Direct-to-Consumer (DTC) companies are great at creating unique products and building brands around the products. Unfortunately, the majority of DTC companies believe that what they actually sell is their only product and this is where growth and margin expectation usually fail.
If you are a Direct-to-Consumer brand or retailer your products are not just what you sell to customers. In todays’ super digital world all your touch points are also your products, and the other benefits you provide your customers, typically using technology. We used to say technology is just a tool to deliver your products to customers, but today technology is also a part of your product, a part of your overall offering, and it’s actually the “key experience” of your customers’ relationship with your company.
What is PLG (Product-led Growth?
Coined by the team at Openview Venture Partners Product-Led Growth (PLG) and applied mainly to B2B software companies (SaaS) and used by thousands of companies to increase customer acquisition, engagement and retention in ways embedded into the product, experiences and touch points a company has with prospects and customers.
PLG is not one tactic and it is not constant. It changes and evolves every day and requires constant attention and experimentation, and at the core needs intelligent and clean data. In practice PLG works because it automates processes, creates valuable self service tools for customers and uses data to guide business decisions.
Product-led growth can be applied in Direct-To-Consumer, ecommerce, marketplaces and omni-channel retail and provide multiple benefits to improve the unit economics by:
- Increasing customer lifetime value (LTV)
- Reducing customer acquisition costs (CAC)
- Reducing returns
- Increasing margins
- Improving customer satisfaction and loyalty, and
- Reducing fixed and variable operational and marketing expenses
As business and product leaders it is our responsibility to experiment with and find better ways to deliver value to customers while getting off the paid-acquisition addiction and growth-at-negative-margins. Today the reality is that even investors are paying much more attention to the unit economics of your business than the hype days of growth at all cost!
Here are some actual tactics for using PLG in direct-to-consumer and retail
But before we get into the actual tactics and features let’s discuss the lifeblood for growth - Data and analytics.
Analytics and data: the phrase big-data sounds scary to people especially when you’re not familiar with how it works. That’s why it’s better to start small, meaning focus on little chunks of data and grow slowly.
The best use of data, and a critical starting point is to “know your customers” better using existing data. This is how Amazon and all the top retailers and ecommerce brands are growing - getting to know their existing customers better.
And I’m not just talking about website analytics. Web analytics are important in marketing and customer acquisition but they usually stop at the point of the user (prospect) making a purchase and becoming a customer.
The most valuable usage of data is “after” the sale, and by valuable I mean highest margin. Unfortunately the world is littered with dead and zombie DTC brands and retailers are going out of business left and right (list). Of course the changing consumer buying habits and the current pandemic conditions are major factors but these are external factors. The main reason a retailer fails to survive in today’s world is lack of technology innovation and focusing on the wrong project to work on.
As a rule you should NOT even start thinking about PLG if you don’t have a data and analytics plan in place and are starting to track and capture valuable data and understand what it’s telling you. In a way commerce and retail companies are lucky to have years of lessons and practices to learn from and use from B2B software and don’t have to create everything themselves.
The biggest challenge retail has is that the majority of retail experts and executives only focus on acquisition and conversion when they think of data and post-purchase is an afterthought. This is a mindset change the retail industry needs to go through in order to survive.
Let’s get into some PLG features now
- Account or Member Account. regardless of the type of product you make or sell you can actually provide a lot of additional value to your customers in the Account. Being post-purchase any value you can provide and gain from the account will be at the lowest acquisition cost, CAC and this is what retailers and brands suffer most, high CAC and low loyalty.
The benefit of the Account is that you can completely control the space while your customer is in there. There are no distractions from other people’s ads or content, unless you decide to add them. Having your customers in Account you can increase your lifetime value LTV by offering different versions or your products, new updates, other additional relevant information and basically adding value to them beyond just the product.
For example if you sell running shoes you can offer training videos on how to run better, if you’re selling skateboards help your customer skate better, but don’t just do it on the website, move the most valuable content in the Account so customers appreciate the special benefit they get from YOU!.
By offering value “beyond the purchase” you can create a much more lasting relationship with your customers and all of this is much better handled in the account. Also the account should be a place where your customers can get the entire history of their transactions with you, and perform any actions they want such as returns or warranty questions.
Of course not all your customers want to use an account but you have to keep track of all your orders and the details anyway for warranty and returns so why not automate and self service this process from an account. Of course we need to be careful to not spam customers but in general if someone has purchased a product from you in the past sending them “useful” information once in a while will not offend most people. Note that by “useful” i mean useful for them, not just you!
On the unit economics side the acquisition cost for new customers is historically 500% more expensive than selling to an existing one, and I would argue that in the massively crowded and short attention span world we currently live in this figure is conservative.
The Account will help by:
A) Providing a self-service environment where customers can find the information they need without having to call or email you
B) Understanding how many customers login
C) What they do when they login
D) Running surveys to better understand your customers
E) Testing new product ideas from your inner circle
F) Driving traffic to your social, organic content
G)And of course making sales at a much lower acquisition cost.
If you’re not using your member Account as an added-value and growth tool you’re leaving money on the table!
p.s. add a note in comments if you'd like to see examples and do/Don't's of Account design
2. Targeting and personalization: the best practice here is to first get to know your customers as good as possible using analytics and the correct metrics, then use that data to provide mre relevant content and recommendations. This data is also highly valuable in marketing and advertising.
Nowhere is this more present these days than grocery. My favorite grocery stores are just beginning to offer “deals” to me using SMS. This is the extent of their innovation at the end of 2020. No wonder I keep going back to Amazon any chance I get. But being behind does not mean you give up, it means you have to work harder, and yes it is possible to work harder than Amazon, believe me there are also human beings working at Amazon and driving the major decision making and customer decisions. My grocery store should know what products I am purchasing and target my offers mostly for those products, not things I have no interest in.
3. Incentives: if you understand your customers you can and must create incentives for them to come back to you, and to spread the word to their friends and family. This part relies heavily on customer behavior and purchase history and you can not move forward if you don’t have the Account or the data to tell you what is happening on your touch points right now.
4. Experimentation mindset
“Our ability to innovate and stay relevant at Amazon is directly linked to how many experiments we do. Jeff Bezos”
Many retail companies are hesitant to experiment, and accept that experimentation means not all experiments will succeed, some will fail. So they are not good experimenters. The best companies, including retailers, are great experimenters. They know how to design an experiment and keep it as small as possible to minimize the investment but give them the data and information they need. The faster you experiment, the faster you will learn and push ahead of competition.
5. Communication: if we don’t communicate with customers in ways that provide “value to them” you will lose them. They become a one-time customer. This is especially true of public retail and ecommerce companies where their life is so dependent on the perception of progress. I see great retailers that almost never communicate with customers in anything other than “deals”. The deals mentality is going to kill traditional retailers. If you only rely on and living by “deals” your life is going to just get harder and harder. Even if you use deals to bring customers in, it should not be ongoing. This is the main reason sites like Groupon and exclusive deal sites are not sustainable as the main source of revenue for retailers, and even paid advertising should be the secondary mode of revenue generation.
If you are in charge of strategy for a retailer, an ecommerce organization or brand selling direct to consumer DTC or through a distribution network your number one challenge and goal should be how to acquire customers with the minimum customer acquisition cost CAC and increase lifetime value LTV. It is in making this formula work positively for you that you need to implement these recommendations.
Also remember, you don’t have to do all of these at the same time, every step in the process will have a positive impact for your customers and business.
My recommendation for starting out is to create the Account and provide the most basic information to customers including order history and product information, including proper data capture to start. You can let your customers know about the Account but adding a link to the header and footer and mentions in the emails, specially order confirmation emails. Once you have this in place you can start analyzing the data and decide on the next moves and experiments.
Also seriously consider learning about new methods and tools for designing and managing business experiments (not just AB testing). All of your growth will depend on it and it’s not that difficult, but it will require understanding and strong belief from the top to turn your team to have an experimentation mindset.