It’s natural for companies to get caught up with trying to acquire new customers, but interestingly enough, the existing customer base can prove to be more valuable, especially if they demonstrate high LTV.
According to research from Harvard Business Review, acquiring a new customer can cost the average business around 5-25X more than re-selling to a current one. Also—existing customers spend 67 percent more than new ones. Those numbers alone make it crystal clear that customer loyalty pays off, which is why brands should devote a good amount of attention towards increasing customer loyalty and LTV.
When people think of loyalty schemes, they are quick to think of the points systems in fast food chains such as McDonalds (exchanging points for free food items). There’s also Starbucks Rewards, in which purchases similarly add up to free food and drinks—with the added perk of significantly reduced wait times. Frequent flyers also have their own share of perks, depending on their tier.
But what about DTCs in other industries, such as beauty? Well, Sephora’s Beauty Insider rewards program is popular because it lets members choose how they want to spend their reward points. There’s the Rewards Bazaar, where new rewards are up for grabs every Tuesday and Thursday, keeping Sephora’s customers regularly coming back for more. Their biggest competitor, Ulta, mastered their loyalty rewards program, to the point where, according to Vogue, “...in 2018, 27.8 million Ulta loyalty card members drove 90 per cent of total sales, proving that an engaged, returning shopper is where the focus should lie.”
Of course, not all loyalty programs are about handing out freebie products or cash savings. For instance, direct participation in the creative process is another option. London-based cosmetics line Mybeautybrand partners with influencers to create co-branded collections. Additionally, Em Cosmetics partnered with Lolli to allow customers to gain fractions of Bitcoin when they shop.
Yet even beyond all this happy-stuff, there’s more to loyalty schemes than what meets the eye, especially for growth teams. The basis of good loyalty programs include offering a choice of services or treatments, and this choice itself will reveal the needs and preferences of customers. Here are some additional pointers to boost the success of loyalty programs:
Bear with me as I explain how this is all connected.
Behind all the glitz and glamor, loyalty schemes help brands gain a better understanding of their CAC/LTV ratio. It helps growth teams understand how much they need to spend to bring a new customer in, and then track how much that customer spends over their lifetime. Internal data teams geek out over this data.
So let’s say your brand already has this data on hand. Now what? Well—many things! This form of LTV data, combined with CAC will enable you to adjust your user acquisition/growth strategy better, tweak offerings and pricing as needed, or even point other departments (such as customer support and retention) towards areas that might need improvement.
As far as your growth team is concerned, it helps with RFM metrics, which are important indicators of a customer’s behavior. You will gain insight on your most loyal customers, the bigger spenders, and the ones that need a little push to spend a little more.
We have previously discussed how loyalty focused marketing is far more strategic than hit and runs, and that’s because it’s a sustainable form of marketing. As you learn more about your most loyal customers (by collecting data), you can then use the data to support acquisition efforts via predictive models, to acquire more loyal customers, who will further enrich LTV data, and so on and so forth. It’s the circle of life in the growth realm, and it helps marketing and growth teams reach the full potential of their marketing scheme, because LTV data is being utilized to achieve maximum results for the long term.
Generally speaking, DTC brands, especially larger ones with an already-engaged community and user-base, have many advantages when it comes to invoking brand advocacy for loyalty schemes, which lead to enhanced growth campaigns. For starters, most DTC’s, especially subscription brands, have a wealth of zero-party data. Those insights can be used to power personalized marketing across most, if not all stages of the customer lifecycle. It can also be used towards personalized campaigns that are based on their preferences, such as upselling Amazon-style.
The data can also be used to implement customer retention strategies to further enhance the LTV of existing customers. As customer acquisition gets more and more difficult and expensive due to tight competition stemming from all the crazy complications from ad networks, focusing on customer retention is important for DTC’s to save budget and maximize ROI.
So which should you go for, for your loyalty scheme? Well, I can’t quite answer that. 😄 But I can say offer some pearls of wisdom worth considering. First off, the most interesting loyalty programs are the ones that have an air of exclusivity to them, with perks that ordinary customers cannot access. The virality of the program can be amplified if you can build a community around it, even more so if the community gets amped up with personalized offerings. Also, be sure to offer an omnichannel experience, so the loyalty program is alive and good across all touch points. Most important of all though?? Collect that rich data, so you can analyze and activate it for sustainable exponential growth.