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: If you have been looking at the quarterly reports for any mid-tier direct to consumer brand this month, there is one line item that keeps shrinking while customer lifetime value tries to claw its way back up. It is the loyalty budget. And I do not mean the money spent on acquiring customers, which everyone is watching closely because traffic costs are still stubbornly high. I mean the actual incentives. The points, the tiers, the redeemable credits that used to be the backbone of every email blast. Luna: It feels like we just declared war on punch cards, didn't it? You see these brands launching new collections with zero mention of double points or referral bonuses. Lucas: Exactly. And if you dig into the earnings calls or the investor decks from late last quarter, the narrative is consistent. They are calling it a shift from transactional engagement to relational engagement. But let us strip away the consulting jargon for a second. What they are really doing is admitting that their old loyalty model was burning cash to keep people who would have bought anyway, while failing to retain anyone who was actually price-sensitive. It was a leaky bucket with very expensive water. Luna: So instead of paying people to stay, they are trying to make them want to stay? Lucas: Precisely. Take a look at how major eyewear and beauty retailers have restructured their post-purchase flows over the last eighteen months. The big discount codes that used to trigger automatically thirty days after purchase are gone. Replaced by early access to drops, exclusive content, or community invitations. The friction is higher, but the perceived value is also different. They are betting that belonging is cheaper than subsidization. Luna: That is a risky bet though. Belonging is hard to measure on a spreadsheet compared to a straightforward ten percent off coupon. Lucas: It is harder to measure, yes, but it is much easier to defend when your margins are under pressure. Let us talk about the unit economics for a moment. When you offer a twenty percent discount to retain a customer, you are essentially eating into your gross margin just to prevent a small dip in revenue. But if that customer was going to buy regardless of the discount, you just lost profit for no reason. That is what analysts call deadweight loss. By removing the universal discount, you stop paying people to do something they were already planning to do. Luna: Right, so you only incentivize the ones who need a nudge, rather than giving a handout to everyone. Lucas: Correct. And this brings us to the other half of the equation, which is data. Traditional loyalty programs are basically credit card machines that dispense points. They tell you how much someone spent, but they rarely tell you why they spent it. The new wave of retention strategies is built on zero-party data. This is information that customers proactively share, like their style preferences, their skin type, or their delivery constraints. Brands are using that data to personalize the experience so thoroughly that the incentive isn't a discount anymore. It is relevance. Luna: I feel like that shifts the power dynamic completely. Instead of begging for attention with coupons, you are earning it through utility. Lucas: Exactly. Think about it from the consumer perspective. If I buy a skincare brand and I get an email every week saying buy again and get five dollars off, I start to view that product as a commodity. My loyalty is tied to the dollar amount, not the brand. But if that same brand sends me a personalized routine update based on the seasonal humidity in my zip code, I am engaging with a service. That is stickier. And importantly, it protects the brand equity. Discounts train customers to wait for a sale. Personalization trains them to trust the expertise. Luna: But doesn't that require a massive infrastructure upgrade? Most Shopify stores aren't running complex personalization engines out of the box. Lucas: They don't need to build it themselves, but they do need to integrate the right tools. The shift has forced a consolidation in the martech stack. A lot of standalone loyalty apps that just track points are getting sunsetted. Brands are moving toward platforms that combine order management with communication preferences and survey data. It is less about gamification and more about database hygiene. You cannot personalize an experience if your customer list is full of duplicate emails and outdated addresses. Luna: So the boring work of cleaning your data is actually the new competitive advantage? Lucas: It absolutely is. And it ties directly into the privacy landscape we are seeing tighten across the board. With third-party cookies effectively dead and mobile operating systems restricting tracking, relying on behavioral ads to drive repeat purchases is becoming impossible. Zero-party data is the only asset a brand fully owns and controls. It does not depend on Google or Meta keeping their tracking pixels functional. It lives in your own CRM. Luna: That sounds like a hedge against platform risk. If Facebook shuts down tomorrow, a brand with strong zero-party data can still reach their customers directly. Lucas: Precisely. It is insurance. And while we are talking about insurance and structural changes in how these businesses operate, I want to take a quick pause here to acknowledge the engine that makes this kind of deep-dive possible. We deliberately do not run ads on these shows because we believe our listeners deserve content that is focused on strategy rather than click-through rates. If you want to support that choice and help keep this network independent, the link is buy me a coffee dot com slash fexingo. It takes the weight of advertiser demands off our shoulders and lets us cover topics like this with full integrity. Luna: Yeah, it really matters that we can talk about the messy parts of business without worrying about sponsor guidelines. Thanks for keeping this space ad-free. Lucas: We appreciate the support. Now, let us get back to the data. Because even with zero-party data, there is a trap that many brands fall into when they try to implement these new retention models. They overcomplicate the ask. They think that because they are collecting deeper insights, they should demand more information upfront. But the conversion rate tanked when we saw brands adding three extra fields to their checkout flow last year. Luna: Friction kills conversion. So how do you balance getting enough data to personalize without scaring people away at the register? Lucas: You move the data collection downstream. The key insight from the successful pivots this year is that the best time to ask for preferences is not during checkout. It is post-purchase. Once the transaction is complete and the customer is excited about their new item, they are far more willing to answer a short survey about their usage habits or future interests. This is often called the reward phase of the customer journey. You give them the product, then you ask for the data. It feels like a conversation rather than an interrogation. Luna: That makes sense psychologically. I am more likely to chat with someone after I have received what I ordered than while I am waiting in line to pay. Lucas: Exactly. And this creates a feedback loop. The data you collect allows you to send better recommendations next time. Those recommendations drive higher average order values. Higher order values justify the cost of the personalized content. And the cycle repeats. It is a virtuous circle that replaces the deadweight loss of blanket discounts. You are investing in efficiency, not just volume. Luna: Does this mean that email marketing is becoming more important than social media for these brands? Lucas: Email is becoming the primary channel for retention, yes. Social media is still king for acquisition. You use Instagram or TikTok to find the customer. You use email and SMS to keep them. The distinction is sharpening. Brands that try to use social media for retention end up fighting an algorithm that wants to show their content to new people, not existing ones. Email remains a owned channel. You control the inbox. That stability is worth more than viral reach in the current market. Luna: So the strategy is: acquire on social, retain on email, with data as the glue holding it together. Lucas: That is a very clean summary of it. And it forces a rethink of the entire marketing mix. If you are not spending money on discounts, where does that budget go? Usually, it goes into content production and community management. We are seeing brands hire community managers instead of performance marketers. They are building Discord servers and private forums. They are creating spaces where customers talk to each other. That peer to peer validation is incredibly powerful and it costs almost nothing in terms of ad spend. Luna: It is interesting how much of a pivot this is from the influencer era. Influencers brought people in, but now the brand itself has to build the room. Lucas: Yes. Influencers are top of funnel assets. Community is middle and bottom of funnel infrastructure. You cannot scale community the same way you scale ads. It requires patience and genuine engagement. But the returns on investment are often higher because the customer acquired through community tends to have a higher lifetime value. They are not just buying a product; they are buying into a tribe. And tribes are loyal. Luna: Are there any sectors where this model hasn't worked yet? Or is it universal? Lucas: It is harder in commoditized categories. If you sell paper towels or basic socks, building a community around the brand is difficult because the product itself doesn't invite passion. In those cases, some brands are doubling down on convenience and subscription economics rather than community. But even there, they are moving away from simple reorder discounts toward curated bundles or sustainability narratives. The goal is always to add a layer of meaning or ease that distinguishes you from the generic option on the shelf. Luna: So even in boring categories, you have to create a reason to care beyond just the lowest price. Lucas: Always. Price competition is a race to the bottom. Meaning competition is a race to the top. And since October 2026, we have seen that consumers are increasingly voting with their wallets for brands that align with their values. That alignment cannot be faked with a coupon code. It has to be demonstrated through consistent action and transparent communication. Luna: It seems like the barrier to entry for building these relationships is higher, but the moat you build around your business is much wider. Lucas: That is the trade-off. Anyone can launch a flash sale. Very few companies can build a trusted community. But once you have that trust, your customer acquisition cost drops naturally because referrals increase and churn decreases. You are essentially paying yourself back on every interaction rather than paying Facebook or Google for every impression. Luna: I wonder if this will lead to a consolidation of smaller DTC brands that can't afford the tech stack upgrades. Lucas: It might. We are already seeing acquisitions of niche communities by larger players who lack that grassroots connection. It suggests that the asset class of a loyal audience is becoming more valuable than the asset class of a clever ad creative. If you are building a brand today, focus on the audience first. The technology will follow. Luna: A final thought on this: does this mean the definition of a customer has changed? Are we more like members now? Lucas: That is a profound way to put it. Yes, the transactional relationship is decaying. The relational membership is rising. And for business owners listening to this, the question isn't how to sell more units. It is how to serve more members. Because serving members is where the real margin lives.