CUSTOMER RETENTION IN E-COMMERCE

LITERATURE REVIEW

Maastricht University

School of Business and Economics

Sabotic, E

I6261630

SBE Pre-Master

Academic Writing Pre-master

EBS2068

Group 14

Due: 28-05-2021

Tutor: R.C. Kent

Word count: 2400

E.sabotic@student.maastrichtuniversity.nl
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Introduction

The world spent 4.28 trillion US dollars on e-commerce sites in 2020, a 5.4 trillion US in

e-retail revenues is being predicted for 2022 and 6.3 trillion in the next two years1 (statista.com,

2021). The world is revolutionized by the initiation of e-commerce and the revolution is refueled

by a substantial advent of smartphones. This change offers the most desired aspects of

convenience, speed, and ease of access disrupting the shopping behavior of the entire

civilization.  As a result, customers get in touch with sellers directly over the web buying at

lower rates pointing towards a dwindling role of supply chains. Customer preference, product

features, service attributes, buying behavior and pricing play an important role in e-commerce

that offers a wider choice. The wider array of choice and rapidly increasing usage of e-commerce

platform has increased the need of retaining loyal customers along with puling in new ones.

Retention is twice more important than acquiring new customers as it ensures a regular

income urging sellers to invent several retention strategies to amplify profitability and secure

market share. This paper is a literature review on current strategies employed to develop lifetime

customer retention on e-commerce platforms. The paper will utilize coined theoretical concepts

to define and understand customer retention. The next step is to evaluate various existing

practical strategies employed by current leading organizations for online customer retention

followed by an exploration of knowledge gaps in this particular paradigm.

There is an overabundance of academic knowledge regarding e-commerce customer

retention therefore, for this paper most relevant and updated2 resources comprising of scholarly

articles, books, professional interviews, and respected business websites were collected. The
1
Appendix-A
2
not more than a decade old
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keywords for research were customer retention, e-commerce, strategic management of B2B and

B2C customers, and customer churn. The resources were retrieved from Emerald, Google

Scholar, EBSCOhost, MDPI, ScienceDirect from Elsevier, Springer, and Taylor & Francis. 

E-commerce signifies electronically facilitated transactions amid a business and the end-

user be it financial or informational (Turban et al., 2015). Ecommerce has opened doors of

massive opportunities for businesses, however, a number of competitive challenges such as the

loss of market share to other e-commerce companies are a part of the package. Chaffey and

Patron (2012) assert that when a firm offers its services the distinguishing value features and

variety should be unique and must be regularly updated (Chaffey & Patron, 2012). Al-Rabayah

et al., (2016) in their book suggest that it is crucial for profitability and market share for

businesses, especially online businesses, to enhance and keep their customer relationships.

Nevertheless, several firms focus all of their energies and resources on the secondary objective

of finding new customers to grow their business, substitute lost customers, and expand in new

markets (Al-Rabayah et al., 2016). 

Customer retention is the skill displayed by a firm to “hold” customers for an identified

time period. Greater customer retention denotes rebuying the products and/or re-subscribing to

services from the same organization (Al-Rabayah et al., 2016). Research has established that the

prospects of existing customer repurchasing is around 60–70% in comparison to selling to a new

customer which is only 5 – 20%. Leon (2019) is of the view that attracting a new customer may

cost five times more than trying to hold onto an existing one (Leon, 2019). Businesses all over

the world have added e-commerce to their strategic operations understanding the importance of

cyberspace in reaching customers. In an e-commerce setting mutually rewarding relationships

with unseen customers effectively exist in cyberspace. The e-commerce settings range from the
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most generally identified Business 2 Business and Business 2 Consumer to Consumer 2

Consumer, Government 2 Consumer and Government 2 Business. However; as a research base

for this paper only the B2B and B2C will be considered.

A business organization must understand that the first purchase is just the beginning, the

real business value is in retaining the customer for a long-term relationship (NGData, 2014).

Customer retention is the time and money invested strategic means to turn the first-time

purchaser into repeat buyers and averting switching to a competitor (Hennig-Thurau & Hansen,

2013). Various scholars and business gurus have invested years in research to define customer

retention. Peppers & Rogers (2011) are of the view that customer retention is a collective name

for the actions a firm takes to retain the customer’s relationship and the profitability thriving

(Peppers & Rogers, 2011). Ginn et al. (2010) described customer retention as a business

competency converting new customers into regular ones they furthered it by calling it a

customers' open declaration of an enduring relationship with the firm (Ginn et al., 2010).

Another scholar Gallo (2014) calls for preventing customer churn 3 to competitors by

employing strategic improvements to product/services and after-sale services (Gallo, 2014).

Customer loyalty is another important aspect in customer retention suggesting building strong

relationships and encouraging the probability of repurchase by an existing customer.

Accordingly, Garland and Gendall (2004) see retention as the focal outcome of the strong

repurchasing behavior of an end user (Garland & Gendall, 2004). 

Nasir (2017) stresses the fact that the ultimate purpose of customer retention efforts is to

lessen customer defection rate adding value to and maintaining relationships (Nasir, 2017).

Organizations from diverse sectors actively work to reduce and manage customer churn usually
3
Rate at which customer discontinue using the product/service from one providr and move to another for same product/service
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by identifying high-risk customers and targeting retention efforts towards them (Lemmens &

Gupta, 2020). Churned customers are lost customers, therefore; customer-centric and/or

business-centric churn management strategies play an important role in turning a random

customer into a lifetime loyal customer.  

The retention strategies vary owing to the diverse nature of every business and industry

especially for online e-commerce businesses as it is a vast field now and the recent boom of apps

has definitely changed the dimensions of the playfield. An interesting fact pointed out by (Nasir,

2017) is that retaining customers is beneficial to firms as repeat customers become loyal

customers buying at the actual price, creating operating efficiencies, and exhibit an increased rate

of spending. As established earlier, acquiring a new customer account is expensive. Nonetheless,

the same account turns out to be more gainful reducing the relationship maintenance costs with

gradually deepening of the liaison amongst the firm and the customer. Satisfied customers

willingly pay higher prices and are less prone to churn as a response to the low prices of

competitors because they gain a sense of value from their relationship with the organization.

Furthermore; they spread the “word of mouth” and help the firm gain new loyal customers. 

Word of Mouth is regarded as an established strategy for targeting customers in regular

business since inception whereas in the e-commerce realm the word of mouth is usually handled

by social media. In the hyper-connected present-day world, a single recommendation from a

satisfied customer can lead to business capitalization. Usually, word of mouth is a targeting

strategy for customer acquisition as a satisfied repeat customer turns into a marketing

campaigner spreading a positive word of mouth. As a result, an emphasis on customer retention

is justified.  
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Another usually employed strategy is offering loyalty programs. The literature has

extensively explored this strategy in regular and online businesses. Loyalty programs have

proven to be a successful and efficient modus operandi targeting enhanced customer retention.

The quintessential means to loyalty-building and customer retention is customer satisfaction

furthermore, loyalty can attract and hold valuable customers of the firm. Magatef and Tomalieh

(2015) argue that loyalty is not just a repetition of behavior and can be because of the brand,

price, services, products, after-sale customer services, or any other aspect but the customer

satisfaction is the epicenter (Magatef & Tomalieh, 2015). Singh & Khan (2012) studied the

relation between and importance of customer retention and customer loyalty. They believe that

satisfying customers from understanding their behavior can offer immense gains to the business

(Singh & Khan, 2012). The easiest way to instill loyalty is by offering better services, both

offline and online, establishing a good relationship, and strengthening customer retention.

Loyalty programs offer rewards and encourage loyal buying behavior reaping long-term

revenues for the firm. Businesses such as airlines and hotels offer reward-based loyalty programs

and retain their customers for a lifetime. Clark (2010) reported several benefits of loyalty

programs and existing customers’ retention topped the list (Peter, 2010). 

A fact established from the above-mentioned literature and supported by (Alkitbi et al.,

2020) is that multiple factors play an important role in customer retention service the forerunners

are quality, trust, satisfaction, and assurance. Companies can satisfy customers if they offer them

quality and value; however, a few more factors are of great importance, for instance,

understanding the customer by asking the right questions and understanding their needs. This

helps in creating and intensifying lifetime value which ultimately boosts the revenue.

Understanding who and where the customer is whether a B2C or B2B buyer, what are the
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inhibitions, what as a provider you can streamline or optimize to address their personal and

business needs all can open new vistas of long-term retention.  

Edward and Sahadev (2011) and Milan et al., (2015) both emphasized the value of

building relations with the customers; end users, and/or the supply chain; stating that a good

relationship has a direct impact on customer satisfaction which is a determinant of customer

retention (Milan et al., 2015; Edward & Sahadev, 2011). Tamuliene and Gabryte, (2014) have

added switching costs, value, trust, and relationships to this (Tamuliene & Gabryte, 2014).

Edward and Sachdev articulated that improved relations introduce and amplify emotional

damages and hinder a change of service providers. Milan et al., filled a knowledge gap found

while studying customer retention by involving switching costs in the network already brimming

with quality, value, and satisfaction associated with the product or service.

Simanjuntak et al., (2020) also promoted value, quality, and corporate image as factors

impacting satisfaction of the customer (Simanjuntak et al., 2020). Shafiee and Bazargan (2018)

studied the factors affecting repurchase intents in online stores found that customer satisfaction

was an outcome of the experience of the online store and customer perceptions. They identified

seven factors namely price, product information, ease of purchase, policies for returning,

financial risks associated with creating, selling and delivery considerably influencing satisfaction

and repurchase plans of customers on online sites (Shafiee & Bazargan, 2018).

The world has changed and the ways to do businesses have revolutionized. Teague et al.

(2018) identified 95 retention strategies while exploring the relationship between retention

strategies and retention rate and found that the rate of retention does not increase with employing

a larger number of retention strategies (Teague et al., 2018). The innovative firms that perform
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all their business online employ a variety of strategies to retain customers in a tough competitive

environment. Nevertheless, the key factor is still customer satisfaction.

Netflix has an unbelievable retention rate of 91%. Netflix collects an insane amount of

data from the users and their behaviors and uses them to create strategies for retention. On the

basis of the collected data Netflix keeps on updating its content and regularly suggests new

content based on the previously watched content. The usual strategies are Emails: Netflix is

regular; Push and In-App Notifications: offers an insight to customers regarding upcoming new

seasons of their favorite shows; Recommendations: making uniquely personalized

recommendations is what distinguishes Netflix from other service providers. All of these

strategies are based on exactly knowing what the customer wants and satisfying the needs

focusing on retaining the customer. One happily retained customer spreads the word to many

new customers on virtual platforms and helps Netflix generate more business. 

Retention is the foundation for growth (Ahmad & Buttle, 2002). Firms must prioritize

retention driving sustainable revenue growth. Sam Lee Founder & CEO at IndeCollective is of

the view that exponential brands such as Facebook, HubSpot, and WeWork effectively surpassed

their competitors only because they have outstanding customer retention programs. These

businesses have achieved triple-digit growth in profitability, revenue, and active users (Lee,

2017). Profitability and customer retention directly correlated (Hennig-Thurau & Hansen, 2013).

Dubihlela and Khosa (2014) surveyed hotel managers to understand the relation of e-customer

retention management, loyalty, retention, and profitability and proved a significant correlation

between retention and financial gains of a firm (Dubihlela & Molise - Khosa, 2014). However,

when Almohaimmeed (2019) tested this hypothesis found that no significant relationship

between the two.

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Customer retention in e-commerce drives monetization (Almohaimmeed, 2019).

Customers have an extensive choice of apps to peruse and buy online products and services

making monetization in e-commerce an important aspect. App retention rates are much lower

making customer retention in these markets exclusive owing to the fact that over 80% of all app

users may churn within 90 days. The apps from family, entertainment, sport, and action games

have the least retention probability (Appel et al., 2020). Retention means competitive edge. The

long retained customers spend more and bring value to the brand encouraging the firm to spend

more on customer acquisition helping to oust competitors from the market (Nasir, 2017).

Conclusion

The growing presence of e-commerce in business has created a war among businesses to

hold on to their customers. Customer retention as an ability to hold on to existing customer

means revenue, growth, value addition, and easier new acquisitions for business. It is an

important phenomenon in the e-commerce world as the retention of online customers is more

difficult owing to an extensive variety of choices available and reduced switching costs and

barriers. The firms can employ time-tested and innovative retention strategies after detailed

scrutiny of the customer’s demographics, needs, and values as data are the most valuable asset of

the firm. The variance in businesses means varied strategic approaches to every sector

necessitating business managers working on innovative means to target risky customers. 

Recommendations

Customer retention is an important aspect of a business as a large number of studies point

out the effects of quality, trust, and value on customer retention. Nevertheless; there are

knowledge gaps that need to be addressed.

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 Firms must focus on other important factors such as marketing mix, habit, social

influence, hedonic motivation4.

 Ensure immediate, flawless, and effective customer service.

 Ensure transparency and accountability as business attributes.

 Similarly, in the context of e-commerce, the aspects of expectation confirmation theory

as a theoretical concept and marketing mix concepts must be explored5.

4
These have a considerable impact on customer retention but there is no adequate empirical and theoretical support for these.
5
These theoretical approaches are important as in mobile telecommunication and app services these have helped in identifying
several factors impacting customer retention directly.
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Appendix – A

(statista.com, 2021)