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 ?

What is a DTC model in ecommerce ? 

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. 

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

DTC brands must do the following:

• 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. 

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.    

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. 

1.  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. 

1. 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.

1. 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).  

1. 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.

Conclusion :

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.