Balancing Customer Acquisition Cost (CAC) and Brand Loyalty in e-commerce

I came across an article from Digiday in my feed titled “Why performance marketers are shifting their prioritizes (sic) to build the brand.”It got me thinking about something I’ve seen happening in e-commerce, which is as CACs rise, DTC brands face increasing pressure to recoup costs on acquisition by bolstering cart size with volume discount incentives. While this approach might provide an immediate payoff, it can be detrimental to long-term brand loyalty.

Short-Term Gains vs. Long-Term Brand Health

The temptation to grow cart size by throwing big discounts at new customers to offset high CACs is as alluring as cotton candy to a kid at the fair. However, this approach can cheapen brand perception and inhibit sustainable, long-term growth. Once the sugar rush fades, brands will be left looking for more nourishing ways to grow.

Impacts on Customer Perception and Behavior

The problem with volume discounts is that they train customers to expect markdowns from your brand. In turn, your customer base will be loyal to the deal, not the brand. Not only does this diminish the likelihood of a future full-price purchase, it also means that you are attracting extremely price-sensitive customers who will be easily poached by a better deal from a competitor. This race to the bottom reduces the lifetime value of your new customers and increases your reliance on performance marketing to keep the growth engine humming.

Positioning Risks

For brands who wish to be seen as premium, volume discounting is poisonous. It produces a misalignment between pricing strategy and market positioning. This dissonance will cause friction and be confusing to your core customers. Therefore, it shouldn’t be a surprise for brands operating this way to see high customer churn and LTVs that fall short of expectations.

Sustainable Growth Strategies

So, what can lesser-known DTC brands do to strike a balance between recovering high CACs and building brand value? There is no magic bullet, but here are a few tactics to consider:

Create Value-Added Content — think about your publishing strategy across your blog, socials, email, and SMS. Are you adding value either through humor, advice, or inspiration? Your comms can’t always be about the deal. Gary Vaynerchuk talks about this in his book Jab, Jab, Jab, Right-Hook. Done right, your organic marketing will lesson your reliance on paid acquisition.

Incentivize Subscription — it is no secret that subscribers have more LTV than one-time purchasers. A subscriber-first business model with exclusive benefits such as access to value-added services can lead to steady, compounding growth.

Improve Customer Experience — a user-friendly website, frictionless subscription management, and empowered customer service teams are table-stakes.

Loyalty Programs — this could be the subject of another post, but when executed properly, offering loyalty perks can increase LTV. Tie subscription to loyalty benefits to supercharge your program.

Complementary Services — things like product consultations, members-only communities, and personalized self-care routines can enhance brand affinity.

Bundling — identify products that are frequently bought together and create starter kits that bundle complimentary products together to create the perception of added value without giving away the store.

Cross Selling — leverage subscription renewals to offer cross-selling deals that aren’t publicly available.

To conclude, volume discounts are the cotton candy of e-commerce: a tempting but ultimately unsatisfying way to hedge against rising CACs. Instead, eat your vegetables and invest in your brand by elevating the customer experience and incentivizing loyalty. It might not be as immediately gratifying as a stick of cotton candy, but it will help you attract and retain the right kind of customers who in the long-term will nurture your brand to sustainable growth.