How to Keep Them Coming Back: Lessons for SMEs Focused on Growth and Sustainability

Most online retailers focus their budgets on customer acquisition, overlooking the long-term value of repeat business. Customer retention can help small and medium-sized enterprises (SMEs) compete in high-consideration categories by providing a solid foundation for a steady path to growth. In this study, we tested the difference in customer value between new and returning visitors by examining web interaction data from 126,335 unique customers of a US-based online alcohol retailer over the course of 12 months. Guided by Cognitive Appraisal Theory, we used session accumulation as the construct through which we could compare customer type. The results revealed that purchase likelihood increased about three times from the first to the sixth session, and later sessions were more predictive of purchase than earlier sessions. We also found that returning users had a significantly higher baseline conversion rate than new customers, as well as a significantly larger increase in conversion with each additional session. Critically, the value premium for returning users was driven by purchase frequency, which was 4.22 times higher than for new customers, rather than by transaction size, which was only 18% higher. As a result, purchase frequency accounted for most of the revenue. For SMEs operating on modest budgets, there is an opportunity cost and a potential advantage in shifting from acquisition to retention.