The Guide to Building Customer Loyalty for DTC Brands
In this post we will focus on the following topics:
- What is a DTC (direct-to-consumer) brand?
- Why is loyalty important in DTC?
- Why do DTC brands have an advantage in evoking customer loyalty?
- The biggest DTC challenges in customer retention.
- Strategies for building loyalty as a DTC brand.
- Examples of DTC brands and their loyalty programs.
What is a DTC (direct-to-consumer) brand?
Direct-to-consumer (DTC) refers to selling products directly to customers, bypassing any third-party retailers, wholesalers, or any other middlemen. DTC brands are usually sold online only and specialize in a specific product category. Some of the pioneers of this business model include Casper, Warby Parker, Everlane, Harry’s, Outdoor Voices, and Dollar Shave Club.
Since the rise of DTC brands, even big brands started moving to DTC either by acquiring smaller DTC brands or by launching a product line designed to be DTC only. Dollar Shave Club acquisition by Unilever for a whopping $1M or PepsiCo’s opening of a new DTC store with Mountain Dew for gamers are some recent examples of big brands moving to the DTC model.
One of the biggest advantages of moving to DTC is obtaining first-hand data (now more important than ever with the recent Google third-party data update). Another benefit is the lower cost of long-term distribution, if the third parties (retailers) cost disappears altogether. Becoming a true DTC brand means owning the entire customer experience (CX), from discovery to delivery and beyond. It means brands are responsible for ensuring that every "click" along the customer journey is faultless and smooth towards the path to purchase.
As the outbreak of COVID-19 pandemic caused multiple shops to close due to governmental restrictions, more and more B2B2C companies have opened direct-to-consumer, online stores. The transformation went faster than anyone could ever imagine. The gossip goes that Heinz opened their online store in seven days and Lindt in five. 87% of brands have plans to launch a DTC channel, with 23% aiming to do so within the next 12 months.
“In the future, this [direct-to-consumer] channel will be incredibly powerful to get closer to our consumers, get insight, and take learnings to the rest of our business.” Jean-Phillipe Nier, Head of Ecommerce UK&I at The Kraft Heinz Company.
If you want to learn more about why and how to move to DTC due to the current economic landscape, read our blog post.
Why is loyalty important in DTC?
“Without customer loyalty, direct-to-consumer (D2C) brands can’t survive. The best way to earn customer loyalty is to provide a unique experience that exceeds customers’ expectations of the brand.” Tim Nybo, Co-Founder and CMO at Vincero Watches for Forbes.
According to the research done by PYMNTS.com, 21,4% of consumers chose DTC brands over wholesalers because of the loyalty programs offered in the food and beverages category while 17,9% in the retail category.
Competing with other brands when customers can quickly look up any product’s price and its alternatives poses a great challenge. Customer acquisition in such a competitive market is very expensive, therefore customer retention is crucial for business continuity. CAC (cost of acquisition) is constantly growing as more and more competitors are on the market, PPC prices following. Investing in customer retention and increasing CLV (customer lifetime value) is a cheaper and more sustainable way for growing your business.
Besides the product price and availability, you can offer an outstanding experience to your customers to convince them to buy from you. Investing in customer experience and gaining customer advocacy and loyalty can be the differentiating factor that will decide which brands survive and which disappear.
Especially for brands who are moving from selling through third parties to selling direct-to-customer, loyal customers are a great asset they should tap into. If a manufacturer opens a DTC store, the loyal customers who were buying their products before from a retailer have the highest potential to continue shopping with them. Identifying the loyal customers and offering them an outstanding experience, showing them you value their loyalty, is one of the most important tactics when moving to DTC.
Another reason why loyalty is important for DTC brands is that usually these brands focus on specific niche products. In that case, there is a cap on growth for the customer base. Growing customer lifetime value instead gives another axis to grow for these companies. In summary, investing in customer retention is a sustainable way to grow a DTC business and should be considered a natural next step after customer acquisition to drive the investment down long-term and ensure business continuity.
Why do DTC brands have an advantage in evoking customer loyalty?
Direct-to-consumer brands have certain advantages when it comes to building customer loyalty and that is exactly why they should tap into customer retention strategies more than any other type of brands. The advantages for DTC brands that make creating loyal customers easier:
DTC brands own their distribution channels. They can track all customer activity across all customer journeys. Thanks to this data, they can know exactly in which customers to invest to create brand advocates. They know what motivates their customers, which type of rewards suit them best, what type of content they like, and which communication channels they prefer.
Access to all customer touch points
As all the distribution and communication channels belong to the DTC brand, they can use any customer touch point to communicate with the customer. That way they can personalize the message and the distribution channels to the customers and reach them at exactly the right time and place.
Control over the customer experience
Thanks to owning all communication channels and distribution channels, the DTC brands can create the perfect customer experience. They have control over the whole customer journey and by creating unforgettable experiences, they can successfully create brand loyalty.
Full branding possibilities
Because of the full control over all channels, DTC brands can stay consistent with branding and messaging. This will make it easier for customers to remember the brand and for the brand to stay top of mind.
Flexibility and agility
Usually DTC brands are smaller than big FMCG brands and can change their marketing strategy fast. Such agility can be important if, for example, a competitor launches a campaign or sales promotion you want to beat with a counter offer or another piece of content.
As DTC brands own their channels and need no intermediaries to pass their message, they can directly engage with the customers speaking via social media, customer service or sales reps. This can create an unforgettable bond with the customers that will make them want to come back.
The biggest DTC challenges in customer retention
One of the biggest challenges for DTC brands is the budget. Often DTC brands start off as start-ups or spin-ups from bigger companies. This means, the promotional budget is limited and has to be well-spent. This hurdle can be overcome by cautious customer segmentation, budget limits on campaign level or fraud prevention mechanisms for the loyalty programs. A/B testing different campaign settings can be another way for budget optimization of loyalty programs.
Another challenge DTC brands often face is the lack of software infrastructure for launching a loyalty program and lack of developer resources to build one. This could be solved by using an out-of-the-box solution, for example an API-first Promotion Engine (like Voucherify) that can be easily integrated within days or weeks and then used directly by the marketing or sales team, without the need to involve developers, to launch and manage loyalty programs.
Strategies for building loyalty as a DTC brand
We have talked about the advantages and disadvantages of DTC brands when it comes to building customer loyalty. Now, let’s dive into different strategies DTC brands can use to build a base of returning customers.
Collect Customer Data
To enable offer personalization, you have to collect and store the customer data. You should start with implementing tracking across all distribution channels and throughout all the customer journey and collecting the data into one (for example CRM) system. It would be preferable if the CRM, CEP or CDP system you choose is easily integrated with other platforms to later tap into that data you possess and use it to craft personalized experiences and offers.
You should start with first-party data (the data you can collect on your own channels), then second-party data that can be collected by third parties like partners, influencers, re-sellers if you have any (DTC brands rarely have, although influencers and affiliate networks are sometimes used in such business model) and third-party data provided by, for example, browsers.
Focus on Personalization
Evergage research found that brands with personalization see significant improvements in their key performance indicators (KPIs). 96% of marketers who took part in their study planned to maintain or increase their spend on personalization.
By personalizing the customer experience (products recommendations, content recommendations, offers and rewards in a loyalty program), you can improve customer experience a lot. Who likes to be targeted with non-relevant ads or promotions? Nobody. What is more, fine-grained targeting can help you spend exactly the needed budget on the right customers, therefore saving your promotional budget and increasing your ROI.
Here is an example of a brand that has done it the right way:
Shiseido, a 150-year-old beauty company that has announced it is focusing more on DTC channels, data collection and personalization in their investors release in 2020, has done a great job with loyalty program personalization.
"Shiseido executives wanted to make sure their new customer loyalty experience was highly personalized. They analyzed data to understand customers’ evolving preferences so they could adapt offers and marketing strategies to each individual, throughout their lives. Leveraging Treasure Data’s enterprise CDP helped Shiseido to analyze historical customer purchase data, demographic information, and recent behavior all at the same time, and in one place. The loyalty program update worked well for Shiseido. Accurately analyzing and correlating data with customer behavior helped Shiseido accomplish its goal, driving a 20 percent in-store revenue increase per loyalty program member over the course of a year, an 11 percent overall revenue increase, and a 38 percent growth in net income year-over-year.”
Read our blog post to learn more about how personalized incentives build customer loyalty.
Create Engaging Content
54% of customers say engaging content is an important factor in their brand loyalty. Here is an example of DTC brand that has done it the right way. Dollar Shave Club has a massive following and maintains a steady growth thanks to engaging content they create on the topic of man care. They create high-quality content that fits their products (man cosmetics and grooming accessories) that provides answers and solutions to common problems and questions.
Create Great Customer Experience
“When you’re a DTC brand, shipping, returns and incredible response time are an integral part of your value proposition. If you get it right, you can transform first-time buyers into regular customers and loyal advocates for your brand. Conversely, if one touchpoint fails to impress, you’ve likely lost a customer forever.” Derek O’Carroll, CEO of Brightpearl for TotalRetail.
For customers to come back to your brand, first you need an outstanding product or service and second, an outstanding customer experience. If customers are not happy with your service or had a bad experience while purchasing your products, they will not come back. Focus your efforts on a great returns policy, cheap or free (and fast!) shipping and excellent customer service.
Make your customer loyalty program viral
Make the loyalty program share-worthy. By focusing on viral marketing, you can save a great deal on paid ads. If your loyalty program scheme or the offered rewards are surprising, cute, or simply out of ordinary, you might get free advertising thanks to your already gained brand advocates and get additional followers and loyal customers.
An example of a viral sales promotion, actually an “instant win” giveaway, is Diamond Candles. They are putting a trinket ring in each one of their candles, adding an element of discovery and pleasant surprise every time, as well as hooking people thanks to a lottery for a real diamond ring. The chance of a win makes customers come back for more and has made their program go viral.
Offer consistent experience omni-channel
Besides keeping your branding consistent, you should also keep your offers and the customer experience in tune across various channels. Customers nowadays use more than just one channel to interact with your brand. They may look up a deal on a mobile but want to finish their purchase on a desktop. If your offers are not consistent across the channels, they might churn due to broken customer experience. Building brand loyalty requires leaving positive customer experiences, so you should avoid breaking the customer journey at all cost.
“The world changes all the time and we also approach it as a multichannel strategy.” Karla Gallardo, CEO of Cuyana.
Make customers feel a part of something bigger
CSR marketing implemented by, for example, offering charity donations as part of your loyalty program, can be a winning strategy. Customers, while purchasing your products or interacting with your brand, can feel they are part of something bigger. This “good feeling” can make them come back to your brand and thus turn them into returning customers.
To learn more about the psychology behind this strategy, read the post on Licensing Effect.
TOMS One for One Program is a great example of a charity loyalty program. TOMS is an American company designing shoes, eyewear, and other apparel. TOMS offers shoes, glasses, water, and education in regions in need.
Send post-purchase use tips
Customers are more likely to buy more products from you if they liked the first product they got. To make it happen, you can send post-purchase tips that will make them love your product (your content and your brand) even more. You could send user manuals, alternative uses of your product, troubleshooting tips, maintenance tips or some creative ideas from customers (UGC) others have shared with you.
A great example of useful content sent pre- and post-purchase within DTC brands is Elvie. Elvie is a UK-based breast pump brand that produces discreet, smart breast pumps and distributes them directly to customers via e-commerce. They send a wonderful e-mail newsletter and post-purchase tips to women who have bought their products.
Offer great customer support
Customer support is a huge factor for customer satisfaction because if there’s a problem, people need it resolved painlessly. If there is a problem, try to get it resolved asap. Remember to offer empathy and understanding. In some cases, “sorry” vouchers or gift cards can be a great strategy for turning unhappy customers into loyal ones. I still remember when my cheap breast pump bought from Amazon (Bellababy brand) broke and I have written to their customer support telling them the problem and attaching a video of the error. As it was a cheap product, bought via Amazon from an unknown reseller, I have not expected much. They shipped a replacement motor immediately. Since then, I became the biggest brand advocate for this manufacturer. Despite the low motor durability, due to excellent customer service and fast replacement, my experience was way better than with expensive, durable brands. What’s the lesson here? Don’t skimp on refunds, coupons and returns to make customers happy.
Build a community
Accenture’s 2018 report on customer preference, “To Affinity and Beyond, From Me to We, The Rise of the Purpose Led Brand,” provides extensive evidence that connecting on an emotional level with customers is a key to success for every brand today.
Besides building brand loyalty, another benefit of launching a community is getting market insights, customer insights and customer feedback. It is a source of invaluable information that can help you design your next products or offers.
A good example of community use is the beauty industry. People are generally open to discuss and share tips on beauty regimes, products reviews or recommendations. Having a community around your brand can open new ideas you can tap into, straight from your audience. Glossier, a beauty brand has built a powerful social media-based community.
Notifications reminding about purchases
If you know the average use time of your product and it is a fast moving consumer good-type of a product, you can send notifications to your customers every time they should re-purchase to motivate repeat purchases. You can also offer your product on a subscription basis, so that they do not have to remember to even purchase it. A lot of DTC brands offer subscriptions exactly because of this – to increase the Customer Lifetime Value and keep customers around for as long as possible.
You can add an extra promotion to your notification to motivate the customers to repeat the purchase. Remember though, that spamming your customers with non-personalized offers is a waste of time and giving the same customer too many offers might waste your budget. Set your promotion up with a tight budget and targeting rules and select your offers carefully.
Be flexible and iterate
You need to try out what works best for your business and your specific customer segments. You can do that by iterating or A/B testing your loyalty program or other incentives or content. You will rarely get it right on the first try and that is not a problem at all! To find the optimum, you need to try and observe and iterate.
“[For example,] we started with influencers, [and] we eventually moved off of that onto micro-influencers. We started in the retail space and then launched a mobile truck that travels around. Instagram Live is something new that we've been doing. We're constantly looking for new ways to pop up wherever our clients are to make sure that it's relevant to them and it doesn't just get lost in the shuffle. Changing up creativity constantly and making it new and different.” Cheryl Kaplan, co-founder of M. Gemi in an interview with Shopify.
Examples of DTC brands and their loyalty programs
Nike Membership Program
Nike’s D2C sales are constantly growing, they were $6.6 billion in 2015 but are expected to be $16 billion by 2020. One of the main differentiating factors between buying Nike products via retailers or directly from their website is their loyalty program.
Nike Membership offers the following perks:
- Priority access to tickets to sport events.
- Exclusive products.
- Early access to product launches.
- Expert advice on training and exercise.
- Rewards for being active through their apps.
- Special offers on birthdays.
- Free delivery.
4 keys to the success of Nike’s loyalty program:
Nike focuses on exclusive perks like early access to products, exclusive products, priority access to tickets to sporting events or expert advice. This is something ordinary customers cannot access, making the loyalty program interesting and valuable to join.
2. Building community around the program
Nike Membership gives loyal customers access to free workout classes, training support, educational content and inspirational articles to keep members motivated. This causes customers to stick to the brand even if they are not planning to buy anything anytime soon. It keeps the brand top of mind and when the community members need to buy another pair of sneakers, Nike will be their obvious choice.
For example, loyal customers receive gifts for birthdays and member anniversaries which makes them feel special.
4. Offering omnichannel experience
Whether customers are shopping in-store, on-site or through their four mobile apps, their loyalty program membership stays connected at all times.
Mack Weldon’s Weldon Blue loyalty program
The program consists of two tiers:
Level One that everyone joins after placing the first order. In Level One, members earn these benefits:
- Free standard shipping on all orders.
- Access to a clothing donation program “Give Back, Get Mack.”
Level Two, which customers join after spending $200 per year. In Level Two, members earn these benefits:
- Free standard shipping on all orders.
- 20% off orders of any value.
- First access to new products.
- Surprise gifts, given randomly throughout the year.
- Access to a clothing donation program “Give Back, Get Mack.”
- $10 reward if you donate clothes using the Give Back, Get Mack program (twice per year).
Mack Weldon has tested the program for three months and they saw a 66% lift in repeat sales among customers. It also saw a 29% spike in sales among high-spend participants that have spent more to reach Level Two.
What is interesting about their loyalty program is that they offer plenty of options to earn loyalty points. Among others:
- 1 point for each $1 spent.
- Joining newsletter – 20 points.
- Facebook following – 5 points.
- Creating an account – 50 points.
- Instagram following – 5 points.
- Youtube subscribing – 5 points.
Rewards can be redeemed only after achieving a certain number of points:
- 250 points – $25 off.
- 500 points – $50 off.
- 750 points – $75 off.
- 1000 points – $100 off.
The points expire after 12 months of inactivity.
Mizzen+Main’s Officer’s Club
DTC performance menswear brand Mizzen+Main is offering a Main Men rewards program. In general, every rewards program member can earn 1 point for $1 spent. Additionally, the program is divided into tiers with different rewards available.
Offered rewards include:
- Free shipping.
- Birthday gift.
- Level up gift given once a member gets into a higher level.
- Early access to product launches.
- Invites to exclusive events.
- Personal Concierge.
The levels are based on the number of accrued points. Results of the Main Man program? Higher engagement and revenue uplift coming both, from existing customers and customers aiming to join the Club.
Prose is a DTC haircare brand offering personalized, custom-made hair care products. They have launched their loyalty program called The Salon in July 2020. It is a subscription program where the members are subscribing to the Prose products, getting a 15% discount on all orders.
They also offer other perks, including:
- 1:1 virtual consultations (not available to non-program members).
- For every ten products bought, get one for free.
- Free shipping.
- Limited edition products gifts.
- New product testing.
- Exclusive content and experiences.
An exclusive, personalized brand calls for an exclusive loyalty program and Prose stood on their toes to meet their clientele’s expectations. As of February 2021, more than 50% of Prose customers were loyalty program members and subscribed to at least one product.
Dagne Dover’s loyalty program offers the following ways to earn points:
- 1 point per $1 spent.
- 20 points for following on Facebook.
- 20 points for following on Instagram.
- 30 points for submitting UGC (user generated content) like a picture of them wearing Dagne Dover’s bags.
- 30 points for leaving a review.
- 50 points for creating an account.
- 100 points for their birthday.
This type of a loyalty program has worked out great for Dagne Dover, resulting in plenty of UGC content that has generated more sales.
DTC brands have plenty of advantages when it comes to invoking brand advocacy. From first-party data to ownership, to crafting beautiful customer experiences across the whole journey, omni-channel. All direct-to-consumer brands should harness this potential and start implementing customer retention strategies to maximize the customer lifetime value. As customer acquisition gets more and more difficult and expensive due to tight competition on open markets, focusing on customer retention is important for saving budget and maximizing ROI.
There are various strategies DTC brands can use to create brand advocacy and increase purchase frequency. Choosing the right one depends on the brand, audience and budget. What is true in all cases is that knowing your customer and their journey, personalizing the messages and the offers and testing various strategies is the key.
Do you want to launch a personalized loyalty program?