"All You Need Is Loyal": Successful DTC Brands Focus on Loyalty

Retention| Tanja|22/12/2022


Successful DTC brands are increasingly prioritizing customer retention measures instead of focusing exclusively on the constant acquisition of new customers. The main reason for this is the skyrocketing customer acquisition costs (CAC). For a significant percentage of DTC brands, CACs are so high that customer acquisition effectively results in an economic loss after all costs are deducted.

So improving customer loyalty is critical for DTC brands to survive. Here are some causalities and statistics from McKinsey that illustrate this importance:

  1. Cost of customer acquisition: according to McKinsey, the cost of acquiring new customers has increased significantly in recent years. Increased competition and multiple marketing channels have made it more expensive to reach new customers and get an initial order from them.

  2. Repeat purchases and profitability: McKinsey notes that customers who become existing customers and make repeat purchases become more profitable over time. With the first order, customers typically make low margins or even losses. Only with repeated purchases does profitability increase due to higher customer values and the possibility of cross-selling.

  3. Customer loyalty and customer value: according to McKinsey, increasing customer loyalty by just 5% can increase profits by 25% to 95%. Customers who have a strong connection to the brand are more likely to spend more, speak positively about the brand, and make repeat purchases.

  4. Loyalty and willingness to recommend: loyalty also leads to an increase in willingness to recommend. According to McKinsey, customers who feel emotionally connected to a brand are four to six times more likely to recommend the brand to others. This can lead to low-cost and effective marketing through word of mouth.

Background: Cost explosion for customer acquisition

High CACs are influenced by several factors. Firstly, competition in the digital landscape is increasing, particularly due to the growing number of companies using online channels to market their products and services. This is leading to increased demand for ad space and an accompanying price increase for online marketing.

Another key factor is the new Apple iOS and its impact on online marketing. With the introduction of iOS 14.5 and App Tracking Transparency (ATT), Apple has tightened privacy policies and requires users to give explicit consent for their activity to be tracked. This makes it more difficult for DTC brands to collect accurate and comprehensive data about their customers and execute targeted marketing campaigns. This directly impacts customer acquisition effectiveness and further increases CAC.

In the face of these challenges, successful DTC brands recognize the need to invest in customer retention. They recognize that the profitability of their business depends not only on new customer acquisition but also on the ability to retain existing customers over the long term and generate recurring purchases.

The keys to successful customer retention lie in smart measures and a holistic customer strategy. DTC brands use various approaches to strengthen their customer relationships. These include personalized communications, customized offers, and exclusive content tailored to customers’ individual needs and preferences. In addition, they focus on a positive customer experience that goes beyond the mere purchase of a product. This can be achieved, for example, through outstanding customer service, fast deliveries, and easy return options.

By improving their customer loyalty, DTC brands can build long-term customer relationships and increase customer satisfaction. Satisfied customers are more likely to give positive reviews, recommend the company to others, and buy from the company again in the future. This helps reduce CAC and increases the company’s profitability.

Psychologically effective measures to increase customer loyalty via the offline channel can be extremely effective.

Handwritten birthday cards, handwritten letters for VIP customers, and handwritten thank-you cards for orders are examples of such measures that can create a strong emotional connection with customers.

In a digital world where most communications are electronic, handwritten gestures represent a unique and personal form of appreciation.

Their impact is based on several psychological principles. First, handwritten messages create a stronger emotional response in the recipient compared to electronic messages. The personal touch and individual handwriting convey an authentic and personal connection that electronic channels cannot provide. This leads to higher levels of customer satisfaction and loyalty.

In addition, handwritten cards create a positive surprise for the customer. In a digital world where everything is fast-paced and standardized, a handwritten card or personal letter is perceived as something special. This unexpected gesture sets the company apart from the competition and strengthens customer loyalty.

Handwritten messages also create a personal relationship between the company and the customer. By the company investing time and attention to write a personalized message, the customer is made to feel valued as an individual. This strengthens trust and loyalty with the company and fosters a long-term customer relationship.

In contrast, electronic messages or channels cannot achieve the same emotional impact. An email or WhatsApp message can easily be perceived as automated or impersonal, even if it is personalized with the customer’s name. These forms of communication often leave customers feeling like they are just one of many and not treated as unique person.

Customers want to be shown appreciation because it fulfills their needs for social recognition and belonging. By showing appreciation to their customers, companies make customers feel validated and respected. This increases the feeling of attachment and loyalty to the company.