How to Reduce the High Cost of Customer Acquisition
What seemed like an easy and straightforward means of making sales is starting to look a tad bit difficult in terms of the cost of customer acquisition for D2C brands. We’re already seeing a saturation of D2C (Direct to Customer) brands who are trying to use paid search and paid social to get customers — thus reducing the ROI on ad spend and increasing the cost of acquiring customers
It’s merely the market forces doing its thing. Entering into the D2C business model has a low barrier of entry, which in turn has increased competition (more supplies), but with demand for the products remains unchanged. So, to get ahead, D2C brands will have to spend more money and use more effort to get new customers.
Although some people may contemplate going back to traditional marketing to avoid these huge costs, that's not the best option because traditional marketing also has its limitations, especially for brands that started as eCommerce stores.
What are the Best Ways to Reduce Customer Acquisition Costs for D2C Brands
1. Make Customer Experience a Priority
In the so-called saturated market, we still have brands doing impressive numbers every day. Bonobos is a top D2C brand that was acquired by Walmart for $310 million. Bonobos sold 12,000 pairs of pants and were able to raise $3 million in funding in the early days of the company, ultimately raising $127 million in funding.
This might look impossible, but their process was simple. They focused on their pants and people. In a more precise form, they focused on the product and its consumers.
Bonobos’ co-founder Andy Dunn described their marketing approach as being maniacally focused on the customer experience and interacting, transacting, and story-telling to consumers.
The typical advice you get about reducing customer acquisition costs bothers around the less-intimate strategies. Customers are people, and for the fact that they see several ads every day, the only people they would patronize a second time are the ones that offer them the best experience.
Focusing on your customer’s experience is a crucial investment you make for your brand. You work on checkout, honoring customer expectations, mobile optimization, and timely product delivery. All these build a loyal following, thus allowing you to enjoy the most potent form of advertising there is — word of mouth. Good customer experience leads to customer retention, which, in turn, makes customer acquisition cost cheaper.
Dollar Shave Club is another D2C brand that got a considerable amount of success using subscription service. They projected revenue of $200m in 2016 and later got acquired by Unilever for $1 billion. This was as a result of excellent customer experience, leading to customers patronizing them in the long run.
They simplified the process of getting customers to subscribe to getting razors online and maintain their customer retention over the long run.
2. Leverage loyalty programs
Loyalty programs are a marketing strategy that allows your already acquired customers to gain incentives due to their loyalty towards your brand. It’s not a new strategy, but it’s mostly overlooked and highly effective. It makes your customers excited about your brand, making them tell their friends about your business (word of mouth) because of the benefits they’re getting from you.
It is a way to attract and retain customers. This makes sense because when your customers can benefit from your brand, their loyalty increases — which is good for you. This also tends to be a more authentic recommendation as it is coming from a friend or family member versus a traditional digital advertisement.
Now, instead of spending excessive amounts on Facebook, Instagram, and Google ads, you can create an incentive for your existing customers and watch them be a part of your marketing.
No more would you have to suffer through low ROI; your incentives will make your customers want to patronize you more. Studies show that 84% of consumers will stick with a brand that offers a loyalty program. And 66% of customers say the ability to earn rewards changes their spending behavior. As a D2C brand, loyalty programs are entirely worth it. Here are some companies that are thriving using loyalty programs:
The eCommerce giants, Amazon, let their customers enjoy free delivery benefits on millions of products, amongst several other benefits including streaming and digital services, shopping benefits, and reading benefits with their subscription service, Amazon Prime. In the US alone, 95 million people have Amazon prime membership. And this is a community of loyal Amazon shoppers.
As Bigcommerce puts it:
“With an annual fee of more than $100 a year, many Amazon Prime members feel the need to justify their subscription. Essentially, the more an Amazon Prime member shops on Amazon, the more they are getting out of their subscription and the less guilt they feel over the cost.”
Mavely, an eCommerce platform, lets its users discover new direct-to-consumer brands and earn a cash commission by referring their favorite products to friends, family and their social network. They let their customers earn money on the purchases they make — this could be by their friends and families. It’s a great way to reduce D2C customer acquisition costs.
They make the process of encouraging their friends to come on board more accessible by allowing users to share links to products, brands stories, and lists...all of which are shoppable and drive a cash commission for the user. They call this “communal commerce,” where the community of users and advocates are driving the ecommerce transactions. And the more people who join the Mavely platform, the more these D2C brands gain new customers at a lower cost, and the more money the customers make. So, it’s a win-win for everybody driven by network effects.
In an interview, the Cofounder, Evan Wray, said:
“[Direct-to-consumer brands] are all starting to look for alternative acquisition channels to Facebook and Instagram to acquire customers,” Wray said. “Through our communal commerce model, instead of all those dollars going to Facebook, we’re seeing those dollars actually go into the pockets of families all across the United States.”
Toms’ loyalty program is a bit different from everyone else’s because they appeal to their customer’s values through the one for one shoe donation program. They set themselves apart with their initiative that if you buy a pair of shoes from them, they’ll donate one shoe to the less privileged countries.
They’ve moved on from that to support other causes. Currently, if you buy a shoe from their website, you can choose the exact cause you want to support, either women’s rights, mental safety, homelessness, physical safety, or ending gun violence.
The Chief giving officer for TOMS, Amy Smith, says:
“Over the last year and a half or so, we’ve really been reflecting on where might we have the greatest impact,”
“What is changing in the world around us?” Amy said. “As we continue to innovate, we hope that people follow as well. And I hope, collectively, that purpose-driven companies are always questioning, are we having the greatest impact possible?”