The time, energy, and money spent to acquire customers come at a premium cost. So why let them slip through your fingers? While producing a stellar product or service is an important part of the customer-retention recipe, successful strategies must be much broader.
“Consumer retention is universal,” according to Flowhub Chief Executive Officer Kyle Sherman. “It’s about creating a positive experience and an incentive to come back — from atmosphere to having the right technology in place to training staff on standard operating procedures and every product detail. Look at the Apple store, Ritz Carlton, and your favorite local dispensary. These companies provide standout experiences but operate in completely different industries. Each company makes its customers feel like royalty.”
Sherman has watched brands and retailers acquire, lose, reacquire, retain, and otherwise dance with consumers since early in the second decade of the twenty-first century. While working for industry powerhouses including Dixie Brands and Weedmaps, he became frustrated with the inefficient technology then employed in the space. So in 2015 he founded Flowhub, a software platform that incorporates point-of-sale (POS), compliance, banking, ID verification, analytics, and dispensary-, inventory-, and order-management components. The company facilitates more than $3 billion in sales per year across more than 1,000 dispensaries nationwide. And the system is still evolving: Sherman said Flowhub will launch a “stoner-proof” from-the-ground-up redesign of its core backend system later this year.
Sherman himself is a high-profile industry and plant advocate. He was named a Top 100 Cannabis Leader by Entrepreneur, made Business Insider’s “30 and Under” list, and was an associate producer for the Netflix documentary Weed the People.
But more importantly, at least for brands and retailers, is the remarkable insight the Flowhub ecosystem provides Sherman and his team about consumer behavior and retailer and brand loyalty — and, consequently, customer acquisition and retention strategies that work.
“A few battle-tested customer-retention strategies include intimately knowing your audience, understanding how you solve their needs, taking the time to educate your consumers, and building a loyalty program,” he said. “These are all effective inroads for dispensaries aiming to differentiate themselves from the competition. Lean into what you do best and what no one else can offer.”
Here’s more of his advice.
What is the most basic thing dispensaries can do to increase customer acquisition and retention?
Dispensaries need to invest more time and energy into training their staff. We often are surprised at how little time dispensaries spend educating their staff about effective customer-communication techniques and how to operate their loyalty or POS systems. Budtenders hold power over what is or isn’t sold. My advice is to target staff training around brand and company values, engage different types of customers, and use dispensary technology to your benefit.
Frontline staff should know how to de-escalate a tough situation with a consumer. Retailers also should conduct regular drills so they are ready if and when an incident such as a power outage occurs. Teach staff how to upsell new product categories or recommend related products based on purchase history. Training is everything.
Every consumer wants a positive purchasing experience. If they enjoy their experience, they’ll return. It’s important to remember many consumer demographics are willing to pay more for products based on the customer experience alone.
So when customers enjoy the shopping experience, they’re likely to spend more?
Absolutely. Consumers spend more if they feel appreciated. In fact, Harvard Business Review found these consumers are likely to spend 140 percent more than those who report negative experiences. To create positive experiences, reward your most loyal customers with exclusive deals. Upsell them on products they may not have tried. Wish them a happy birthday, give a warm welcome back, and call them by name. This is all a part of providing an incredible experience.
Would promoting the company’s commitment to social consciousness fall under that same “positive experience” umbrella?
Consumers, especially millennials and Gen Z, vastly prefer purchasing from brands that align with their values. Look at companies like Patagonia that put the planet before profits. They’re successful because consumers respect and align with their values. The key here is to showcase social consciousness that is authentic. Customers can sense inauthenticity from a mile away.
Dispensaries are no exception to the trend of values-based shopping. In fact, they may be more heavily impacted than other industries. Cannabis consumers want to see companies embracing social change, education, community involvement, diversity, equity, and sustainability. Conversely, shoppers often hold large corporations in a negative light and tend to gravitate toward companies that focus on real change over profit and growth.
To infuse your dispensary with strong values, understand everything from the way your staff speaks and interacts with consumers reflects the quality, care, and values of the brand. Further, brands can authentically demonstrate their priorities through social-equity initiatives. It is important to integrate clear core values into staff culture, from corporate offices to the dispensary floor, to win over today’s socially conscious consumer.
You mentioned rewarding customers. Do loyalty programs work in this industry?
Offering a loyalty program is a great way to entice customers to return. I love the loyalty programs offered by United Airlines and Marriott Bonvoy. The rewards are so compelling, I won’t book anywhere else. Replicating this perk in the dispensary environment will show the same results.
Flowhub has a simple, built-in loyalty program that allows consumers to accrue points with every purchase, leaving redemption offerings up to the dispensary. We also integrate with partners like springbig, who take loyalty programs to the next level by integrating with hundreds of dispensaries around the country to allow consumers to check their point balances and available rewards seamlessly at checkout.
Cannabis consumers today expect the same ease and treatment as in mainstream consumer-packaged-goods industries. Rewards programs play a critical role in boosting brand loyalty and affinity. And loyal customers create a snowball effect. Not only does the dispensary keep the customers it has, but the number of new customers expands exponentially.
Word of mouth is one of the best ways to acquire new, loyal customers. In fact, 77 percent of customers say they would recommend a company to a friend after having a positive experience. One friend tells another about this amazing dispensary down the road that offers 25 percent off top-shelf flower on Tuesdays. The friend then goes in to check it out, becomes hooked by the customer experience at the shop, and tells another friend about it. This shows how important customer satisfaction is for the long-term success of your business. Every happy customer is an opportunity to generate not only a loyal customer but also many more customers in the future.
What little things that contribute to a positive experience might managers overlook?
We live in an era of instant gratification where minutes can feel like hours. Consumers care about speed, and they will gravitate toward a fast check-in experience. Thankfully, tools like the Nug — a handheld mobile device that runs Flowhub’s Greet app — enable seamless check-in experiences by scanning and validating IDs from the palm of your hand. The Nug also instantly pulls the consumer’s data from their last visit and shows their prior purchase history, allowing budtenders to provide a personalized experience for each customer.
Dispensaries that have their consumers’ information at their fingertips can foster effortless, white-glove experiences. A slow and frustrating check-in process can negate all the enjoyment of a customer’s experience, making the entire ordeal feel like an eternity, even if it lasts only fifteen minutes. Even I am not immune. I recently experienced a slow check-in at a store in California and may never go back. Optimizing check-in will go a long way in retaining customers.
What about checking out? Does the cash-only model affect customer retention?
Going cashless or “graduating from cash,” as I like to say, is one of the most important changes a dispensary can make to retain customers. I often hear dispensary accounting teams hesitating to bring in point-of-banking services because they have an ATM in the lobby. This is actually counterproductive. Our data tells us cart sizes increase by 30 percent on average when consumers are able to pay directly at the counter and avoid cash altogether. Additionally, cash-handling costs retailers, on average, around 15 percent per transaction. Cash management also poses a huge security risk.
Dispensaries that adopt a cashless solution have higher revenue, stickier consumers, and lower overhead. We often recommend three systems we work with, but the reality is retailers need to accept as many compliant payment solutions as possible.
Look at Starbucks, for example. A customer buying a cup of coffee can pay with cash, debit, credit, Apple Pay, Google Pay, tap-to-pay, or the Starbucks app. This is going to become standard practice at every retailer, including dispensaries. We already see only 16 percent of people carry cash, and that number is only going to decline. Going cashless makes products infinitely more accessible and convenient while protecting your customers and business from risk.
Earlier, you mentioned education. Does consumer education impact customer retention?
Education is incredibly important in cannabis. Remember, retailers are selling a product that historically carried a negative stigma surrounded by false information pushed by everyone from schools to the federal government. When canna-curious consumers walk into a dispensary for the first time, they need to feel welcomed, safe, and able to learn all about the incredible plant. This goes for recreational consumers and patients as well. If they want to find out about a product that can help them sleep but doesn’t have to be inhaled, then budtenders should be able to point them to an edible that contains sleep-inducing terpenes and cannabinoids.
Consumers who feel confident in their cannabis knowledge and trust the suggestions of budtenders will feel comfortable enough to return to that dispensary in particular. Education can come from a variety of sources, from trusted retail employees to cannabis-brand websites or social media.
Speaking of social media… Let’s talk about marketing strategies and customer retention.
Marketing as a whole is much more difficult in this industry due to the restrictive policies of traditional advertising channels like Instagram and Google. But don’t assume marketing isn’t a pillar to success. We’re seeing marketing as an “X factor” for many brands that use a creative marketing strategy to stand out from competitors.
As the industry’s competition ramps up and dispensary product selection becomes increasingly homogenous, marketing is going to continually grow in importance. It’s not enough simply to sell cannabis anymore. Retailers need to dedicate more resources toward marketing as they expand. Make sure your website is easy to use and optimized for organic search. Partner with like-minded brands and influencers and get involved with your community. Once you attract people into your shop, deliver a “surround sound” experience for your customer.
Everything you do should resonate with a consistent brand message — from your store aesthetics and how your staff makes people feel to the music you play and even how your store smells. There are many creative ways to stay competitive and keep customers these days, regardless of federal restrictions.
What about SMS [short message service] marketing? Is it effective?
SMS marketing is tough. Many carriers restrict cannabis terms in mass text communications, and there are several Federal Trade Commission laws that broaden the definition of “spam.” Still, everyone texts. Pushing targeted communications to consumers is an effective method of creating loyalty. It’s fast, easy, and straightforward.
Innovative companies like Dispense are getting smarter and finding ways to operate around restrictions to get their messages out to their customers. Dispensaries that want to further enhance customer engagement should consider going above texting and look into building a mobile app. Between push notifications and a simple app, consumers will appreciate the ease and consideration from their dispensary — which will keep them coming back.
Retail technology generates a staggering amount of data. How can dispensaries and brands make use of all that information?
Data is key to retaining customers. If you’re operating in a strictly reactionary day-to-day operation, you can’t sustain long-term growth. Instead of adopting the old framework of
“people want weed, I sell weed, people will buy my weed,” you instead need to dive into your data to understand who your customers are and what they want. Understand basic demographics like medical versus recreational, local versus tourist, age, and gender to build out customer segments based on things like purchase patterns and seasonality. Data is a tool that can help dispensaries foster a more personalized experience while also targeting promotional communications to the correct demographic. Who doesn’t want targeted deals and personalized interaction when they’re shopping?
This all ties back to creating a personalized experience for the consumer and keeping them so satisfied they keep coming back. When a dispensary draws on purchasing-history data to offer discounts or specials featuring popular brands among their consumers, consumers will feel a connection between the dispensary and that brand. Simply put, consumers will keep coming back if the dispensary sells brands they love.
One warning for retailers is to be very cautious of third-party integrators using your data to poach customers. This can cause significant damage to brands as consumers flip-flop on loyalty. Data also can be leaked as we saw recently at [government-operated] Ontario Cannabis Store. Retailers should absolutely be using data to power decisions, but understand the power of data and make sure you’re keeping it safe.
So, what is your one best piece of advice for gaining new customers and keeping the ones you have?
All roads ultimately lead back to fostering the most positive experience possible for the consumer. Today’s consumers demand fast and convenient experiences. They want to be able to shop online, pay on their terms, and get products delivered straight to their door. The in-store experience needs to be safe, clean, and stress-free. Frictionless check-in, loyalty programs, deals and specials, cashless payment options, and consistent messaging are all excellent places to start differentiating your retail brand.