By understanding your customers’ needs and wants, you can create loyalty programs that reward repeat business...

How DTC brands retain customers with a loyalty program

In a rapidly changing world, ecommerce brands shift their strategies in an effort to always stay on top. And as competition grows by the day, brands face an ongoing challenge of keeping customers coming back on top of acquiring new users. 

The DTC (direct to consumer) model allows brands to have a better relationship with their customers by allowing them to purchase products directly from the brand. It ensures better overall quality by shifting the weight of customer satisfaction and experience through owning and controlling the value-chain. Consequently, the DTC model implies that brands have an opportunity to foster closer bonds with their customers by offering better quality products, faster shipping delays and wider delivery options, more convenient payment methods, a well thought out return policy and excellent customer service. This model has gotten more and more popular that major brands such as Nike and L’Oréal are shifting significantly towards it. Disruptors like the Dollar shave club explode into the market putting small brands into more competition with companies that can afford to spend big in marketing and PR budgets and customer experience. A research by BrightPearl found that 

Although the DTC ecommerce models are full of opportunities, large brands who have the resources to build a fast and frictionless buying experience run the risk of overshadowing smaller ecommerce brands who seem to never catch a break and find themselves constantly looking to get customers attention. With potential buyers being online and on social media, the moment they come up with a great strategy to make customers happy, the rest of the industry follows. As a result, ensuring customer loyalty and satisfaction is a key focus for many, as most are aware that a happy customer will share and talk about that brand with their friends and family. These brands are looking for “super consumers” that buy more, spend more, and return less items, all the perfect metrics. 

In addition to providing a top-notch quality service that doesn’t disappoint, DTC ecommerce brands can consider launching a loyalty program that rewards customers for their loyalty and drives positive interactions with the brand. 

So how can a DTC ecommerce brand build customer loyalty through a loyalty program ? What are the benefits ? 

DTC (direct to consumer) is the process of selling products directly to consumers, as its name suggests. This means owning and handling the end-to-end customer interaction with a brand, from pre-purchase to after-sales handling, eliminating intermediaries and shipping their products directly to consumers (and this is not a new sales channel). With higher customer expectations that continue to grow, companies are bringing their products directly to the consumer, and consumers are expecting brands to interact authentically with them.

The rapid growth of the D2C e-commerce market can be attributed to the competitiveness of its adopters. As stated above, one of the major benefits of this approach is that it helps brands foster closer relationships with their customers. There are many reasons why online shoppers prefer buying directly from these brands, including better pricing, free, fast, and convenient delivery, and easy returns. The DTC natives (digitally native vertical brands such as Dollar Shave Club and Casper) have provided more of a clear understanding of what works and what doesn't.

In today's atmosphere, DTC brands have a clear incentive to engage their customers more, with a particular focus on acquisition, selling and customer engagement. Around the late 2000s to early 2010s, disrupting brands in ultra-focused categories like Everlane, Dollar Shave Club and Bonobos saw an opportunity online and took advantage of the unrivaled access the internet gave them to customers. These brands have, among others, built businesses from scratch and become household names for it. Through digital technology, they have transformed how consumers consume their products and interact with them. Consequently, they are gaining an in-depth understanding of their consumers and are improving their products and offerings. 

2020 was a disruptive year, but DTC eCommerce is a market poised to thrive during the pandemic. According to Statista, more than half of these businesses have seen their direct-to-consumer (D2C) revenue grow in the UK alone. Amongst better pricing and better customer service, shoppers wanted to show support to local businesses during a challenging economic climate. 

The D2C model gives brands the opportunity to collect first-party data on their customers

Cindy Liu, eMarketer director of forecasting at Insider Intelligence.

Engaging with customers through loyalty programs as as a key tactic for growth

Create an infrastructure that allows for rapid scaling and customer acquisition.

Develop a sales model that supports direct-to-consumer operations.

Find a way to deliver value at scale while remaining profitable.

Build a product that can be sold online and at scale.

Create a brand experience that connects with customers in a meaningful way.

These are the basic tenets of DTC, but they’re not easy to execute on. For example, it’s easy to get a list of potential buyers to sign up for your newsletter, but it’s hard to keep them engaged. A DTC strategy can address each phase of the customer journey to touch customers directly at each step of the life cycle. Almost all brands are familiar with marketing, but adopting DTC into a core strategy means remodeling the consumer pipeline to maximize its impact.

As of now, most brands are well aware of marketing tactics and how they can be used to effectively acquire more customers. It typically involves a compelling origin story, Instagram-friendly packaging and a smooth ecommerce site where customers order with convenient delivery and flexible payment methods. One important approach for DTC brands to up their marketing game and stand out from the competition is personalized marketing, such as segmenting customers according to the channels they use. This lets brands focus on delivering the right experience to potential customers based on which segment they belong to. 

This personalized experience can expand to increase customer engagement and loyalty. A unique, tailored approach to the customer is unique and will go a long way in providing a memorable experience. A study conducted by Kelton Global found that 61% of consumers believe that individual brands provide a more personalized experience and 66% say it’s easier to understand the values of individual brands. In fact, nearly 60% of online shoppers say they will go out of their way to purchase directly from a brand instead of a third-party retailer when possible.

Direct-to-consumer shops have been the fastest growing segment for the past years and there are a number of reasons that this is the case. One important insight from these businesses is that customer engagement has been instrumental in retaining customers and making them loyal to the brand. When choosing this sales model, DTC brands naturally take ownership of their customer data and collect individual data by selling directly to their customers. In return, it allows them to analyse insights which they can use to encourage repeat purchases and make informed product and marketing decisions. 

DTC brands naturally take ownership of their customer data and collect individual data by selling directly to their customers. In return, it allows them to analyse insights which they can use to encourage repeat purchases and make informed product and marketing decisions.

The new middleman of Direct To Consumer eCommerce brands 

It’s no breaking news to many business owners that acquisition cost isn’t the same as 10 years ago since the cost of acquiring customers through social media has skyrocketed and keeps on rising when the bigger players have joined the online bidding wars. It is true that DTC eCommerce brands benefit from saving the “middleman cost” by selling directly to their customers, but they were replaced with social and online ads that take the same if not more of the margin that was going to retail. 

Brands are finding new ways to bypass this hurdle by experimenting with new tactics without sacrificing their reach potential and avoiding growing at a loss. It’s not enough to sustain a business based on hopes that the customer lifetime value one day counterbalances what it costs to acquire and manage their experience through every touch point. One important aspect for a sustainable scalability for an online business is its ability to keep their loyal customers returning and spread positive Word-of-mouth with their friends and family. The 80/20 rule suggests that 80% of a company’s revenue and traffic comes from 20% of their customers, and the latter are the “super-customers”.    

A super customer talks about your brand, trusts and adheres to your company’s values and returns time and again to your ecommerce website to check what’s new. Companies that correctly look and identify “super-customers” through collected customer data can understand the better position to cater to them and add to their numbers. One of the best ways to say “thank you” and reinforce positive behavior with your brand is through a Loyalty program.    

Companies that correctly look and identify “super-customers” through collected customer data can understand the better position to cater to them and add to their numbers

Loyalty program to acquire, retain and engage customers 

Years ago, many online brands could get away with spending as little as 5$ and make 30$ in sales fairly quickly, the deal changed when numbers of online DTC brands started to boom. Now acquisition costs are much higher and brands are even harder to differentiate, and for many, it was no longer cost effective to only do paid advertising, the customer-acquisition cost to customer lifetime value ratio (CAC:LTV) is unsustainable.

As mentioned above, one important aspect for a sustainable growth for an online business is its ability to keep their hard-earned customers returning and spread positive Word-of-mouth with their friends and family, and customer loyalty programs are one of the most effective ways to increase brand engagement and customer retention. For DTC brands, loyalty programs can be a key differentiator from the competition. 

Customers want to know that they are appreciated and will continue to get a good deal after they have made a purchase. A loyalty program can provide them with both of these things. 

Customers are willing to buy from a brand that they trust and feel is an extension of their lifestyle, which is one the reasons the DTC model became popular. Loyalty programs, in turn, can help businesses earn this trust by rewarding customers for their repeat business. However, many loyalty programs are based on simple discounts – so it’s important to remember that the most effective programs offer rewards that customers actually want.

Not all loyalty programs are created equal. Rewards that can be redeemed for things like exclusive events or experiences will have higher perceived value than discounts on products or services. And rewards that are earned based on activity rather than time spent (i.e., points) are also more likely to be redeemed by customers. In addition, you can include incentives for referrals, product reviews, and social media sharing for increased visibility, while splitting the acquisition cost with existing customers. 

A 2021 study by Merkle revealed that 81% of consumers want a relationship with a brand, who desire the most from a brand relationship is for a company to recognize and appreciate their loyalty and enthusiasm for buying products or services. While 70% of consumers say they prefer discounts and offers, Free samples and free services remain extremely popular. Again, it doesn’t mean weakening unit economics as no loyalty program should cost you more than running it. Instead, the true power of a loyalty program is in the data that it generates. DTC eCommerce can leverage their cross-channel data to build a profitable loyalty program to make your customers feel more engaged with your brand and encourage them to spend more money. A loyalty program can help you better understand how often your customers visit, what they buy, and what promotions are most effective at driving their business. This allows you to better tailor the promotions you offer them, as well as your product offerings. A well-designed loyalty program should drive incremental sales and profits. 

Let’s take a look at three ways you can use loyalty programs to drive new revenue and grow your business. 

 Identify customer segments that have a higher propensity to buy more. 

Loyalty programs allow you to segment your customers based on their spending behavior. By collecting and analyzing data about customer behavior, you can determine which segments are more likely to spend more. This can help you better allocate your marketing budget and focus on the customers who are most likely to buy from you. 

Understand the purchase patterns of your customer base.

When customers enroll in a loyalty program, they are asked for personal information such as name, email address and phone number. This information can be used to better understand your customer base and the buying patterns of your customers.

For example, you can analyze the number of people who buy more than once in a month or quarter. This helps you identify customers who are likely to make multiple purchases in a given time period. You can then use this information to create personalized marketing campaigns that encourage repeat business from these customers.

Understand the demographics of your customer base.

As you collect data about your customers, you can use it to create profiles of your customers, and connect it through different channels. This information can be used to help you understand who your customer base is and how to better target them with marketing campaigns.

For example, if most of your repeat customers are female between the ages of 25 and 35, you can use this information to develop a more effective campaign that appeals to women in this age range. You can also customize other aspects of your business model based on this demographic information (like deciding to offer a loyalty program for your repeat customers only).  

Create loyalty programs that encourage repeat business.

By understanding your customers’ needs and wants, you can create loyalty programs that reward repeat business. In other words, when you put the effort into the experience, people naturally want to buy and share it.

An online ghost-kitchen might give customers their favorite meal for free after they have purchased x amount of lunches. An online market might offer frequent-buyer discounts to customers who spend a certain amount of money in the store each month etc. 


For many DTC online brands, rising acquisition costs are becoming less and less sustainable. As a result, DTC brands are struggling to acquire and to retain their customers. The recent changes in the online industry, -especially with the increase of DTC eCommerce platforms- have changed the way consumers interact and buy their favourite products. Today, if you’re looking for a specific product that can help you solve a problem, it’s more likely that you will search online than ask your neighbour or friends.  

With this behaviour shift in mind, loyalty programs can play a key role in engaging customers and retaining them in the long term.   

How DTC brands retain customers with a loyalty program?

Customer retention analytics is one of the most important ways businesses can measure and achieve sustainability. The key to optimizing your customer experience from start to finish begins with understanding how customers think and what drives them away.

Customer retention analytics is one of the most important ways businesses can measure and achieve sustainability. The key to optimizing your customer experience from start-to-finish begins with understanding how customers think and what drives them away.

What is customer retention analytics and how to measure it?

Relationship marketing becomes an essential strategic tool in an environment where customers' needs and preferences are changing rapidly. Since customers have considerably gotten more power in the digital era, it has disrupted and redefined customer experiences and brand management --- 86% of consumers will pay up to 25% more for a better customer experience. Now, organizations can anticipate these changes by managing their relationships more effectively through customer analytics. The fundamental purpose of customer retention efforts is to ensure maintaining relationships with value-adding customers by reducing churn rate.

Furthermore, a recent study by Ketchum analytics showed that 45% believe COVID-19 has already changed their brand preferences while 62% expect permanent shifts. Another study by McKinsey & Company puts this number at 75%. As covid-19 is and will continue to shift consumers' shopping habits and behaviors, brands need to focus on developing long-term profitable relationships to enhance the value that they deliver to their customers. Thus, understanding your retention metrics & customer loyalty analytics within the scope of your retention marketing strategy could help you identify opportunities to get your customers to come back, and find new ways to retain them.

Retention marketing tactics have several advantages for a business because engaged and recurring customers increase their spending at a faster rate, buy at a full margin rather than at discount prices, and create operational efficiencies. Moreover, acquiring new customers is more expensive than retaining existing customers, and customer retention efforts can reduce marketing expenses --- A 2% increase in customer retention has the same effect as decreasing costs by 10%. Besides, customers who are satisfied with your products or services are more likely to recommend your business to others and are less responsive to competitive offers and price appeals.

Customer retention analytics can be used for understanding - How loyal your customers are to the brand, which customers you should focus on to retain them, and what customer retention strategies should be implemented.

E-commerce KPIs (add-to-cart rate, conversion rate, revenue per session), by shopper loyalty segment. - Source

Customer retention is the process of keeping existing customers by ensuring that they remain satisfied with your products and services. 

Customer retention works by identifying the factors that drive satisfaction, engagement, or dissatisfaction among current consumers to maintain a strong relationship with them via tailored offers and efforts from marketing campaigns. The aim should be to prevent customers from switching to a competitor's product or service. 

To calculate your customer retention rate, you can use this simple equation : 

The number of customers who have been with you for a specific interval or period (e.g.,3 months, 6 months, 1 year). 

The number of customers at the end of that period

The number of new customers acquired during that interval. 

For each type of customer, compute the retention rate by dividing by the total number of customers at the beginning of that period. 

By adding up the retention rates of all customer types, you can calculate your overall customer retention rate.   

Customer Retention Rate = ((number of customers at the end of the period - number of customers acquired during the period) / number of customers at the beginning of the period) X 100 

The probability of selling to an existing customer is 60–70%; while the probability of selling to a new prospect is 5–20%

Customer retention analytics is the measurement of customer loyalty and activity to identify areas for improvement. It provides details on how customers behave, what they want, what is important to them, and how they make decisions. It also helps in understanding customer actions (or inaction) associated with the purchase of goods and services. Customer retention analytics focuses on the value of customer relationships over time, and how to identify which customers are at risk for leaving so that brands can develop strategies to retain them.

For example, when analyzing customer retention analytics data, an organization may find that only 20% of their customers regularly use loyalty programs, but this set tends to spend 30% percent more than other segments. Brands can develop strategies to increase usage across all customer segments. Another example is a customer who has an account on the website, purchased in the past but hasn't purchased in six months. These customers are at risk for leaving and can be targeted with marketing campaigns to bring them back into the sales funnel.

The analysis of key retention metrics gives brands the tools to better understand the changes in customer behavior and their buying patterns over time so that they can develop acquisition, retention, and cross-selling strategies. Customer retention analysis is not just about measuring customer loyalty or determining the quality of a relationship between an organization and its customers, but also about understanding why customers behave in certain ways. It helps businesses to identify trends that can help them predict future behavior from existing clients as well as new prospects --- what makes your brand stand out from competitors, and what unique value you can offer customers.

How often should you conduct a customer retention analysis?

It depends on what kind of business you're in. For example, a food and beverage brand might want to conduct customer retention analysis daily or weekly, while a financial services company might only need it once or twice per year. 

The analysis of key retention metrics gives brands the tools to better understand the changes in customer behavior and their buying patterns over time so that they can develop acquisition, retention, and cross-selling strategies.

How does customer retention analysis work?

To conduct this analysis, you'll first need to map out what you want to measure, track customer purchases, implement a metrics system and set up key performance indicators. The aim is to help you recognize what you've done wrong as well as what you're doing well. Knowing where and why consumers churn can assist you in determining where and why your marketing and retention plans are ineffective. 

The first step for any organization is figuring out what they want to measure. The goal of this exercise is to identify your key retention metrics. You can use ad-hoc analytics to see which ads are performing the best, where customers have a poor experience and what kind of customer interactions are causing the most repeat purchases.

Here are some questions that could help you map out what to measure :

- What percentage of new visitors turn into paying customers?

- After a certain period, how many customers buy again?

- What percentage of purchases are recurring purchases?

- What percentage of revenue is recurring purchases?

For example, if the goal of your analysis is to figure out your repeat customer rate, you need to know how many unique customers buy something the first time they come to your store. You also need to know how many unique customers buy something when they come back again within a certain time frame, which could range from a season, a month to a year depending on your business type.

Knowing how many customers come to your store is important, but it's not enough. You need to know what they buy and do in your store as well. The next step is to track your customers' shopping behaviors. You can do this using Google Analytics or another analytics tool that tracks customer actions such as add-to-carts, transactions, and registrations. You can also track this information using your CRM or customer relationship management system to get a better idea of customer behavior.

Referrals among repeat customers are 107% greater than non-customers

Implement a customer retention analytics report

After you have figured out what to measure and how to track customer purchases, you'll need to be able to extract, aggregate, and visualize your data. This is where you'll track customer behavior, define your key criteria and set up KPIs.

As part of your metrics system, you'll need to set up key performance indicators. KPIs are a way for you to track the progress of your business. The KPIs you choose should be relevant to what you're trying to achieve and help track how well or badly the situation is going. For example, if you want to increase customer retention by 20%, you should be able to track this change so that you know when you've reached your goal. You can get some inspiration from other industries, like SaaS, where companies innovate on their approach with a product-led growth strategy.

What metrics can be used for analyzing customer retention?

Conducting customer retention analysis requires a knowledge of certain metrics and key performance indicators. Analytic techniques include retention cohorts, churning date forecasting, and a/b testing to determine the impact on specific customers or groups of customers. To begin your analysis, you need to have collected the right data from your customers, using analytics and CRM software and customer feedback loops.

Customer retention metrics that matter  :

— Repeat customer rate :  
This is the number of customers who return to shop with you within a certain amount of time.
To calculate the repeat customer rate, you need the number of customers that purchased more than once and divide this number by the total number of unique customers. 
The equation will look like this:
# of Customers That Purchased More Than Once / # Unique Customers 


— Repeat purchase rate or Purchase frequency : 
This is the percentage of customers who make repeat purchases. This is similar to repeat customer rate except that it measures the percentage of customers who make repeat purchases rather than just measuring how often they come back.
To calculate the Repeat purchase rate, you need to divide the total number of customers who have purchased more than once by the total number of customers.
# of Customers Who Made a Repeat Purchase within the time frame / Total Number of Customers 


— Purchase frequency :  
The average number of purchases made by a customer within a certain amount of time. This is a crucial statistic to grasp since it represents how many times your clients buy from you. This KPI is generally measured in days, weeks, or months depending on your business type.
To calculate purchase frequency, you need to divide your total number of orders by the number of unique customers for the same time frame.
The equation will look like this:
= Number of Purchases with a period (days, weeks, or months) / the number of unique customers for the same time frame.


— Customer lifetime value (CLTV) : 
This is the total revenue expected to be generated by a customer during their lifetime. Your company should aim for a CLV that increases or remains steady, as this demonstrates that you're retaining your customers and their purchases are growing as a result. If your CLV is diminishing, it means that your customer base is shrinking and you need to look at why.
The simplest formula to calculate customer lifetime value is the following:
CLV = Average Order Value x Purchase Frequency x Retention Period


— Average revenue per user (ARPU) :  
This is the average revenue that your company gets from a customer. If your ARPU is decreasing, it could mean that your customers are buying less from you and it could be a sign that the customer's relationship with your brand is deteriorating.
To calculate the average revenue per user, you need to divide your total number of orders by the number of unique customers in a certain time.
= Total Revenue Generated During Period / Number of Users During Same Period


— Average order value (AOV) : 
The average amount of money that a customer spends when they purchase from your store. If the AOV of your customers is increasing, it means that you are acquiring high-value customers who will bring in a lot of revenue. If the AOV is decreasing, it could be an indication that your customers are spending less money than usual and your business is losing revenue.
To calculate AOV, you will need to divide total revenue by the number of orders.
= Total Amount of revenue made / Number of orders


— Churn rate : 
This is the number of customers who have left your business divided by the total number of active customers. The churn rate represents an important KPI since it shows the percentage of customers who have stopped doing business with you. Keep in mind that churn rate can be influenced by several factors and you need to take all these into account before drawing any conclusions. Some common signals include :

Reduced recency–frequency–monetary value scores

Poor or non-response to a targeted offer or a campaign

Decreasing levels of customer satisfaction

Increasing inbound calls for technical or product-related issues

Late payment of an invoice, and querying an invoice

It's always better to identify early signals of customer churn so that you can take pre-emptive actions.

To calculate the churn rate, then divide your number of users who have stopped doing business with you by the total of customers at the start of the period.

Churn rate = (# of customers who have left / total customers) * 100

— Churn Cohort Analysis :  
This analysis is used to determine the number of customers who have left your business or stopped doing business with you, during a certain time frame. It's important to note that the drop-off rate is different for each cohort. For example, if you have 100 customers at the beginning of October, and 25 of them leave by the end, your drop-off rate will be 25%. Comparing cohorts and periods could allow you to bring this metric into context.
For example, you could pinpoint if certain customers acquired from a Google ads campaign during January stayed with your business until the end of February or if this campaign attracted customers with a higher churn rate. Alternatively, if your customer support is reporting a higher return rate in the same period, this might be an indication of why your churn rate is increasing.
To perform this analysis, you need to divide the number of customers who have left by the total number of active users at the beginning of that period.
= (# of churned / # of active users during the beginning of that period) * 100

— Net promoter score (NPS) :  
This metric is used to measure customer satisfaction and loyalty, by asking your customers how likely they are to recommend your business. This metric is important for evaluating customer experience since it allows you to determine if your customers are satisfied with the interactions they have had on your site.
On a scale of 0 to 100, an NPS of -100 would mean that all your customers are extremely dissatisfied with your business and they wouldn't recommend it to their friends.
To calculate average NPS, you will need to divide the number of promoters (customers who score your business with a rating of nine or ten) by the number of detractors (customers who score your business with a rating between six and eight).
= Number of Promoters / Number of Detractors


— Customer Satisfaction Score (CSAT):  This metric is used to measure how satisfied your customers are using a combination of technical tools, such as customer support surveys and feedback forms.  This metric is important for ensuring customer satisfaction since it enables you to understand which customers are more satisfied and how they feel about your offerings.
The CSAT score is calculated using the survey data. These scores are most often presented in a percentage - ranging from 0% to 100%.
A simple way to calculate customer satisfaction score is to divide the number of satisfied customers by your total number of received responses and multiply it by 100
= (Number of Satisfied customers / total number of received responses) x 100

Customer retention analytics is one of the most important ways businesses can measure and achieve sustainability. The key to optimizing your customer experience from start to finish begins with understanding how customers think and what drives them away. With these insights at hand, you can create marketing campaigns or product offerings that keep customers coming back for more--even if they've churned before.  By proactively working to keep customers engaged, you can prevent churn and build customer loyalty.

Customer retention analytics helps businesses understand their audience behavior throughout the customer journey. Customers won't always be engaged, but when they are - you want to make sure that the experience is a great one. 

How DTC brands retain customers with a loyalty program

What is customer retention analytics and how to measure it?

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