Could the supply chain problem turn out to be a CLTV opportunity?

Many will feel that though another year has passed, as the 2021 holiday season approaches we’ve simply traded in one set of problems for another. There have been wins along the way – physical retail has reopened, vaccination programs mean that this year families and friends can get together and exchange gifts, and according to all forecasts we’re set to see another record-breaking Black Friday Cyber Monday (BFCM). This year, the challenge is not getting orders. It’s getting those orders into a customer’s hands.

A recent study from First Insight and the Wharton School’s Baker Retailing Center has revealed some startling insights. As we go into the holidays, 98% of retail executives surveyed are already experiencing supply chain issues, and 100% are expecting the disruption to affect the upcoming holiday season. From shortages of shipping materials and containers, to warehousing issues and staff struggles, getting your products from A to B has never been a bigger concern.

The ecommerce industry is facing another crisis that will test any merchant’s agility, and there are multiple ways to respond to this crisis. Some will hope to cover the additional costs of supply chain problems by passing it on to shoppers and increasing product prices or shipping costs. Others will abandon the promotions or next day delivery they had in the works for fear of driving demand higher than they can handle. For some it will seem there is no option but to take a margin hit to keep prices level for consumers but still deliver the same order numbers successfully. In every scenario, there is a risk to customer experience.

This risk increases when we consider that customers are already distrustful of BFCM discount campaigns. Recent LoyaltyLion research showed that 60% of consumers feel holiday discounts are never as good as they expect them to be, and 61% find the products they want are not the ones on offer.

There are also negative sentiments towards the brands offering the discounts. Over half of consumers think that brands use the holiday period to push lower quality items, and that Black Friday offers negatively impact trust in a brand. They also reported feeling that brands focus their attention on winning new customers over the holidays, rather than ensuring their existing customers feel valued.

Even before we factor in supply chain problems, a traditional BFCM strategy could leave your existing customers feeling deprioritized and deflated, and first-time shoppers basing their long-term opinion of you on the discounts you offer. Add in delayed deliveries and unfulfilled orders and you’re effectively creating a ceiling on your customer lifetime value, that’s going to cost you more to break through in the future.

How do we solve the supply chain conundrum, and ensure that the 2021 holiday season still delivers for both merchants and consumers? It’s all about customer lifetime value.

If you do have to adapt the experience you offer this holiday season – for example by removing next day delivery for some customers – segment your most loyal, valuable customers and invest in prioritizing their experiences. They have the highest average order values and the greatest propensity to repeat purchase. As such, they are the best route to protecting your profit margin. They are also the most likely to recommend and refer you if they have a positive experience. Offering top tier customers exclusive next day delivery won’t just limit the amount of quick turnaround you’re facing. It will give those customers the kind of VIP experience they want to shout about.

You can also try to spread the rush of orders out over a longer timeframe rather than concentrating all promotions on a four-day window. This doesn’t have to mean extending your sale period for all customers. Instead, segment your most loyal customers and offer them early access to the sales. This will be seen as another VIP perk but serve the dual purpose of allowing you to distribute orders across the holiday season more evenly.  This approach may also help you reduce your reliance on discounting and protect profits – 76% of consumers recently surveyed said that a discount would drive them to make a BFCM purchase, but an equally high 72% said early access to sales would achieve the same. Find out more in our New Discounting Playbook.

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However, communication is the real secret to navigating this year’s supply chain dilemma. Customers will be aware of the issues that merchants are facing and likely have some sympathy, but their patience will be tested if you’re not honest and transparent with them. Whether it’s automated order updates, or surprise and delight perks that soften the blow when their order is delayed, do everything you can to ensure they are kept in the loop. How successfully you do this, will dictate how many of those shoppers return to shop with you in 2022.

This is one of the key reasons we’re pleased to have been able to launch our new and improved integration with Gorgias in time for BFCM. Merchants using LoyaltyLion and Gorgias together can integrate their loyalty programs and helpdesks ahead of the holiday, empowering customer service representatives to personalize their responses based on a customer’s loyalty profile. Shoppers will feel listened to and valued, but will also be more likely to return post-sale season to redeem loyalty points.

To sum up, this could be one of the most interesting issues ecommerce has had to navigate to date. The perpetual concern of getting enough orders must now be balanced with a genuine question as to whether you can fulfil those orders. But it’s in challenging times such as these that great brands are built. 

Those who are able to react fast enough to avoid price increases, paused promotions or margin erosion won’t just win the 2021 holiday season. They’ll win long-term loyalty and reputational enhancement that drives customer lifetime value far into 2022 and beyond. 

With a combination of careful segmentation, alternative incentives, and strong communication, this could be you. Good luck – we’d love to hear how it’s going and we’re here to help where we can! 

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About the author

Charlie Casey

Charlie Casey is CEO and Co-Founder of LoyaltyLion, a data-driven loyalty and engagement platform that powers ecommerce growth. Proven to increase retention and spend, LoyaltyLion is trusted by thousands of fast-growth ecommerce merchants worldwide. Prior to founding LoyaltyLion, Charlie joined the Foreign and Commonwealth Office as an Economics Advisor before becoming a consultant at Deloitte.

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