DTC brands are embracing membership models to improve retention

After operating for seven months as a subscription business, MeUndies pivoted.

Instead of charging customers a recurring monthly credit they could use or waive, it decided to commit them to monthly underwear purchases at a discounted price, plus get additional benefits like limited-edition products and discounts on other MeUndies products. It’s a model that ties together those sweet recurring payments with customer loyalty. Customer retention implies that brands have more going for them than a snazzy marketing strategy. At MeUndies, members now account for 50 percent of overall business, and Shokrian said that these customers spend double the amount than non-members, on average.

The appeal of the subscription model — turning acquired customers into returning customers on the first purchase — is what sparked MeUndies’ current membership model. When customers sign up, they commit to monthly purchases, at a discounted price — $16 and $14 for men and women, respectively — that can be skipped or canceled. A pair of underwear for non-members costs $20 for men and $16 for women. But members get additional benefits as well: First, and sometimes exclusive, access to limited-edition prints and price discounts on other products like sweatpants.

Direct-to-consumer brands in replenishable categories, like the razor brands Dollar Shave Club and Billie and the tampon brand Lola, use subscription models to boost business in lieu of broad distribution networks.

But as digitally native brands shift attention from customer acquisition to retention, finding inventive ways to keep customers coming back is taking priority over earlier scaling methods, like Facebook retargeting and Google search ads. Early experiments with tools like subscribe-and-save and exclusive product access for email subscribers are lead-ups to a shift to the burgeoning membership model for a highly competitive sector of retail.

“We’re seeing new, digitally native brands consider more what loyalty and memberships mean for their businesses. It’s an example of how at the highest level, in the DNA of these brands, they are by default thinking about lifetime value, repeat rates, and how to get customers to stick around,” said Corey Pierson, co-founder of customer analytics company Custora. “Old-school retailers cared about loyalty, but in terms of points, and purchases and same-store metrics. For DTC, it’s about keeping customers engaged in an incredibly competitive landscape.”

Brands are taking steps to build customer loyalty that could easily turn into paid perks. Glossier, for example, offers subscribe-and-save on its site for skin care products and is building a social content platform that will ask people to sign up. The outerwear brand The Arrivals uses waitlists to gather customer information and give those people who sign up early access to new products. To Pierson, these tactics are the first steps in a shift towards a membership-driven strategy.

“To have a growing brand, you need repeat buyers. You can’t just have one time buyers,” he said. “The subscription might be the gold standard — buying every month — but memberships drive frequency of purchase and engagement that resembles that behavior.”

Overall, Jean-Marc Bellaiche, the chief strategy officer at ContentSquare, a customer insights platform, said he’s seen brand clients invest more budgets and resources into retention, a different beast than acquisition.

“A few years back, digital marketing money was flowing and the idea was, ‘Let’s build traffic and buy paid traffic through search and social.’ Teams were focused on acquisition,” said Bellaiche. “Now we see many brands moving toward retention, UX and analytics, and building those teams with employees that work on those topics only. There’s a clear rebalance. Loyalty means a healthy business. One-time customers do not.”

Shokrian said that the company still uses Facebook and Instagram and Google to drive brand awareness and new customers — he also said that 40 percent of first-time purchasers become members — but that the company internally looks different than a traditional DTC brand. He added that the brand doesn’t have one membership team, but that it’s infused into all departments, including marketing, data analytics and print design.

“If you have a customer coming back to you nine to 10 times a year, it’s a no-brainer to introduce a model to get them from 10 times a year to 15 or 20,” said Shokrian. “Predictable revenue is really important for companies as well. You need that. It creates loyalty, and it’s proof of concept from a business perspective. You’re able to foresee growth.”

Other companies, like the lingerie brand Adore Me, and the athletic apparel brand Fabletics, have built membership models that condition customers to become “VIP members,” which means they can get cheaper products if they agree to sign up for monthly recurring credits — similar to MeUndies’ original subscription model. This guarantees customers come back to check in every month, informing the companies around what high-value customers buy and don’t buy on a regular basis.

But most DTC brands claimed to practice price transparency, by giving the most affordable prices to customers by cutting out retail middlemen. Tiering prices for members and non-members makes it more difficult to defend a transparent cost structure.

With many of these digital brands now past the five-year mark, however, there’s an opportunity to build memberships based on perks, not pricing. And as these brands are now faced with difficult scaling challenges as well as competition, proving that customers will commit dollars not just to buying new stuff, but to a deeper relationship with the brand, will be critical for next-phase growth. That’s where customer data comes in.

“Once you know your consumer, you can get past the logic of promotion. When you don’t know someone, you have to talk about price,” said Bellaiche. “If you know the consumer, you can personalize the experience and provide more than just discounts — product recommendations based on membership models, content, exclusive sales and events. These brands with cult followings could build something worth paying for, and that’s where we’ll see this shift.”

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