Consider this for a negative customer experience. A few weeks ago we ordered groceries online for a Saturday delivery. The delivery window came and went, and the smartphone app continued to show the order as being processed. It even showed the items that are out of stock and the ones substituted, which gave me hope that eventually the order will show up at my doorsteps. On Sunday I called customer care inquiring about the order. The rep promised to call the store and get back to me in 15 minutes but never did. The second customer service rep I spoke to said that they are aware of certain issues with delivery bookings, but the best she could do was to cancel my order and create a new one. The earliest delivery window available then was for Tuesday. When I stressed on how poor my experience had been, I was offered a $15 coupon for my next purchase. I finally received my order on Tuesday, 3 days later than the initial promise.
Normally an experience as bad as this would have broken the customer’s trust. It is hard to see a first time shopper returning to use the service if they had a similar ordeal. But not in my case because I was not a newbie. Not the least. I had used this service hundreds of times, and barring a few occasional unpleasant incidents it had time and again met my expectations. I knew of the little quirks with the shopping app and ways to circumnavigate them. I had figured out the delivery windows to skip if I was looking to avoid stock outs and substitutions. Basically, I had reached what can be described as a loyal customer status. One negative experience, however frustrating it might have been, was unlikely to break a relationship developed over such a long time.
It is such stickiness that online grocers should be after. There is risk of churn at any point in the customer’s journey from the first purchase. In fact, as per a pre-covid statistic that I am familiar with, over 40% of first time users of online grocery services were not likely to make the second purchase. Some of this drop off can be attributed to aggressive customer acquisition strategies used by grocers (such as first time discounts and free deliveries), which is not usually followed up by any concrete plan for retention. Nevertheless, it is generally observed and well understood that the more purchases a customer makes, the lower the probability of them leaving the service.
Our hypothesis then is that it takes a certain number of repeat purchases for a customer to achieve a level of stickiness and engagement with an online grocery service.
Engagement should be a fairly simple measure for online grocery, as some of the standard criteria used to measure engagement on other online commerce platforms such as page views and time online are irrelevant. No one is really looking to spend more time on a grocery app and very rarely is anyone coming to the website for price comparisons or to check out customer reviews for a new line of breakfast cereal. What matters is how frequently someone is buying groceries online (frequency) and how much they are spending (basket size). Engaged customer is one who buys at a certain frequency “N” (measured as orders/month) and spends an average of “P” per purchase.
Stickiness is the probability that a customer will return to make another purchase.
So, our first quest then is to find the number of repeat purchases “R” that leads to stickiness “S” for a customer that shops “N” times a month and spends “P” per purchase. If we have access to historical order data and a data analysis team at our disposal, it is time to put them to work. Such analysis may be done for the business as a whole, but a better approach would be to study this at a local level, as frequency and basket size vary quite a bit depending on local factors (availability and maturity of the service, competition and demographics). A stickiness goal of 90% is a good target to start with.
Assuming we can determine through data crunching the hypothetical R, the number of purchases it takes to make a customer sticky, purchases 1 through R can be considered to be the pre-engagement phase. I like to refer to customers in the pre-engagement phase as the nursery customers. Keeping a pulse on all customer experiences is important, but if we are to make a step change to the customer retention metrics, we need to start micromanaging the nursery customers. Recognizing that this is the customer group that is less likely to tolerate negative experiences, we must go the extra mile to ensure they don’t have any.
First step is to start tracking and reporting all the KPIs separately for the nursery customers.. Search conversions, checkout errors, fill rates, on-time deliveries and pickup wait times — track everything and make sure that all the teams including your fulfillment centers and stores can see these metrics. Just observing these will tell us a lot about the health of the customer engagement funnel.
Secondly, give the nursery customers the special treatment when possible. Let the stores know when their orders are being filled . Prioritize these orders if the stores are running behind on fulfillment. Have the stores call if there is an unexpected delay or an unusual stock out situation. Let the customer service agents know when they are receiving a contact from this customer group. To be perfectly clear, you should always aim for the best possible level of customer service across the board, but when it comes down to prioritizing, choose to serve the nursery customers first over engaged customers, even if that sounds somewhat counterintuitive.
Thirdly, go out of your way to recover your nursery customers after they have a negative experience. Call, email, apologize, offer compensation and incentivize them to come back and shop.
In summary, online grocery is a habit forming service. The longer a customer sticks with a service, the less likely they are to switch. Online grocers need to develop a deeper understanding of the customer’s journey and their motivations for leaving or sticking with the service. The earlier part of this journey is where the relationship is most vulnerable. Hand holding the customer experiences during this early phase will lead to a more committed customer base — one that will be willing to look past an occasional slip up.