Techcrunch’s report says “COVID-19 accelerated e-commerce adoption by 5 years”. The story highlights how customers in retail stores decreased by 25% in Q1, 2020, and by 75% in Q3, 2020. What the research fails to point out is “increased competition among e-commerce players”.

While the number of players has grown, spending on e-commerce has increased by 40% and industrial funding touched new heights, customer churn has also increased. At the end of the day, the population of a country is limited and it is the maximum number of users any platform can have in a country.

With limited users, the competition will become stiff, and the focus will surely shift from customer acquisition to customer retention. With a limited number of customers to acquire, it makes sense to spend on customer retention and clock a higher customer lifetime value.

Let’s discuss e-commerce customer churn, factors, impact, and best practices in detail and try to understand why reducing it matters.

What is E-commerce Customer Churn?

Often measured in percentage, customer churn is a metric that measures the speed at which customers are leaving a business. Calculated for a specified period, the metric considers all kinds of customer behavior like “unsubscribing to a service”, “subscription cancellation”, and “renewal failure” to highlight the speed at which a platform is losing customers.

E-commerce customer churn represents the number of customers whose relationship with the company came to an end. The measuring churn rate for subscription-based services like Netflix & Spotify is easier. The number of users who did not renew their subscription is the number of customers who churned. For e-commerce companies that do not offer any subscription, measuring churn is complicated.

Since, e-commerce stores engage with customers in a non-contractual environment, subtracting the number of users at the month-end from the number at the beginning will not give us the actual number of customers who churned.

In a conversation Return Logic, Dr. Paul van Loon, Head of Analytics at Forecast, highlighted how measuring churn for non-subscription-based is tough but it shouldn’t be ignored. Measuring churn and focusing on factors that power it can help businesses increase retention and customer lifetime value.

Irrespective of the challenges involved, e-commerce players follow the standard formula of churn to measure the percentage of customers who left in a specified period. Calculating churn helps them identify areas, where more focus is required.

The formula for calculating churn is:

Churn Rate= Number of Customers who left/ Number of Customers at the beginning X 100

Measuring customer churn helps stakeholders reinforce their focus in practices that reduce customer pain points and strengthens customer experience.

How to Predict Customer Churn & why It’s Important?

Why predict customer churn? Is it a relevant practice? How does it help e-commerce players? These are some of the most frequently asked questions about e-commerce churn prediction. For many predicting “how many customers will leave us” doesn’t make sense but for numerous players, it is key to identifying:

• The potential drop in revenue soon
• Potential impact on market shareholding
• Estimated damage to brand reputation
• The estimated decline in stock price affecting future issues

Now that the basic principle governing the importance of predicting customer churn is clear. Let’s proceed with how it is done and why it is important.

Net Promoter Score: The evergreen customer experience metric plays a crucial role in identifying customers who are likely to come back and customers who will discourage others from shopping on your platform.

Here’s how NPS predicts customer churn in three steps:

Step 1: Survey Customers: E-commerce platforms use available opportunities and mediums for recording customer input. Top questions, online stores can ask their end-users are:

1. On a score of 1-10, how likely are you to recommend Our Store?
2. What is the reason that explains your score in the best possible manner?

Well, the first question will help online stores identify and classify customers into three groups, which will be discussed in step 2.

The second question will provide online stores will access to factors and challenges that are affecting customer experience.

Step 2: In this step, we divide customers who contributed to the survey into three groups:

1. Promoters: Participants who gave a score of 9-10.
2. Passives: Participants that marked 7-8.
3. Detractors: Participants marked 0-6.

Step 3: Computational Analysis: The quarterly conducted survey data is mixed with the previously collected information to identify customers who have “consistently rated low”; these are customers who are likely to churn at the first opportunity they get. The opportunity could be a lower price somewhere else or another poor experience.

A study by Promoter.io offers two conclusions about NPS results, which makes a lot of sense for e-commerce players:

1. 50% of detractors are likely to unsubscribe from your services in less than 90 days.
2. 40% of passives will eventually unsubscribe from your services in 180 days.

Importance of Measuring of E-commerce Customer Churn

1. With customers sharing “reasons for low rating” in surveys, marketplaces can pick those pain points and strengthen offerings.
2. An opportunity to focus on passives and retain them by rendering pain points obsolete.
3. Focus on customer acquisition to stop market share from dropping.
4. Planning upcoming issues like “share buy-back” “Offer for Sale” or Rights-issues to maximize fundraiser

Customer Churn: Why E-commerce Buyers Leave?

By now, we are aware of what customer churn is, how it affects e-commerce players and how it is measured and predicted. Let’s focus on factors that encourage users to leave.

1. Poor Customer Experience

Your IVR fails to help the customer get in touch with a human agent at the earliest, customers will leave your platform to never come back again. Your site is now optimized to offer similar experiences offered on other prodigal platforms? Customers will churn.

Today, customers have access to multiple platforms offering the same product or services. As mentioned in the beginning, the competition is growing while the number of customers, who can be acquired is limited. Poor customer experience will do more harm to businesses, hence e-commerce platforms should not shy from investing in CX innovations.

2. Poor Website Design

Trying to sell to customers with a poorly designed website will malign your brand reputation forever. What might be an engineering marvel is surely not the ideal platform for customers. End-users want platforms to be simple, accessible, and easier memorable.

A lot of customers are used to a specific kind of experience, which is derived from putting cart, buy now, wish list, and other important buttons at specified places. A change in the positioning of CTAs and customers will label your store, poorly designed.

3. Lack of Quality Products

Amazon has over 2 million sellers contributing to an array of products. By making millions of products available, Amazon has become the preferred product discovery platform by beating Google.

With lesser products, online stores cannot:

• Facilitate comparison capabilities
• Offer accurate product recommendation
• Miss out on cross-selling and up-selling opportunities
• Create theme-based buckets

Customers want to be offered the best of Christmas and Diwali products the moment they land on your site. With only a few items to list, you simply cannot create an impressive bucket and lose your customers to enormous assortments.

4. Lack of Quality Customer Support

In 2021, Live chat, Bots & request a callback option are helping customers:

• Make informed decision
• Receive instant resolution
• Access requisite information about a particular product
• Understand the post-sale service regulations better

Any e-commerce player that is not leveraging live chat, social media support and is not offering unique features like “self-help literature” and “request a call-back” will lose customers.

5. Poor Return Policy

A huge percentage of product return requests occur because:

• Of mistakes made by sellers
• Of inaccurate information in the catalog
• Mistakes made by the logistics partner
• Lack of proper post-sale support by seller

The nascent e-commerce industry is going through a phase, where they are testing multiple features simultaneously to see which ones work the best. The number of features that are failing is innumerable and to compensate for those mishaps, e-commerce stores are offering “no-question asked to return”.

A poor return policy that encourages customers to churn:

1. Asks users to pay for return logistic
2. Asks users to ship return products on their own
3. Have a very short return window
4. Fails to compensate at the earliest
5. Takes a longer route of issuing a refund after a quality check

Best Practices to Reduce E-commerce Churn 

1. Effective Catalog Management

With effective catalog management, e-commerce players can control several nuances, which will reduce customer churn. Catalog management helps:

• Reduce brand interference
• Customers make informed decisions
• Supports with improved product recommendation
• Up-sell and cross-sell eligible products

Steps of effective catalog management include:

Catalog Writing: To write product descriptions in an innate manner that gives away all the requisite information in one glance is an art. Such suggestive product descriptions help customers make informed decisions. Quality information presented in a scan-able manner also improves customer experience.

Catalog Quality Check: Often sellers commit mistakes or deliberately alter the product description to garner more impressions and higher sales. Through catalog quality check, all such futile attempts can be reduced and end-users can be offered access to only quality information leading to lesser return requests.

Catalog Enrichment: To traverse all existing catalogs and adding relevant attribute values to them. Catalog enrichment assists with several things, which improves customer experience and reduces chances of churn. Catalog enrichment helps with:

• Improved on-site search results
• Easier theme-based bucket creation
• Improved opportunities for cross-selling and up-selling

2. Focus on Customer Support 

Customer Query Challenges: During the Corona pandemic, customer queries sky-rocketed. With lockdown imposed in varied parts of the globe, the logistic was disturbed and people were unable to receive products on time.

E-commerce players were already operating with a limited number of employees and then the customer queries increased by leaps and bounds. At many nascent e-commerce start-ups, founders spent their days answering customer queries.

One thing this COVID-19 did, was exposed the loopholes in the existing system and it is now time for e-commerce stores to address all these problems. The pandemic helped e-commerce players understand the magnitude of queries they will receive if online shopping becomes mainstream for 70% of the population. More number of customers means more queries, which means organizations will need to expand their customer support bench strength.

Build Multichannel Expertise or Outsource: The market is filled with BPOs that offer qualitative customer support services. E-commerce players that cannot afford to have a huge in-house team for answering calls can outsource. Outsourcing these processes can simplify the business and help customers seek information as per their preference. Outsourcing enterprises are experts at offering multi-channel support that includes email, chat, and call.

If e-commerce players set foot to start building in-house capabilities for answering customers at multiple platforms including social media, it will get too late for them to retain customers they have acquired by spending heavily.

3. Improving Product Discovery 

E-commerce players can overcome issues related to processing pain points by investing in catalog management and product management services. Catalog enrichment is one process through which all catalogs are checked for missing attribute values.

By adding or replacing the incorrect values, e-commerce players can improve the efficiency of their search engines and offer faster product discovery. The new improved search engine will list products based on the information added to the system, which is a great way of addressing process pain points.

For e-commerce players who want to understand what product discovery is and wants to do it on their own, there’s a set of steps that need to be followed. When followed ardently these steps can change the course of search engines and help customers find the right product faster.

Improve product discovery in six steps:

Step 1: Understand the problem

Step 2: Optimize navigational search

Step 3: Focus on search quality analysis

Step 4: Offer useful product recommendation

Step 5: Cater to the user’s intent

Step 6: Keep repeating all these steps

4. Deploy Catalog Quality Checks

Catalog Quality Check to discover and remove errors: Here’s everything related to the catalog that you need to implement to curb returns and control dipping customer experience:

Rigorous catalog quality checks will help marketplaces and sellers identify products that are listed in the wrong categories and sub-categories. When products are listed under the wrong categories, they fail to reflect on relevant search results, which impacts the customer’s ability to make informed decisions.

Apart from less exposure, brand interference is another problem that arises when products are listed under the wrong categories. Customers will start to see women’s clothing even when searching for men’s t-shirt. Once identified in catalog quality checks, such errors can be rectified through Catalog Enrichment.

5. Minimize Seller Mistakes

65% of e-commerce returns are due to mistakes from the retailers themselves. With marketplaces investing in seller education the chances of products getting returned decreased. With lesser products being returned, both seller and marketplace will make more money. Marketplaces can either share literature or assist sellers with online training sessions.

Marketplaces can reduce return rates and offer a better customer experience just by helping these sellers getting used to seller central. Through rigorous training, sellers will get to understand the nitty-gritty of online selling and will be able to create top-notch listings on their own.

Final Thoughts on E-commerce Customer Churn

 Today, e-commerce players are foraying into entertainment services to lure users. Marketplaces are incessantly building partnerships that help end-users have an exceptional experience.

With key stakeholders constantly battling industry pressure, regulation challenges, and innovating, there’s seems to be no time to focus on nuances like catalog management, product management, and seller management, which defines e-commerce and helps nascent players scale.

With MattsenKumar’s comprehensive e-commerce outsourcing services, e-commerce players can strengthen their catalog, product management, and seller experience. With the basics sorted, e-commerce players can go ahead and offer faster product discovery, accurate product recommendations, and useful theme-based buckets.