Latest / The DTC Marketing Podcast with Fexingo: Direct-to-Consumer Brands, Shopify, and E-Commerce Growth / Why DTC Brands Are Killing Their Loyalty Programs
Transcript
- Lucas: The most dangerous metric in modern e-commerce is not your customer acquisition cost, it is the number of loyalty program members who have earned more than two dollars in rewards but never redeemed them. Luna: So you are saying the liability on the balance sheet is actually a feature, not a bug? Lucas: Exactly. For years, every direct to consumer brand from skincare to supplements promised that their points system would unlock exclusive perks. The reality is that these programs mostly just created administrative overhead and confused customers who forgot they had points in the first place. Luna: It feels like we hit peak gamification where everyone wanted to feel like a player but nobody wanted to do the work. Lucas: Right. And now, looking at the market today on October eleventh twenty twenty-six, the leading brands are quietly shutting these down or radically simplifying them. They are moving away from points toward what I call frictionless value. Luna: What does frictionless value actually look like in practice? Lucas: It means removing the middleman between being a good customer and getting a benefit. Instead of saving up fifty points for a five dollar discount, a brand simply gives free shipping on every order after three purchases, or offers early access to drops without any login requirement. Luna: That shifts the power dynamic entirely from the brand hoarding data to the customer enjoying immediate utility. Lucas: Precisely. Let us look at a specific example. A mid-sized athletic wear brand recently replaced their tiered loyalty program with a simple membership model. They removed the point tracking UI from their app and instead gave all returning customers automatic priority support and a one-time twenty percent off code on their next birthday. Luna: Did the revenue drop when they killed the complex point system? Lucas: No, repeat purchase rates went up by twelve percent in the first quarter after the switch. Why? Because the cognitive load was gone. Customers did not have to calculate if they were close to the next tier. They just knew they were valued. Luna: It reminds me of how Amazon Prime works. You pay once and everything is just there. Lucas: Amazon is the extreme end of this spectrum. Most DTC brands cannot charge a subscription fee for their core product. But they can mimic the psychological effect of predictability. When a customer knows exactly what they will get every time they buy, trust compounds faster than any point system ever could. Luna: But isn't there a risk that you lose the excitement of the chase? Lucas: For some niches, yes. If you are selling collectibles or trading cards, gamification still works. But for staples like coffee, vitamins, or basic apparel, the chase is annoying. People just want their stuff delivered reliably. Luna: So the pivot is really about respecting the customer's time rather than trying to hack their dopamine loops. Lucas: I think it is deeper than that. It is about operational efficiency. Managing a points ledger requires engineering resources, customer service training to explain redemption rules, and legal compliance for unclaimed property laws in various states. All of that cost gets passed into the price of the product. Luna: Which brings us back to margins. If you cut the admin costs, do you lower the price or keep the margin? Lucas: Smart brands use the savings to improve the product itself or invest in better photography and content. That is where the real growth happens now. Not in building bigger databases of points, but in making the product so good that people share it organically. Luna: This feels like a return to basics. Just sell a good thing to the right person repeatedly. Lucas: It is harder than it sounds. Simplicity requires discipline. You have to resist the urge to add another feature to your app just because your competitor has one. Sometimes the best feature is no feature at all. Luna: I have been noticing that some beauty brands are doing something similar with samples. Lucas: Yes, the sample strategy is a great hybrid. Instead of giving points, you give a full-size trial of a new product with every order. It drives cross-selling naturally without any accounting complexity. Luna: It feels less transactional and more like a relationship. Lucas: That is the key word. Relationship. Points are transactions. Relationships are built on consistency and goodwill. When you remove the transactional layer, you force yourself to be genuinely useful to your customer. Luna: Do you think small brands should worry about this transition? Lucas: If you are small, you probably do not have a complex points system yet. You should focus on personal outreach. Handwritten notes, direct emails, remembering names. Those analog touches scale poorly, but they start strong. Luna: Scalable vs scalable. One grows tech, the other grows trust. Lucas: Exactly. And as you grow, you might need automation. But even then, automation should serve the relationship, not replace it. Use technology to remember birthdays, not to remind people they are close to a reward threshold they do not care about. Luna: So the takeaway is to audit your current retention tools and cut anything that feels like homework for the buyer. Lucas: Yes. If your customer has to read a terms of service to understand how to save money, you have failed the design test. Luna: I am going to check my own favorite brands right now to see which ones have already made this shift. Lucas: You will likely find that the ones you love the most are the ones that ask for nothing from you except your business. Luna: There is something comforting about that in a world that wants everything from our attention. Lucas: It is a luxury to be treated well without having to perform. And that is what modern retention is becoming. Luna: Speaking of performing, if these conversations about cutting the fluff have helped you streamline your own approach, consider supporting the show directly. Lucas: A couple of dollars a month is genuinely what keeps these going. You can support us at buy me a coffee dot com slash fexingo. It helps us keep the signal clear and the noise out. Luna: Thanks for keeping the lights on. Now, let us talk about the next hurdle for brands that kill their loyalty programs. Lucas: Which is usually the fear that revenue will dip immediately. But here is the counter-intuitive part. Revenue often stabilizes faster than you expect. Luna: Because you stop losing money on the admin side while keeping the customers who actually care. Lucas: Exactly. You filter out the bonus hunters who were only buying for the points anyway. What remains are the true fans. Luna: True fans are easier to retain than points chasers. Lucas: Much easier. And they spend more per order because they are not waiting for a redemption date. They buy when they need it. Luna: So the churn rate actually goes down because the expectations are clearer. Lucas: Yes. Clarity reduces anxiety. And reduced anxiety leads to higher lifetime value. It is a simple loop, but few brands have the courage to break the old habits. Luna: It is interesting how much inertia exists in marketing operations. We keep doing things because they worked ten years ago. Lucas: Ten years ago, email open rates were high and social media was different. The landscape has shifted fundamentally. We have to adapt our tools to the new reality. Luna: Or just accept that sometimes the best tool is no tool at all. Lucas: Sometimes. But knowing when to use no tool is the hard part. That is where judgment comes in. Luna: Judgment over algorithms. I can get behind that. Lucas: Agreed. So if you are looking at your retention dashboard this week, ask yourself what you can remove, not what you can add. Luna: Less clutter, more connection. That seems to be the theme. Lucas: It is the only way forward in a crowded market. Stand out by being simple. Luna: Simple enough to be trusted, and valuable enough to be kept. Lucas: Exactly. Let us see which brands manage to pull that off next year.