience to try to do that, and it's much better.”
 

Build lookalikes

By focusing on retaining the right customers over blanket retention and loyalty, Hurman thinks companies can then work out which kind of customers they should actively try and acquire – effectively lookalikes for higher spend.

Does that more narrow focus run contrary to marketing science fundamentals? For example, Ehrenberg-Bass Institute chief Byron Sharp’s core principle that brands essentially grow by creating mental availability, targeting everyone in the category and focusing on light buyers.

“I wouldn’t say it’s going narrow,” said Hurman. ‘There will be a centre of gravity which is a good customer for you. That doesn’t mean excluding everyone else. If you’ve got the budget, it’s wise to talk to as many people in the target market as possible. But focus your nurturing and retention efforts on the ones that are really the right sorts of customers.

“Be cognisant of the ones that will probably churn quickly – and the ones that will probably stay with you for a long time and increase their spend over time.”
 

Next: New data, new tools

After crunching the ANZ ecommerce data set, Hurman hopes to scale-up the study.

In the meantime, Andzen’s Client Success Director Pip Savaris urged delegates at Klaviyo’s K:Syd conference to use the ANZ study’s findings to start testing the findings themselves.

“Just do some A/B testing on your campaigns and segments. Make some VIP segments of people who have purchased multiple times and who are highly engaged, send a campaign out to different groups. Use the segment report and use the RFM [recency, frequency and monetary] tools in Klaviyo to have a look,” said Savaris.

“The data is going to be there. Using Klaviyo to test this is going to be your best bet. Then you're able to go to your board meetings and say, ‘this segment is actually driving 80 per cent of our revenue’, and you’ll have the data to prove it.”

Used by retailers globally, Klaviyo’s B2B CRM helps brands improve customer experience, reduce friction and boost profitable retention.

Klaviyo B2C CRM brings together marketing, service, and analytics in a single platform. Powered by the Klaviyo Data Platform and built-in AI, it’s faster and easier than ever to create personalised, lasting customer relationships – and nurture high revenue customers.

Meanwhile, Klaviyo’s Customer Hub personalises the customer experience and minimises friction. Shoppers can track orders, initiate returns, explore tailored product recommendations, and get help - without leaving your website.

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