Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

My Opinion on Loyalty Programs — Spoiler: They absolutely suck

Tech Stack
January 9, 2022

One thing that's been top of mind for me is, what is the future of loyalty programs and referral programs? For the purpose of this email, let's condense "loyalty & referral" to "L&R", deal? Cool. L&R, LFG.

In my opinion, referral programs that are currently in the market absolutely suck. Who is going to go log into their account for a beverage or a deodorant, search in the Account page for their "Invite a friend" link, and then send it over, or, even worse, input their friend's email address? Is this 2007? After all of that hard work, you get $5 off your next order. Sounds pretty silly to me, and I'm sure you, the person who implements these programs, rarely ever leverage these referrals yourself.

One recent example of "Refer a friend" that really intrigued me was the way Clubhouse onboarded users. If you're unfamiliar, Clubhouse is a social media app built on audio rooms and audio conversations. At the beginning of the pandemic, they were a really hot platform. Now... not so much. Initially, it was an exclusive platform, maybe less than 10,000 users total, and the only way to get on the app was if someone had invites and they invited you to join. If you accepted, the person who invited you gets their name stamped on your profile, forever.

In the Clubhouse example, it caters toward the vanity/ego/clout of the person making the referral. They get social capital out of it, versus actual dollar capital. A version of this is where I believe the future of DTC referral programs will go — tapping into customers' address books of their 10-20 closest friends, and making it easy to earn social capital.

If I refer Ken Sadowsky, The Beverage Whisperer, to Haus, and I give him a link like drink(.)haus/sharma or a coupon code like SHARMA to use at checkout, it caters back to the same concept of vanity. When his shipment arrives, it may even have a note that says "Hope you enjoy! — Nik" that's automatically printed in the box. If he likes the product, he will always remember that I introduced him to Haus. It would encourage me, as a customer, to bring this to as many people as possible simply for the social capital or the clout that I would get out of it.

Another model of referral that I believe will continue to do well is similar to what Whoop does. Whoop is a fitness tracker/wearable that lives on your wrist and gamifies the entire experience of being healthy. The hardware is free, but they charge you $1/day ($30/month max) to continuously provide high-quality insights into your daily activity, your sleep, your oxygen levels, and more. $30 a month can get hefty, so they make it easy for you to use the product completely free — just refer 1 person per month, and you'll never pay! This model does two things:

1. It entices people to share for the benefit of using the product completely free. If they had just done it as $10 in credit, I don't think it would do well. Here the exchange isn't dollars, it's a free membership, which has a different way of being interpreted by consumers.

2. It makes the product completely accessible to anyone. If you can't afford to pay $360 per year to track Whoop's metrics, that's ok — Whoop will make it easy for you to track everything for free. At the end of the day, the hard costs to Whoop are just the cost of the wearable's hardware, and if they can get 12 new customers out of it, that's maybe $1200 they're not going to pay an advertising platform to acquire 12 new customers.

With this same concept, if Haus had a membership referral incentive where every 5 new subscribers/members I brought in, they would cover the quarter's cost, you could bet me and a whole lot of other customers would be on FaceTime with family and friends to get them on board. Your first thought might be, "Is this shady?" Well, no. You're a subscriber, right? So the product must actually be good for you to be a subscriber in the first place. It's almost like an affiliate program equivalent, but for people who tap into their iPhone address book instead of their followers.

Loyalty programs, on the other hand, also suck. They're outdated, expensive to implement, and most companies that push them just do it because it's another box to check — there's not much thought behind them. Look at what most loyalty programs do and compare it to the punch card you get at your local nail salon or barbershop — they're the same thing. When you spend enough with a merchant, they'll give you some kind of reward. Although, with DTC, sometimes you still have to pay shipping, or you have to add something else to your cart to not pay shipping, but then you're paying for the additional item you didn't intend to buy. Oh, many of these only work too if you remember to enroll in the program. If you don't, then you're not getting anything out of it anyways.

With a couple of our clients, we've been thinking through how to improve these loyalty programs and ensure that customers get special treatment, without having to do the work themselves. Here are a few ideas we came up with:

Segmented quarterly rewards. If a customer has spent over a threshold with you that quarter, send them a gift in return. It could be something that compliments your product (i.e. a set of coasters if they spent over $X buying Haus), or maybe even just a store credit that automatically applies to their next order (they don't need to enter/remember a coupon code).

Automatic VIP program. Mack Weldon did a great job with this — if you spend over $200, you automatically qualify for a set of benefits like free shipping, early access to new products, always-on automatic discounts, and more. You're also named a VIP in all communications.

Access to events. Instead of shipping someone a pop-socket for spending $X with you, why not host a party or a dinner with some of the top customers? Chances are, many of the customers have similar interests and would make new friends amongst each other. Or, you don't have to host it, take them to another event, on the brand!

I'm curious what your thoughts are on L&R programs and how you view them. Do they work for you? Do you think any of these ideas could work for you? Please reply and let me know — I'm curious to get your thoughts. If I get enough responses, I'll compile and send them out to everyone.