These days, you can hardly turn a corner in the retail world without hearing talk of D2C. Once a disrupter in the CPG space, direct-to-customer is now rapidly becoming common practice for CPG brands. The theoretical benefits are just too lucrative for retailers to ignore: From better margins to the freedom to rely less on retailers and better control over customer relationships, most brands are exploring D2C and digital-first approaches.
That being said, it may be surprising to hear that many D2C brands are struggling.
For example, the digital first cosmetics brand Glossier, known for its muted-toned subway ads and millennial-targeted marketing, was forced to suspend its new cosmetics line “Play” after dissatisfying initial sales. Brandless, a bold DTC convenience store that boasts a myriad of household products for only $3, had to lay off 90% of its employees, stating that “the fiercely competitive direct-to-consumer market has proven unsustainable.”
So what’s the cause of D2C brands’ struggle to survive? This year presented brands and retailers with a host of unforeseen challenges. Many retailers found themselves scrambling to adapt to digital-only shopping at the height of the pandemic, and customer acquisition costs have shot up thanks to the influx of businesses spending online, driving up competition for ad space on most platforms. At the tail end of 2019, Facebook costs were already up 90% YoY, a trend that shows no sign of slowing as brands fight to grow digital sales and stand out in a crowded space.
So how do D2C brands establish brand loyalty and stay afloat in an increasingly competitive digital marketplace? The answer, as you might have guessed, lies in focusing on growing recurring revenue and customer LTV.
Subscriptions linked to LTV
Direct-to-consumer retailers are becoming increasingly familiar with the need for a subscription program in order to build a recurring revenue stream and maximize customer lifetime value. D2C companies are investing a lot of money and effort into customer acquisition, when in reality only 14.77% of all eCommerce customers are returning shoppers. In order to maximize their investment, brands are shifting their focus to maximizing the lifetime value of each customer, and looking to subscription services as a solution.
The Subscription Trade Association (SUBTA) predicts that by 2023, 75% of DTC organizations will offer subscription services. As SUBTA co-founder Chris George put it, “Subscriptions allow the consumer to engage in a relationship with the brands. With so many brands out there selling similar products to win the consumer, you need to build a relationship with them to effectively compete.”
Retail Touchpoints backed up this claim in their 2020 Consumer Loyalty Benchmarks Survey, which found that 57% of brands cite recurring revenue as a key benefit of their subscription program. 35% of respondents said that finding subscribers to be more loyal customers was also a key subscription program benefit. 39% of respondents reported that subscribers tended to keep their subscription renewed for longer than one year.
Ordergroove saw an uptick in new subscribers in nearly every retail industry this year, as COVID shopping concerns encouraged more consumers to pivot towards reliable monthly deliveries of their household necessities.
If eCommerce trends this year have made one thing clear, it’s that D2C organizations need a recurring revenue stream in order to stay afloat in the most competitive online retail market to date. A strong customer LTV comes from happy, returning customers, so retailers need to step up their personalization tactics and ensure they’re set up with the correct subscription provider.
And while a subscription program can help drive recurring revenue, it’s important that you do more than just get customers to enroll. You need to add consistent value over time to drive LTV to a maximum. Learn how to get a subscription program up and running that truly retains customers by speaking to a recurring revenue expert.