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It’s hard to turn a healthy profit if you’re a DTC brand.
Some are leaning away from the heavy discounting and confusing rewards programs of the past and instead turning to new tech that offers customers cash back for shopping.
Catch, a startup founded by CEO Nico Perdomo and COO Denia Ebersole in 2020, pays users to shop by linking to their bank accounts or debit cards. When shoppers purchase from brands that partner with Catch, they’ll get 5-10% back in credit to spend at that store.
One advantage Catch is touting for brands is that it helps them avoid credit-card fees. Another is that it offers a built-in incentive for shoppers to come back and make another purchase.
While DTC brands historically spent a lot to acquire new customers, changes to iOS tracking have made targeted ads less effective. Many have focused on retention instead. Catch says that on average, brands using the platform see customers repeat purchases 65% faster, with 55% reduced churn, and a 45% increase in lifetime customer value. It’s signed on brands like PacSun, Ouai, and Girlfriend Collective.
Retailers often lean on loyalty programs to keep customers coming back, but those programs tend to confuse shoppers, Perdomo told Insider in an interview at the Grow NY conference in July. Credit-card companies have also been doing cash-back rewards for years, but those programs don’t really benefit brands.
“If I swipe my American Express, that retailer is paying 3% to American Express, who just hands it back to me to spend within the American Express ecosystem,” he said. “What we’re doing is saying, hey, do that same thing, but do it for yourself instead.”
Catch is so confident that its tech will help its partners retain customers that it doesn’t charge a fee to process payments. It’s only when a customer comes back to a brand’s site to redeem their store credit that Catch will charge a fee of about 5% on the purchase (for comparison, credit-card fees are usually about 2.5-3%). The way Catch sees it, it’s almost like getting two sales for the price of one.
“Not only are we saving them on that first purchase, but we’re helping them get that customer to come back and shop again,” Perdomo said.
Even Shopify has gotten into cash-back, launching Shop Cash, a rewards program that gives shoppers 1% back on purchases made using Shop Pay, the company’s one-click checkout tool. In a press release about the launch in June, president Harley Finkelstein said that Shop Cash connects “independent brands to more shoppers” while “rewarding those shoppers for being loyal fans.”
“These brands are spending a lot on customer acquisition, and that’s been their huge obstacle in continuing to grow,” Laura Kennedy, principal analyst at CB Insights, told Insider. “If you’re able to get more from your existing customers or find a way to lure in other customers, you can maybe make some of that back.”
Fondue is another startup looking to revamp loyalty programs by zeroing in on cash-back rewards. It’s worked with brands including Barstool Sports and True Classic. Fondue was recently acquired by Postscript, an SMS marketing company for Shopify brands.
Much like more traditional retailers, DTC brands have often turned to discounting to attract customers. But, discounting often ends up hurting retailers’ brand image and profit margins in the long run.
“Coupon codes, much like other discounts, the broad discounts at any retailer, mean that you give everybody the discount and so you lose that bit of margin from everybody,” Kennedy said. “The value of a personalized discount or an individual cash-back is that you don’t lose that margin on every single purchase. It is just from those individuals.”
Fondue’s cofounder and CEO, Oren Charnoff, said the idea for the company came from wanting to offer brands a way to break their coupon-code habits. But the team found that they can sell brands on other advantages as well, like the potential to keep shoppers engaged enough to make a second purchase.
“What’s underneath that is a whole bunch of economic advantages of cash-back that fit extremely well with what’s going on in the market today,” Postscript cofounder and president Alex Beller said.
He added that while brands continue to struggle with profitability and see their valuations come down, it will become even more important that their promotions are financially efficient. Fondue says that its cash-back tools have helped its clients grow their SMS and email marketing lists by more than 19% and that customers’ first-time purchases become 3-5% more profitable.
“Many people look at discounting as the cost of doing business, instead of this strategic part of the consumer journey,” Charnoff said. “Right now in this era of focusing on efficiency and profitability, we have to revisit those fundamentals.”
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