Turning CAC Into Recurring Revenue with Premium Memberships: Loyalty Insights from Power Digital and Inveterate

Customer acquisition and retention – two sides of the same coin when it comes to eCommerce growth, but too often, these efforts become siloed from each other.  Retention efforts like loyalty programs are often reserved only for repeat customers, with the idea being that one worries about growing customers only after they have been acquired.

‍

The problem with that approach is that it severely undervalues the first-time buyer. These customers are excited about your brand and willing to take a chance on your product, so creating a valuable first impression is key. With customer acquisition costs having gone up 50% in the last 5 years, your brand can’t miss the opportunity to engage a first-time buyer and turn them into a loyal customer.

‍

We spoke with Ned MacPherson, Chief Growth Officer at Power Digital, on how he’s seeing top Shopify brands de-silo their acquisition and retention efforts with the power of membership loyalty programs, and how that strategy is driving huge results.

‍

Why New Customers Love Premium Memberships

‍

It may seem counterintuitive to ask a first-time buyer to pay into a membership program for products that they have potentially never tried before, but these customers are primed for engagement. By showcasing a membership with immediate and high-value perks, such as discounts, free shipping, store credit automatically added to accounts, and free gifts, new customers won’t be able to deny the value they’d receive by joining.

‍

As Ned puts it, “It feels awkward to ask a customer to buy your product who’s never bought from you before, and then by the way you should also buy into my membership program.  As the brand and consumer, we don’t interact, we just “met” each other here on our website, so it feels awkward to ask for that much, but I’m seeing more and more new customers opting in right out of the gates on first purchase to membership programs.”

‍

These new customers have already decided they want to make a purchase, so why shouldn’t they get something in return for taking that leap of faith with your brand. At Inveterate, we’ve seen membership programs where 64% of members are coming from first-time buyers.

‍

New Customers Are Your Future Brand Evangelists

‍

So now you know you can get new customers to become members, but how does that help your LTV?

‍

According to Ned, “If you can get people into a membership model, not only the short term but the long term economics can really work in your favor. And of course it creates equity, brand loyalty, and evangelism.”

‍

Members receive value on every single purchase they make, whether it’s with store credit that goes back into their account or special VIP access to events and discounts; they never feel like they have to wait to accrue value (as with legacy points-based loyalty programs). This keeps these new customers coming back again and again. In fact, we’ve seen members make up to 3x more purchases than non-members.

‍

The cost of acquiring a customer may continue to increase, but if you can immediately turn first-time buyers into loyal repeat purchases, that acquisition cost is worth the recurring revenue.

‍

Differentiate Your Program

‍

There is of course a lot of nuance to this strategy – mainly that you need to create a program that is right for your customer base. Not all customers are the same, and the benefits you provide to them need to be valuable enough to incentivize that membership opt-in from the start. 

‍

For instance, the customers of a skincare brand may value store credit more so that they can use it towards purchases as their skincare routine changes, but a CPG customer may value expedited shipping the most so that they never run out of their favorite product.

‍

“I have seen a number of iterations where we really test the percentage discount or the benefit the user gets on that first purchase when they sign up. A lot of users will be hypersensitive to that – that’s a major factor in the propensity of somebody to sign up for that membership program or not,” Ned said.

‍

It’s important to take the time when designing your loyalty program to get a sense of what your customers want, whether that’s through customer surveys or program testing, so that your program is differentiated from your competitors and provides real value to your customers.

‍

When done right, your loyalty strategy does not need to be siloed between retention and acquisition. By providing high-value benefits to first-time purchasers, merchants can turn these new customers into loyal fans, driving recurring revenue for your brand every month.

‍