Free

Editor’s Note: If you missed the news, Repeat is merging with Stamped. Stamped CEO Mike Berardo is guest posting this newsletter.

Last week, I shared how percentage off reward types outperformed others. But one thing in our data from that analysis stuck out to me: Free product rewards had significantly worse average order value and basket size metrics than any other reward type.

The metrics were so low, in fact, we had to look twice.

The reason why turns out to be as simple as you might think: Customers redeem their free product, but often nothing else.

In that light, then, AOV and basket size can’t be the metrics by which you’d judge the success of such a reward type. So, why might you offer such a reward?

Loyalty, as we’ve discussed, is best viewed through the lens of merchandising.

Merchandising, obviously, has many facets: You can increase your average order value and basket size (like we discussed last week), but you can also increase your repeat purchase rates through merchandising, as well as reactivating lapsed customers.

An example: Most ecommerce brands understand which of their products drive the most frequent repeat behavior, and they attempt to acquire customers through those products.

Another: Brands often incentivize customers to make a second purchase immediately after their first, because making more than one purchase in a short period of time greatly increases the likelihood of longer term retention.

Both are merchandising efforts.

Through that lens, then, what happens when you give someone a product for free and they basically treat that product as a purchase?

Data from Repeat shows that the likelihood of making another purchase increases by X% each time a customer makes an additional purchase. Does that hold for free products, too?

When we dug into the free product reward type, we saw the most popular version of this was being offered by Lilac St.

The answer: Yes. Returning customers who made a “free” purchase of the giveaway product returned within 90 days to make another purchase roughly more than 65% of the time. (Comparatively: Returning customers who weren’t making that same “free” purchase returned within 90 days 54% of the time.)

The free product for them, then, is a lever to improving 90-day repurchase rates. And at a 20% lift in 90-day repeat purchase rate, that can have a material impact on extending customer lifetime value.

We haven’t run the numbers on that piece, but if you assume a 60% gross margin on the free product, and you assume the next returning purchase falls in line with Lilac St’s returning customer AOV, the brand is cashflow positive on the offer, given the lift in repurchase rate—with more upside to come from the LTV gains.

The takeaway here, I think, has less to do with any specific reward type, and more to do with what behavior you want to be influencing. Loyalty is a merchandising lever. Figuring out what you want from it will help you build a more successful program.

If you have any questions about how we’re looking at this data, give me a shout. We can walk you through it.