Why Customers Don't Feel Appreciated...

Why Customers Don't Feel Appreciated... Speaker 1: Most businesses, if there's any repeat purchase ability, they're healthier if they can get away from discounting. As a habit and more towards appreciation or sort of segmented rewards, DTC brand operators and CPG brand operators, they get stuck in the trap of thinking just in terms of the spreadsheets and the numbers when it comes to like what their profit margins are. And sometimes they forget like what a consumer is actually thinking when they interact with your brand for the first time. Like if I get come to the website and I'm hit with a 15% off sign up for this, an extra 5%, extra 10% if I subscribe to the SMS, You've just discounted your brand 25% out of the gate. The chances that I will come back in the future without a 25% discount are pretty low. I think for most brands, starting off the relationship with the customer with a bit more of a premium price point selects for better customers, one, and then two, trains customers that they'll be appreciated over the long term as opposed to just sort of discounted right out of the gate. Speaker 2: Welcome back to another episode of Chew on This, which is powered by Smile. Today we have the co-founder and CEO of Smile here today, Mike. Thank you for blessing us with your presence today. I'm really excited to get into this episode because it's something that can be a little controversial at times in our little bubble. But Mike has created this company that focuses on loyalty and rewards and how you can pretty much put this into your business and figure out a way to maybe Not rely on discounts as much, improve LTV on customers, and just overall make a healthier business. Mike, thank you for being here today. For those few who may not know you and your background, would love to get a quick, you know, history, what you've been up to, how you got to Smile, and then what you've been up to. Speaker 1: Yeah, for sure. Thanks for having me. And yeah, so I'm Mike, co-founder and CEO at Smile. We started Smile about 10 years ago in the Shopify ecosystem. Originally started as a free app, scaled to thousands of Shopify stores, launched on BigCommerce as well. And we've since helped about 100,000 merchants run loyalty programs on their e-commerce stores, both direct to consumer and e-commerce, but also branching out into point of sale as well. And so what we've done over the years is help so many brands improve the health of their finances through great loyalty programs. And our pattern that we typically like to do with brands is we look at the best loyalty programs in the world and we try and help brands mimic those programs. So if you think of like a Starbucks or Sephora or airline programs, Those are the sort of best in class programs, but they have teams of like tens or dozens of developers. And those brands are able to pull things off that you may not be able to if you're a lean, scrappy team. So what we're trying to do at Smile is we're trying to bring those tools for running great loyalty programs, great owned loyalty programs where you're in control of the program, all the rewards, all the rates at which you're going to sort of reward customers and basically bring those tools to all merchants. So before we were actually running Smile, we were actually an agency and so we got to work with a ton of e-commerce brands and got exposed to all the finances behind running and scaling a DTC brand. And we saw that most businesses, if there's any repeat purchase ability that that brand is capable of, they're healthier if they can get away from discounting as a habit and more towards appreciation or sort of segmented rewards for their customer base. And there's tactful ways to do that and then there's sort of Brute force ways to do that, which are not as effective and we can talk about those today for sure. Speaker 2: Yeah. No, I would love to get right into it because I think you're the first person who's actually said we're using rewards and loyalty to actually improve the health of a business in the sense of well, how can we increase profitability on returning customers instead of just growing top line? So, when you actually peel back the numbers, there's multiple ways of doing all the above, right? But the most common way of doing this is, well, you have a customer that came in, they got an offer. How do you get them to come back? Send them a text message for 20, 25% off. They haven't come back even longer than that? Maybe 30, maybe 50, right? And so, the brand is pretty much just giving up margin, trying to get this person to come back. Could there be an alternative, right? And I think the solution here and the way that you talk about rewards and loyalty can be the solution here. When others are talking about this, I don't think that conversation happens often. Speaker 1: Yeah, I think a lot of DTC brand operators and CPG brand operators, they get stuck in the trap of thinking just in terms of the spreadsheets and the numbers when it comes to like what their profit margins are. And sometimes they forget like what a consumer is actually thinking when they interact with your brand for the first time. Like if I come to the website and I'm hit with sort of a 15% off sign up for this, an extra 5%, extra 10% if I subscribe to the SMS list as well, you've just discounted your brand 25% out of the gate. The chances that I will come back in the future without a 25% discount are pretty low. And that's just me speaking as a consumer. I think a lot of people would probably think the same way. If your brand is in a super competitive, low margin category, maybe that's the right move and just sort of start a little bit higher and then discount up to what your sort of rock bottom price is. But I think for most brands, starting off the relationship with the customer with a bit more of a premium price point selects for better customers, one. And then two, trains customers that they'll be appreciated over the long term as opposed to just sort of discounted right out of the gate. And with brands that we see, one, they start off that way. And so they grow in a sort of healthier manner over time. But then we see a lot of brands that are trying to reverse themselves out of this pattern of discounting that they've got into where their customers or 80, 90% of their customers will only buy with a discount, only buy with a promotion. And so we want to get customers away from that. And a way to think about a great sort of rewards or loyalty structure In general for brands is you're discounting future orders. Like you're actually not discounting today. And so if you have a hundred dollar order and you're giving points or rewards or VIP status for that, you're discounting orders that happen in the future. And so it's a totally different paradigm shift for a lot of brands. And I think thinking about it in terms of the customer's psychology and the customer's mentality when they're having that first interaction with your brand and what tone that's going to set for future purchases and how that's going to anchor you to a potentially A higher discount point is something I think a lot of brands should really think through before doing those types of things. Speaker 2: Got it. I think it's an interesting concept altogether. Would love to understand for the brands that are maybe stuck in this pattern, right, of kind of just offering discounts on, you know, first-time buyer, you know, the pop-up is usually a discount code, and then obviously when you're trying to get a customer to come back, some type of sale or offer, right? For the brands that come to Smile to kind of fix this, what is the first step for brands to kind of move away from this pattern? Speaker 1: Yeah, so there's two real like heavy hitter moves that we recommend to brands. The first is looking at your customer base and thinking about who you want to reward for historical purchases and at what rate. So you don't want to necessarily reward for, like let's say you're launching a points-based program similar to like a Starbucks program where You do the equivalent of five to ten orders and then you get sort of one order free. If you offer that to all customers, then you're potentially giving away too much in terms of rewards and you're getting yourself back to that sort of everyone gets a discount type of mentality. But if you can selectively segment your customers into who are the most valuable customers who have purchased three plus times, let's say, if you're an average merchant. And sort of airdrop them with points. That's usually an effective way to launch a program, which is showing appreciation for previous purchases. The effective discount doesn't even need to be that high. It can be five, 10% and you're getting customers back with a launch of a loyalty program. The second thing we recommend as merchants are trying to get out of the cycle of discounting, we recommend that they start doing double points events or double points or essentially front running their sales with double or triple or 5x points events. And what that does is that takes, let's say your average product checkout is, or average product value is $70. Your average checkout is $70. If you are able to offer double points on that over a Memorial Day weekend or an Independence Day weekend, then what you're able to do is actually allow the customer to experience like a sale-like sort of urgency with no discount on that order and only discounts on future orders. And so it's a way of retaining margin on a promo-like experience. So these double points weekends are something that you see all the time with the top loyalty programs in the world. And those two things, so an airdrop of like points or some sort of VIP status or some other benefit to top customers and then running points events and front running your sales. You can always do a sale after, but you can never do like the reverse. Like there's no point in doing a sale and then doing sort of a double points event. So seeing what impact a double points event has, It's a really good sort of bellwether for how the program is going to perform in general. And sometimes you'll see customers really change their behavior in ways similar to a sale, but much more margin beneficial to your brand. Speaker 2: That makes a ton of sense, right? Because it's obviously, one, the feeling of acquiring points and Building this balance versus just cutting off, you know, 20% and losing margin there inherently makes the most sense and better margins for the business, right? I know there's a few credit cards that actually do this, right? Where, you know, one month is a certain category of spend where they'll increase the bonus, right? So say you're spending on gas, right? You'll get 5X the points or the next month it's restaurants, right? And then internally you're just thinking, well, I should spend more on these categories so I can earn more points, right? It almost feels like a game, but on the consumer end, I'm actually just spending more, right? And so the brand, obviously to your point, later down the road, you can have these different Sales or, you know, whether it comes to like a Black Friday or whatever it is, like the entire year you've built up this point balance. Now you've come down to, you know, Q4 where most of, you know, these sales actually happen and you can kind of redeem a lot of this, right? Speaker 1: Yeah, yeah. And we see a lot of, some of the best brands we work with, they do very limited Black Friday, Cyber Monday sales. And they're aggressive with the rewarding because they don't want to sell the customers who are only going to buy during Black Friday, Cyber Monday. They want to sell the customers who are going to value something after that. And so doing points promotions around those in particular selects for better customers. And I think every brand has, I mean, you have a tough decision to make. Do you want to 2x your top line at thinner margins or do you want to double your margins and maybe just increase your top line a more marginal amount? And so I think we're still living a little bit in the zero interest. We're in a sort of era where brands talk a lot about top line, but the health of the brand is really important these days as financing is much more difficult to come by. Interest rates are much higher. So the health of the underlying, essentially the bottom line on a cash basis is much more important for brands. What types of customers do you want to select for and do you want to create this discounting brand? Which is fine. Like there's lots of brands that do well doing that. But if you're sort of not at the bottom of the price point in your category, you may want to think about like selecting out some of those very discount oriented customers. Having them go somewhere else where they're probably not going to be first purchase profitable for really anyone. And then thinking towards more, okay, how do you select for customers who are going to be very loyal over time, who are going to appreciate things over time? You can give them more exclusivity as they shop more often with you and building up relationships with customers over time. Speaker 2: I love that. One thing that you had mentioned is actually categorizing different customers, right? Is this where like certain rewards programs like they'll have different tiers for different types of people? Walk us through like the strategy, like why is that important? Like why should brands have, you know, different tiers and different rewards for different people instead of just having just this one set, you know, earn rewards? Speaker 1: It's the same reason why if you are running a discount-oriented brand, you probably segment your customer base to find out which discounts are going to resonate with different customers. It's the exact same thing with a rewards program. It's probably just healthier for your brand overall. But when we think about what the best brands are doing, they are segmenting their customers and figuring out where the big drop-offs are. So let's say you have a big drop-off from first purchase to second purchase, or you have a big drop-off from third purchase to fifth, or fifth to tenth. That's where these brands selectively set their thresholds for different VIP levels. And over time, they encourage customers to sort of make an additional purchase and you'll move up to the next tier where you get this ongoing benefit or this one-time benefit or this sort of higher earning rate for additional rewards. It selects for customers who are going to be appreciative of those things and setting up those those tiers is something that we see with all of the world-class programs and then we're starting to see best-in-class d2c like the fastest growing brands that we work with all have VIP programs set up and they're all strategically set at different amounts depending on where their their cohort drop drop offs are Depending on on the type of brand you are if you're in cosmetics or apparel we see exclusive More exclusive rewards doing better. If you're in CPG, it's much more around like, hey, you get free access or you get free swag or some sort of like merch that's like tangentially related to the product. So we do see some differences between categories in terms of like what rewards resonate. But what it comes down to is like if you graph out like a histogram of like how many purchases per customer, Generally, your distribution is going to show some obvious drop-offs and those will dictate exactly where you want to set the VIP tier levels and where you want to set like a very simplistic but like a bronze, silver, gold type of program. Speaker 2: Makes sense. On the retention strategy side, obviously the go-to strategy is having like a robust Campaign strategy, automation flows, you know, and then moving that over to like SMS as well. How should brands be thinking about incorporating rewards and loyalty into their everyday campaigning without overly being reliant on like, oh, like rewards, rewards, rewards, but then also kind of making sure that there is that inherent message of education and making sure that people are actually using the product properly, et cetera, et cetera. Speaker 1: Yeah, so I think first a mindset shift is really helpful. If you think about a typical sort of email campaign that you would send out, you may send it out to, let's say you send it out to 10,000 people and a couple percent purchase and you basically sum up the total of those purchases and you say that was the attributed value to that campaign. What if you instead of thinking about attributed value, you said attributed margin or attributed profit to that? That would probably look a lot smaller if you did a 30% discount, 40% discount. And so you can end up with some of these breakeven type of campaigns, which maybe are good if you have high inventory in some category, you need to get rid of it. But for the most part, I don't see a lot of brands thinking of in terms of profit when they run these campaigns. So a bit of a mindset shift is really important when you're running like a discount email campaign, thinking in terms of the profitability of that versus like an equivalent sort of loyalty or rewards or appreciation based type of campaign. And you'll generally see higher profit associated with these like a double points weekend or something like that relative to a 25% off. And it takes a little of like advanced sort of analysis to actually run that because every tool you're using is just going to show you all the top line numbers that they're attributing for you. So it takes a little bit of analysis, but I think it's a really healthy way of thinking. Once you make that mindset shift and you're thinking more in terms of attributed profit to campaigns, then you can start thinking through, okay, How do I layer this into education? How do I make this like a natural part of the customer journey such that people feel like they're being educated on the product if it's a complicated product? If it's CPG, it's generally not as complicated. Sometimes cosmetics apparel can get more complicated and that requires some product education. For those, that's where you need to think through your flows in a little bit more advanced ways. But we see the best brands using Smile Least and even other loyalty programs. Um, that are, that are sort of best in class. They're, they're typically running great flows where the rewards and the appreciation feels like it's a natural part of the education as well. And it's not like transactional, like you got this or like you get this discount or you get this reward. It's like woven into the same sort of communication experience. And I think Probably everyone watching has probably been part of a very jarring sort of post-purchase experience or pre-purchase experience where you just get hammered with emails and SMSs. And you were just trying to get like a 10% discount or whatever. That's sort of what we're trying to avoid with brands is start thinking through like the health of the overall campaign and how you can turn these things into attributed profit as opposed to attributed just value. Speaker 2: Value, yeah, makes sense. So when you think like loyalty rewards, you immediately think retention, right? You immediately think post-purchase. How can brands be thinking about loyalty and rewards even pre-purchase? Like how can they integrate this into their current acquisition strategy? Speaker 1: Yeah, there's a couple different ways. So when we think about integrations that you typically want to do with a great loyalty program, obviously with email and SMS is one. But there's also thinking about any ads you're running and any like specifically like promotional ads that you want to do around promotional events. If you start running points promotions or VIP promotions instead of sales, you can actually incorporate that into advertising as well. You have to get very targeted. You don't want to run like super top of funnel stuff. You need to have like dialed in audiences and typically this is for larger brands that we see this working really well. Those have really high conversion rates because it's saying like, hey, you're an exclusive member of this program. This week only you're going to get 2x points or 5x points. And those ads are super, super beneficial for brands like Starbucks. And we try and help brands that are running Shopify and fast growing and have big enough audiences to do similar things. So I think advertising is like the first way to do it. And then if you have a pre-purchase email list, like a cohort in In Clavio or another email service provider, then you're able to actually run similar points promotions or like a gift of like, hey, get this loyalty benefit or this amount of points with your first purchase and you'll sort of have accelerated status. And so you can start running like pre-purchase stuff. The benefit to you as a brand is this will be a lot healthier because the financial hit doesn't come until later, right? Like I always, Encourage brands to think of loyalty as like it's discounting later as opposed to like discounting now. And so when we think about loyalty extending up the funnel, there's also a recent integration that we've just done with a company called Gatsby where you're able to actually join a loyalty program from Instagram DMs. And so that is like way up the funnel because like someone integrating with your or someone following you on Instagram Is not sort of integrated with your brand yet. Like they're not usually purchasing from you until later on in their experience. And if they're able to jump into the loyalty program and start seeing that they can earn benefits. That's super effective. We see high conversion of those customers down into multiple purchasers over time. And so I think the best programs in the world are going to constantly seek out these different ways to extend up the funnel and get people experiencing the loyalty program and seeing the benefits that they'll get later on if they show appreciation of the brand. And I think it's just being more transparent around this. Reciprocity as opposed to like, hey, I'll give you this discount and then you come shop once sort of thing. Speaker 2: I mean, the way that you're explaining it, it really does remind me of like how these bigger companies are doing this, right? Like credit card companies, you know, the, the sign on bonuses, you spend X amount of money, you get a hundred thousand points, right? If you take that mentality and implement it in, you know, your, your e-commerce brand and say you have a funnel, you have an offer, you're selling, you know, we'll call it, you know, collagen protein, 50 dollars right instead of discounting the 20% right which obviously gives off 20% margin from from the brand if you buy at full price $50 you're gonna get 200 points right which can be redeemed much later right to your point is that Is it incentivizing enough where it's like, you know, maybe, you know, it's like, oh, like I'm going to get points that I can, you know, start building and maybe get something else later. And then, like you said, pushing the discount further down the road. But can that shift help brands maintain that extra 20% and then become first order profitable? Right. So I think you have to change the mindset of like, let's just discount, discount, discount. But can we offer value in other ways outside of just the discount code? Speaker 1: Yeah, like brands are super dialed in with what motivates their customers. So sometimes it's exclusivity, sometimes it's like free products, sometimes it's like discounts, sometimes it's experiences. So like we see some forward-thinking brands like offer like Q&As with the founder of the brand or something like that as a reward for reaching the top VIP tier. So when you're dialed in with what those consumers want that aren't just transactional like percentage off discounts, you can start offering things that maybe don't even cost you that much as a brand but are really really valuable to customers. So like creating an exclusive collection or something like that or having a set of products that are only purchasable with points. And so now like Yes, if you say 200 points, maybe you aren't educated on that program if you haven't shopped with that brand before, but if you say, and then here are the things you can only buy with points, it starts getting the wheels turning, similar to those best-in-class examples with credit cards. The credit card companies, the Starbucks, the Sephora Airlines, they have massive data science teams that those offers are dialed in to produce the highest amount of profit for them possible. They are world-class at it. You're going to be able to mimic those programs, but what only you're gonna know as sort of the owner of the brand is what gets people ticking. Is it exclusivity? Is it experiences? Is it being able to show something off? Is it just like a discount, appreciation, like a thank you? So dialing that in is really important. The cool thing about loyalty programs in general is the reward value is very variable. You can allow people to exchange points for Something like an experience or or like a zoom call with with the founder or like Access to a collection for a day ahead of everyone else or something like that And so like you can change what is on offer as part of loyalty programs very very easily and and be able to pivot things Really quickly whereas with things like discount codes and store credit. They're pretty immutable like they're basically they are what they are if you offer 25% discount code that's Hard to change the value of that without putting a ton of conditions on it, which aren't really good customer experiences anyways. Whereas a points program, it's much more dynamic and you can play around with it and we see the best brands, especially within the first six months of launching their program, they iterate a ton to figure out what resonates with customers, what rewards they're really appreciating, and then you can actually sometimes offer those at really low cost. Things like handwritten letters to VIP members, stuff like that. And so there's a lot of cool stuff that we see from brands, but generally the way you're able to compete with those world-class programs is dial in what customers actually care about. Speaker 2: The way that you're mentioning this is, again, it's not even something that I've thought about, which is like, Quite literally, you have a rewards program, you've collected or amassed X amount of points and then I get to check out. I'm like, all right, cool. Redeem points for cash, right? But there's other ways that you as a brand can Kind of change the points and do something that's way less cost to the business, but then higher perceived value to the consumer, which makes the business way more healthier. So I agree with that. I think it makes a ton of sense in that sense, which kind of brings me to the Almost the argument of the way that rewards programs have been marketed for a long time, which is you need a rewards program in your business because it will increase LTV and it will increase returning customer revenue. I don't think that is actually the case from the way that you are kind of describing how businesses should be using rewards programs, right? So I would love to dive a little bit deeper into why the finance is perceived in the wrong way and how brands should be perceiving it in the right way. Speaker 1: There's two core benefits that we talk about when it comes to like a really well done loyalty program. And this is like a It's a stock loyalty program. I'm not talking about any sort of experiences that you can provide that are really cheap for the brand but really valuable for customers. Those are just going to supercharge things. But when we think about the financial benefits, and I think most businesses are concerned about their margins right now just because there's less access to financing for DTC companies in particular. So you have to be very focused on cash flow and your margins. We think about margin protection as the ultimate benefit of a loyalty program. That breaks down into lifetime value and number of purchases per customer is on average going to go up. We track over tens of thousands of merchants before Smile, after Smile, essentially before Loyalty and after Loyalty, we see a 20% increase in repeat purchase rate. That is just Across the board with all of our clients we see that and. The secondary benefit is your average discount that's applied on an order will reduce over time. So this is especially beneficial for the brands that have got themselves into the pattern of discounting that we were talking about earlier. So if you combine those two, so an LTV lift through average repeat purchase rate going up, time between purchases sometimes shortens as well. And then if you actually include certain threshold bonuses and stuff like that, you can actually see AOV go up. But the core benefits are lifetime value increasing and then average discount going down. And you combine those two and you generally see a healthier brand over time in terms of bottom line. Now, if the brand is also scaling, there's an extra benefit in that the additional revenue that you get is healthier revenue, like you get less discounts applied to it. It's a healthier cohort of customers that are going to be purchasing Not only more often but with fewer discounts applied and you can create cooler brand experiences on the other side. Especially if you're a local brand, for example, you're able to create local events that are only purchasable with points and are only available to top VIP tier members. You can create a ton of content with that. Basically recycle it and it becomes really beneficial for brands, especially if you have a local concentration of customers. So yeah, a lot of cool stuff, but ultimately like if the CFO or VP finance is happy with the loyalty program, it's going to be a good one. I think where it gets murky is when brands think about loyalty as like, hey, this is going to like really boost our sales and it's like, Potentially, like potentially if you're able to do some of the top of funnel we talked about earlier, but I think the ultimate sort of value prop for a great loyalty program and why the airlines are world class at this is because it's like profit printers. It really turns a business into a much more profitable business if done really well. Speaker 2: Right, that makes sense. I mean I've seen it in some of the tools that we've used and maybe some of your competitors out there where The way that we're being told the benefit of using a platform is quite literally calculating what is the cost of having this app in the business and what is the associated revenue attributed to the app and then creating an ROI based off of that, right? I think that is where the argument from a lot of people are like, well, even if we didn't have an app, some of these customers would have come back and purchased anyways. So that ROI, it's like, it's like this 10X return, 20X return. It's like, it's like you're, if I didn't spend whatever the X amount to get the app, you're telling me that that revenue wouldn't exist. That's not true. Right. So why is that a problem? Like why, like why, like I, we obviously, now that you kind of hear it, it's like, yeah, it's definitely a problem, but like, why are other competitors doing that instead of kind of showcasing, well, we're not trying to increase revenue. We're actually trying to make a healthier business. Speaker 1: Yeah, I think like when you... I mean, let's take Shopify as an example. You don't sort of look up what you're paying to Shopify and be like, what's the ROI on Shopify and take your total revenue and divide it by the amount you're paying Shopify and say, we're getting 100x ROI or something like that. I think it's a misguided way, just driven by SaaS salespeople, I guess. And I think It's the way to make a tool look the most favorable, is if you sum up some incremental lift in sales and then divide that by the SaaS fees. Really, if you're launching a loyalty program, the SaaS fees that you're paying should be pretty immaterial to the overall revenue of the brand. I think if we take the average merchant on Smile that's paying us to run their loyalty program, The total amount they're paying us is a very small percentage. It should not be a factor in the overall brand's financial profile. Instead, what they should be looking at is the average discount rate that they're offering now post loyalty program versus pre, and what is the gain over time of the focus and the time and the effort put into the loyalty program. And that's really where the gains are. So I think when you talk about SaaS tools and ROI multiples, it's like, Sometimes we explicitly get asked for that and we'll say, okay, yeah, here's what we think will happen. Speaker 2: But you're missing the point. Speaker 1: But yeah, like really good CFOs we see at like really solid CPG companies or Sometimes, like even larger companies, and they have a couple DTC brands in their umbrella, but they're majority retail. They're really good at understanding what the financial profile is going to look like over time, pre and post loyalty program. And it's much more of an LTV movement and a discount rate reduction. And then if you combine those, The ROI is on the time and effort put in rather than like the SaaS fees. If you evaluate sort of top line movement based on loyalty, it's a really tough thing to do. And you get into that attribution problem. Like some of these customers would have come back anyways. So again, like going back to what we talked about in the first part of the episode, A great loyalty program is a way to offer differentiated rewards to different types of customers. Early on in a customer's life cycle, you probably get a sense for if they're going to purchase a lot. If they're purchasing once a month for three months and you don't have subscriptions or anything, that's probably a good customer, not returning. They're on their way sort of thing and you want to appreciate them in ways that maintain that margin but still make them feel like you appreciate them. You don't want to be giving the same discount to someone who purchased, returned, purchased, returned and then like six months later comes back to your site. And so being able to offer differentiated rewards is how companies are able to really make that financial profile really attractive. And we get into some really detailed financial conversations around that. And it's right to be skeptical. I think anytime you're dealing with e-com tech, it's like, okay, what's the incremental sales? What's the incrementality of this? And the only way you're able to do that really is time-based analysis. We have such a huge data set we're able to actually do this like on aggregate with a ton of merchants. So we can see what works and what doesn't and we've seen a lot of programs for a lot of different categories. That's what we're drawing from basically. Speaker 2: That makes sense. I mean if you as a brand right you're trying to see the impact here what I would imagine you would do is let's just say take a take a cohort of of customers and let's A-B test an offer, right? So let's go out with your standard discount rate, whether 20, 25%. So half of the audience is gonna say, get 25% sidewide. Go to the other side and you have this really value-driven rewards campaign where it's like, hey, if you spend, let's say, X amount of money, you'll get a bonus of, let's call it 5,000 points, right? Something crazy, okay? Now, perceived value, Each to their own customer what what they actually see you know is ends up being you know valuable to them but I would imagine the way that you would truly measure this is quite literally seeing the revenue being. Attributed to each of those campaigns and then understanding the actual profitability on those instead. So you may, it is possible, you may see lower top line revenue on the rewards campaign but way better profit metrics than the other campaign which would probably have a little bit more top line but less margin because of the discount. So if you are thinking about implementing rewards and some sort of loyalty program, I think you gotta change the mindset of This isn't going to generate more top line revenue. It should generate more profit. Speaker 1: Again, going back to like Sephora as like a best in class example. Eventually, once your customers are familiar enough with the program, it can turn into a top-line generator. But initially, your goal is exactly what you said. How can we test things out to see what the financial profile of the program will look like over time? And we often see, especially larger merchants, sort of soft launch a program. And what I mean by that is they don't make much of a big deal about it. They kind of just silently launch it. Maybe they don't make it visible in the most number of places that they possibly can with Smile. And then they do similar to what you mentioned like they'll take 10% of their customers and email like do an airdrop of points or then they'll take another 10% and then say if you buy over this weekend you get a thousand extra points and then see what works. Once they dial that in, Now they have a good idea of what their customers respond to and then they do the full social media launch of the program. Influencers also airdropped affiliate gifting. That sort of stuff is really powerful. That way you get to do this incremental stage launch of the program before a high stakes, here's our program. It's a little difficult to change in a huge way after that, but you get a good idea, one, that the program is more profitable than just bulk discounting, and then two, you're able to actually create a series of pushes and get a good idea for what's going to resonate with your customers. Speaker 2: No, I love that. I really love the idea of affiliates dropping points into your account. If you have a specific cohort of customers that came in from an influencer, imagine you're getting an email saying, oh, so-and-so just sent you X amount of points and go check out your account now. I'm going to go check. That'd be really cool. That and one thing on our end that we've actually tested in the past when we've had maybe shipping delays or issues with getting product to customers. Um, obviously instead of giving like a credit to be like, oh, like we messed up, like here's $5 credit. That hurts our pockets. Um, it's like, well, we can offer you X amount of points, right? So it's like not, not just like a discount code that you can use on your next purchase, but it's like, Hey, I'm giving you something of value to you that you can see in your account and it's there whenever you want to use it. So it's almost like giving cash, but it's just credits and points, right? So that has helped a lot of especially when we're like scaling crazy and like maybe there's like a week where you know we're out of inventory and we're waiting for you know the fulfillment center to get their shit together. Offering that instead of like credits has been Really game-changing, especially with customer service, because they're the ones that feel the brunt of it, right? But then when they're able to actually offer something and people are happy with it, it makes their lives so much easier, right? Speaker 1: Yeah, totally. Yeah, we see actually the most common use case, like by far, of people logging into the Smile Admin portal is customer service agents issuing points to customers. So they've been given like the authority to offer 500 or 1,000 points for really any Disgruntled customer or any disappointed customer and it's a much more like, hey, we'll sort of show appreciation for you in the future as opposed to like, we'll refund you right now. We also like talk with some brands and they like to actually offer like a higher amount in points than they would refund. So the effective discount with points would actually be higher, but it really encourages a repeat purchase, whereas a refund, the money's gone. Speaker 2: It's gone. And that customer's probably gone too. Speaker 1: Yeah, most of the time. Speaker 2: I love that. Before we wrap up here, I would love to get some examples of just anything recent, some of the brands that you've been working with, anything interesting that's really out of the box. What are some of those things that people are leveraging their rewards program to do? Speaker 1: Yeah, I think some of the cool examples that we see are around basically the brands that are either expanding into own retail, they're distributing their product in retail, they're doing sort of events, or they're sort of selling at festivals. Those brands like They probably grew up with the majority of their sales in maybe one retail location, sometimes none, but mostly DTC. And they're thinking about how they diversify, like essentially how they get less reliant on meta spend, how they get like a more healthy customer base over time, how they distribute their sales across there. Using loyalty as sort of the catalyst to not only encourage the cross-channel sort of like journey of customers, so customers buy in one and then later buy in another one of those channels. If you're able to link the loyalty experience across those, that can be a really good catalyst for getting people to bridge that gap. So an example is like with Liquid Death, one of our clients being able to buy Liquid Death at like a 7-Eleven, scan the receipt, Earn points at their merch store online. That's a cross-channel experience and also gets liquid death of contact information. They can then use, I hope I'm not giving away too many secrets here, but they can then use that for advertising audiences and then be able to actually advertise with more efficacy. And so that's a really cool example of cross-channel loyalty and we see the best brands that we work with typically have cross-channel goals. Like they want to expand more into own retail. They want to expand it more into retail and then they use loyalty as like one of the connective like tissue tools to really make that happen and think about how they make the customer experience like Not only a consistent experience across there with the same program across both, but like incentives to go shop somewhere or shop somewhere they haven't yet. And we work with a coffee shop in Canada called ECS Coffee. They reward more in store than they do online. So you're actually incentivized to like go in their own retail locations, which is a really cool experience. And so I go shop there. Speaker 2: No, I love that. I love the example of the cross-channel and especially for a brand like Liquid Death that's in retail and may not get that customer data, it's a great way to do that and then further kind of increase that communication with the customer, get them to shop wherever. Merch is such a great, especially for that, man. I mean, we had the CMO on the show a couple of weeks ago and just the way that they've handled the brand is incredible. I love the examples that you've given. One last question. For brands that are thinking about implementing this, like a rewards program, a loyalty program, who typically takes lead? Like who on their team typically takes lead of actually handling the program and building it out? Speaker 1: Yeah, typically we'll see like a head of marketing, VP marketing. For brands that are usually less than 10 million a year, we'll see like a founder CEO potentially even be the one who spearheads it. But usually it's a CMO, VP marketing, VP e-com even, sort of handling that. And it's difficult because like a loyalty program touches a lot of different areas of the business. If it's a cross-channel business, if it's a larger business, you're gonna end up with finance involved because like how you report an audit or report on that for a potential like financial audit is different depending on the jurisdiction you're in. So a loyalty program can get complex That said, it's well worth it for these larger brands. Essentially, the larger of a brand you become, the more worthwhile these programs are just because the dollar figures, the more profitability adds up over time. So we typically see a VP marketing, VP e-commerce in that sort of 10 to 100 million top line range. And then once it gets larger than that, that's when we're starting to see like the CMO, CIO start to emerge. But eventually, a finance team will be sort of the driver behind everything, as is the case with many things. Speaker 2: I love it. They start to see the profit increase and they're like, wait, what are we doing? Let me get involved. Mike, this was great. Before we let you go, we'd love one last takeaway that the audience and listeners can kind of take back and implement in their business. Just one piece of advice. Speaker 1: Even if it's not like explicitly a loyalty program, I think a lot of brands would be healthier trying to think about how you don't get that Same sort of like immediate upfront discounting culture happening within your brand because we see brands that have been doing that for two, three years, and now they're trying to backpedal back into like a more profitable average purchase to get first purchase profitable or second purchase profitable. And it's a very difficult place to sort of walk back from. So I would encourage brands to think about how you can offer a more sort of reciprocal, like appreciative experience to your customer where they understand they're going to get benefits over time. Again, that does two things. It selects for the right customers that you want around, and then two, it's more profitable for your brand over time. So loyalty is one strategy to do that. There's a lot of different other strategies out there and I think a lot of brands would be really well off thinking about the long term and how you can make customers feel appreciated rather than sort of upfront discounting. And I think that's the message we're trying to drive home with a lot of the retailers we talk with. Speaker 2: Love that. Chew on that. If you want more from us, follow us on Twitter, follow us on Instagram, follow us on TikTok and check out the website ChewOnThis.io.