The idea behind yet another newsletter about retention & growth in DTC
I’m Marcin and for nearly 8 years, I've been working as a full-time researcher tackling complex issues in AI and algorithms.
I've been lucky to conduct my research at Oxford and Berkeley, receiving a fair amount of awards and scholarships along the way.
More recently, I found myself a new challenge: figuring out growth and retention in the dynamic world of DTC.
I joined one of the industry's leading DTC companies, and was lucky to work with some of the brightest people I've met.
I think the DTC learning curve is steep for the following reasons:
unbiased resources are scarce. Most of them come from companies pushing their own agendas.
we borrow concepts from tech (Hacking Growth, Lean Analytics, Reforge) but still need to validate them with our own experiments.
properly conducted growth experiments take a lot of time and volume. Retention experiments take even more than that.
it's easy to get lost in the attribution game. Third parties' performance dashboards tend to be overly optimistic in reporting. Trying to get close to the true attribution takes additional resources that not every brand has.
there's some good empirical research coming from academia, but nobody is talking about it.
I want to create unbiased resources that will empower DTC brands to make more informed decisions for sustainable growth and retention.
I will write about the new findings in academia, my own learnings from conducting hundreds of experiments coupled with occasional anecdotal evidence and community wisdom!
Let’s get started.
1. Intro to DTC retention
Years ago, it used to be a common story in the world of DTC brands: invested heavily in acquisition only to realize too late that retention is the key to long-term success. Nowadays retention seems to be widely considered to be one of the most important metrics for DTC businesses, no matter the size, scope, or offering. While it is true, it’s also one of the hardest to follow.
A holistic retention strategy goes beyond sending out emails, offering discounts or starting a loyalty program. It’s not just a direct relationship channel, but a powerful operating mechanic in the growth machine that takes inputs from product and performance and stretches cohorts for maximum lifetime value (LTV).
In this series, we will explore the key principles of retention-led growth and delve into the strategies and tactics that can help you build a loyal customer base, from customer onboarding and engagement to the elusive "aha moment".
2. What can it do for you
If you’re not yet convinced that retaining customers is something you should focus on, consider research done by Frederick Reichheld of Bain & Company (the inventor of the Net Promoter Score):
We showed that in industry after industry, the high cost of acquiring customers renders many customer relationships unprofitable during their early years. Only in later years, when the cost of serving loyal customers falls and the volume of their purchases rises, do relationships generate big returns. The bottom line: increasing customer retention rates by 5% increases profits by 25% to 95%.
An analogy that can be used to illustrate the impact of retention on business profitability is that of a leaky bucket. Just as water leaking out of a bucket can reduce the amount of water that remains, customers leaving a business can reduce the amount of revenue generated over time. By focusing on retention, businesses can plug the leaks in the bucket and keep more customers coming back, which in turn leads to increased revenue and profitability.
3. Why businesses focus on acquiring new customers
Despite the clear benefits of retention, many businesses still focus most of their efforts on acquiring new customers. There are several reasons for this.
Acquiring new customers can lead to an immediate boost in revenue, while retention efforts often take longer to pay off (can’t argue with that),
Customer acquisition is often seen as more exciting and glamorous (it is equally or more exciting however to successfully convert a customer who had initially tried the product out of curiosity into a loyal fan who continued to make purchases and spread positive word-of-mouth),
There is a perception that retention marketing is more difficult and resource-intensive than acquisition marketing. It may require more personalized communication and ongoing efforts to keep existing customers engaged and satisfied (that is partially true, but can be made easier and more efficient with the help of technology and automation - more on that to come!),
Some businesses believe that their product or service is inherently low-retention, and therefore not worth investing heavily in retention marketing (BarkBox, anyone?),
Companies may not have the necessary data and analytics to effectively measure the impact of retention efforts, which can make it difficult to justify investment in those initiatives (there are great tools you can use that we will explore in depth in the future posts).
I believe DTC brands should put retention first, creating a culture that values customer loyalty and prioritizes the needs of existing customers above the acquisition of new ones.
4. Into the future
It’s hard not to mention the potential of the natural language processing (NLP) tools driven by AI. Sooner or later, they will open up a world of possibilities for enhancing customer engagement and driving growth. Consider the following applications for now:
Zero-Party Data Analysis: We can now analyze large amounts of data such us customer reviews and surveys, extracting all important insights such as buying reasons that we later use for ad copy, for segmenting customers for hyper-personalized email campaigns and more. It can helps us optimize our content strategy, uncover trends and address pain points.
Churn Prediction: We can analyze large amounts of first-party data in real-time, to try to predict churn and uncover behavioral patterns. This can help drive strategies that proactively address customers who are at the risk of churning.
GPT-4-powered Chatbots: Providing personalized assistance at scale, from cross-selling on site, downselling on the cancellation flow, resolving queries, we can set up chatbots that create seamless and engaging experiences throughout the customer journey.
DTC Compliance checker: An initial compliance screening tool to ensure all marketing and communication strategies adhere to industry standards and regulations. Review content across different channels, safeguarding against potential legal and regulatory issues. It also saves your compliance team a ton of time!
great stuff
Cool, super glad I found this.