Building a SMART DTC loyalty program

Plus: When did VC x DTC went wrong?

Author

Wishu
June 14, 2024

Quick updates

Function of Beauty: The DTC customizable haircare brand recently started selling its products via Amazon.

The Ordinary: Last week, cosmetics giant Estée Lauder completed its acquisition of this DTC brand’s parent company, Deciem Beauty Group.

Post of the week:

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Building a SMART DTC loyalty program

“Without customer loyalty, direct-to-consumer (D2C) brands can’t survive,” says Tim Nybo, Co-Founder and CMO at Vincero Watches. PYMNTS.com reports that 21.4% of consumers prefer DTC brands in the food and beverage category for their loyalty programs, and 17.9% in retail.

In a market where customer acquisition costs (CAC) are skyrocketing, retaining customers is crucial. Investing in customer retention and increasing Customer Lifetime Value (CLV) is a sustainable growth strategy. An exceptional customer experience can be the deciding factor in whether a brand thrives or fades away.

Why DTC brands excel at building loyalty:

  1. Data goldmine: DTC brands own their distribution channels, gathering valuable first-party data for personalized experiences.

  2. Total control: Managing every touchpoint ensures a seamless and consistent customer journey.

  3. Agility: Smaller DTC brands can quickly adapt to market trends and customer feedback.

  4. Direct engagement: Engaging directly with customers through social media and other channels builds deeper relationships.

Strategies for building loyalty:

1. Personalize experiences: Collect and utilize customer data to tailor recommendations and offers. Personalization improves customer experience and increases ROI.

2. Create engaging content: Engaging content fosters loyalty. Create content that resonates with your audience and aligns with your brand’s identity.

3. Offer exceptional customer experience: Great service is a must. Focus on personalized customer care, easy returns, and tailored product recommendations to turn first-time buyers into loyal customers.

4. Launch viral loyalty programs: Design loyalty programs that are buzzworthy. Make them exciting and share-worthy to attract new customers through word-of-mouth.

Meshki: a standout example of loyalty programs done right…

Meshki’s loyalty program: Meshki has set the bar high with its Platinum Endless Member loyalty program, making its customers feel truly special. Here’s why it works:

  • Exclusive invitations: Members receive invites to exclusive events, such as the recent Meshki Pilates event in Melbourne. This event offered limited spots, creating a sense of urgency and exclusivity.

  • Personal touch: Members are often surprised with personalized gifts, like choosing an outfit for attending events. This personal touch makes customers feel valued and recognized.

  • Unique experiences: Meshki hosts in-person events that immerse customers in the brand's world, making them feel like VIPs. This level of engagement is usually seen with luxury brands, but Meshki has made it accessible at a more attainable level.

  • Consistent engagement: Regular interactions, whether through special events or birthday gift vouchers, keep members engaged and loyal. Customers feel like they are part of an exclusive club, enhancing their loyalty and encouraging repeat purchases.

DTC brands like Meshki demonstrate the power of a well-crafted loyalty program. By leveraging data, personalizing interactions, and directly engaging with customers, DTC brands can build lasting loyalty, increase CLV, and drive sustainable growth. For DTC marketers, the focus should be on creating unique, memorable experiences that make customers feel valued and special.

When did VC x DTC went wrong?

Fallen DTC brands:

  • Dollar Shave Club: Divested by Unilever after a $1 billion acquisition.

  • Bonobos: Sold for $75 million after Walmart’s $300 million purchase.

  • Outdoor Voices: Imploded after raising $70 million.

  • Smile Direct Club: From IPO to bankruptcy in four years.

  • Allbirds: Revenue down 30%, facing financial struggles.

These brands once attracted massive venture capital but have since struggled. What went wrong?

The rise and fall of DTC x VC:

VC’s boom: VC started in the 1950s to fund risky, innovative ideas. It grew from $30 billion in 2006 to over $340 billion in 2021. Initially focused on tech, VCs turned to new ventures as opportunities dwindled.

Retail revolution: The internet allowed brands to sell directly to consumers, birthing DNVBs like Warby Parker and Dollar Shave Club. Armed with VC money, these brands promised to disrupt traditional retail.

Cheap digital ads: From 2005 to 2020, Facebook and Google made it cheap to acquire customers. This fueled the DTC boom, allowing brands to grow without traditional retail partnerships. The promise? Cut out the middleman and enjoy higher margins.

Perfect business model? For a time, DTC seemed perfect, with high margins and recurring revenue through subscriptions. Metrics like LTV

(Lifetime Value to Customer Acquisition Cost) made these brands appealing to VCs.

Challenges faced by DTC:

Rising ad costs: The initial success of DTC was driven by cheap digital ads. As more advertisers entered the space, costs skyrocketed, eroding profitability.

Slowing e-commerce growth: Post-COVID, e-commerce growth slowed. Rising ad costs, increased competition, and the end of stimulus checks squeezed margins. iOS 14.5 further disrupted targeted advertising.

Inflation: COVID-related inflation increased production costs, further eroding margins. Rising costs for goods and shipping made the DTC model less viable.

Case study: Allbirds:

Allbirds' story highlights the pitfalls of VC funding. Despite initial success, recent earnings show a 30% revenue drop. SG&A expenses now exceed 100% of revenue, meaning they're losing money on every pair of shoes sold. Challenges include high customer acquisition costs, logistics issues, and trend-driven market challenges.

Crunchbase reported a 97% decline in U.S. investments in e-commerce startups since 2021. As VCs faced disappointing returns, enthusiasm for DTC waned. By 2028, dedicated CPG-focused VC firms will likely be rare, with private equity players reclaiming dominance.

The bottom line: DTC once promised to revolutionize retail, but rising costs, slowing growth, and market saturation led to its downfall. The future of DTC will likely see a return to traditional retail partnerships and a focus on profitability over rapid growth. The VC-backed DTC experiment may have run its course, but its lessons will shape the next generation of consumer brands.