A Shift From Acquisition to Loyalty
DTC is not dead. Far from it. However, in 2022, DTC has moved from a core business strategy for many emerging brands to one of many distribution channels that a business needs to thrive in an omnichannel world.
If used properly, direct-to-consumer distribution can move from being a cash incinerating channel to a loyalty-building and retention-driving profit center. But this requires thinking differently than we have in the past. Instead of focusing on acquisition, the best DTC programs will focus on taking advantage of their first-party data to drive more meaningful long-term revenue from their customers at much higher margins.
One way to do this is by building loyalty or membership programs. There are three primary types of programs that may make sense for you depending on your offering and what you're hoping to achieve.
Types of Programs Commonly Used
Description. In this loyalty program, customers earn points based on certain actions, the most common of which being a purchase. That said, we've seen brands have success granting points for non-commerce actions, such as leaving a review, or posting about the brand on social media. Regardless of the action, these points ultimately accumulate to dollars off select products, resulting in savings for the customer.
Best for. Brands with lower AOV and products that are intended to be purchased multiple times (e.g., beauty, food, and beverage brands, etc). For these brands, a points-based program can increase purchase frequency, driving up LTV.
Example. With The North Face customer loyalty program, customers earn points on every purchase, which can be used to buy their gear. In addition to this traditional points-based system, customers can take advantage of additional points by attending special events organized by The North Face, by downloading the app, or by checking in at particular locations.
Tiered Loyalty Program
Description. The tiered loyalty program allows customers to reach various levels of status based on desired behaviors. Tiered loyalty programs often include a points element as well, and instead of points equating to dollars saved, they will unlock tiers of rewards. These rewards can be a combination of a flat percentage off, a members-only shopping day, a free gift with purchase, etc.
Best for. Brands with strong gross margins that have a variety of products that can be merchandised together at various tiers. Gross margins are important here, as customers will expect a relatively deep discount (larger than 10-15%) once they reach a rewards tier. Additionally, brands with diverse product assortments will have an easier time implementing a tiered program and offering BOGOs and gift-with-purchase promotions.
Example. Native has figured out how to entice customers with the gamification of its rewards program, Their rewards are divided into three tiers. Customers get points with every purchase and gain benefits like early access to sales, free priority shipping, and free gifts as they move to a higher tier.
Paid Membership Program
Description. Pioneered by wholesale clubs such as Costco and Sam's Club, membership programs charge customers an upfront fee in exchange for extensive savings or other high-value perks/rewards.
Best for. Premium lifestyle brands that are able to justify upfront fees in exchange for access to sought-after products and analogous perks. In these schemes, it's common for brands to bundle in a digital, subscription product that's unlocked with paid membership as a perk. Think of a yoga brand that charges an annual membership fee and provides free access to a meditation app.
Example. Lola recently introduced their $20 yearly membership to help its customers get the most out of Lola. This fairly new membership gives access to exclusive benefits like free shipping, special access to new products, discounts, and donations of feminine hygiene products when you become a member.
If you’re looking to roll out a loyalty program, we’ve highlighted a few partners that we’ve worked with before and have recommended to clients in the past.
Loyalty Lion (4.3/5 on Shopify). A rewards program provider that goes beyond points and rewards. Loyaltylion allows you to create a unique program that incentives customers to opt into an active relationship with your brand with more engagement in between purchases, increased repeat purchase rates, and greater advocacy.
Inveterate Memberships. A paid membership app on Shopify that helps increase revenue and customer interest with paid loyalty programs. Inveterate Memberships creates an experience that is so compelling your customers will crave access to exclusive offers and are willing to pay for it.
Smile.io (4.8/5 on Shopify). One of the largest rewards program providers that allows you to easily promote your program on email, SMS, and more. Smile.io has easy integrations and requires zero coding skills to manage.
Joy (5/5 stars on Shopify). Encourage customers to engage and commit to your store and purchase more frequently with this diverse rewards program provider. Joy offers seamless integrations and customization to offer your customers the best program.
And of course, if you’re an Ampla customer, your Growth Line of Credit and Banking Platform can be used to pay the monthly recurring fees for these apps.