Protection

A few weeks ago, I got an email from one of our customers, letting me know they changed their reward structure based on our analysis of dollar-based versus percentage-based rewards. 

We’ve—of course—kept an eye on performance since the change. To say it’s case study-worthy (53% lift in AOV since the change) would be selling it short, so we caught up with them this week.

And while the program performance is noteworthy, there was one takeaway from the conversation that I just really gravitated to: Loyalty protects margin.

When you talk to Josh Poole, you’re reminded of Shopify CEO Tobi Lutke’s old “arm the rebels” quote. 

Josh is the founder and CEO of PEScience. He’s run the business for 15 years, and it’s been profit-first since the start. He didn’t even spend on marketing until 2018, choosing instead to grow through word of mouth, sampling and more traditional CPG sales tactics.

He gauges, in part, whether something works by looking at what happens to the bottom line after doing it for a while. If it doesn’t work, he turns it off (“We’ve done things like spend a whole year spending on Google Ads and, then, we've—you know—realized, based on our 10 years of history, this is not actually adding anything, so we're gonna throttle this back to like $50 a day on spend versus the, like, $25 or $30,000 a month we had ramped it up to. And, similarly, when we scale it all the way back down, we didn't notice a change.”)

In my experience, DTC leaders who are wired to profit are the biggest skeptics of loyalty. So, why does Josh believe in it?

Simple: His business is a mix of DTC, Amazon and brick-and-mortar (in that order), and the margins are best DTC. 

“The products sell for the same price on both (DTC and Amazon), but with Prime, a lot of people just habitually go on there,” Josh said. “Rather than competing with ourselves on price on Amazon, we wanted to find ways to make buying on our website more attractive.”

And that’s why Josh believes in loyalty. 

This is, of course, one of the things we’ve been writing about in this space. Done right, loyalty programs are merchandising levers. In this case, it’s being used to protect—and maybe even change—channel preference.

While the Stamped team will no doubt get into the details in a case study on more of what he’s done here, the point that really struck me from our conversation with Josh was that loyalty is, in fact, a merchandising lever he pulls to improve margins.

It sounds counterintuitive, unless you zoom out to Josh’s perspective as the founder and CEO. 

Often, loyalty is viewed through the lens of “my customer would have bought, anyway.” I’ll be the first to agree that, under several circumstances, that’s true. But what Josh highlighted was that giving a certain population of his customers a reason to buy direct (as opposed to opting for the convenience of Amazon) actually saved him roughly 20% in margin on each of their orders.

Any reward redemption is just the price of protecting margin. 

For Josh, viewing PEScience’s loyalty program in this way is pretty simple. It isn’t as much about incremental revenue (that’s an optimization, in his mind), as it is about making sure his business stays true to its profit-first orientation. And that’s pretty smart.