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.