Hi DTC folks,

This week I'll show you how your data can fool you, how to build a world-class referral program, and how Estée Lauder bought DTC brand DECIEM for $1.7 billion.

Let's go.

Featured: Why you, as a brand founder, are constantly getting screwed 👇

Let's take a simple example.

You look at your latest reporting and see a sharp drop in the average order value.

Clearly, something must be wrong with the number of items or the average item price.

Your eComm team recently carried out an update for cross-selling which has probably backfired.

You look at the data: 8% fewer items, 3% lower item price.

Furious, you go to your ecommerce director.

But he is deeply relaxed.

Why?

He was just about to come to you to tell you about the improvements...

2% higher AOV from new customers and 11% better from existing customers.

How can that be?

The reason is the Simpson Paradox.

This has nothing to do with the Simpsons but is a statistical effect named after Edward H. Simpson.

You got screwed by your poor analytics.

What happened?

Yesterday, a new marketing campaign was launched that brought in a flood of new customers and completely changed the ratio of new to existing customers.

In addition, existing customers always have a higher average order value with more products at higher prices than new customers.

As a result, it can happen that even if the shopping baskets of both groups have increased, the overall average falls.

Crazy, isn't it?

You can find the google sheet here. Feel free to make a copy!

That's why you can't use simple reporting dashboards to really read anything from the data.

Analytics and reporting are useless without the WHY.

Averages are useless without context...

And tools like RetentionX gives you this context.

Building a referral program

When I launched my first ecommerce business, we relied heavily on traditional advertising to attract new customers.

However, we soon realized that our most valuable customers were coming through word-of-mouth referrals.

This insight led us to develop a structured referral program to capitalize on our happy customers' goodwill.

We needed to design a referral program that was easy to use, attractive to customers, and beneficial for our growth.

We started by researching best practices and studying successful referral programs from other companies.

The key elements we identified were clear incentives, simplicity, and strong promotion.

1) Designing the Program

We created a simple and compelling referral program that offered tangible rewards for both the referrer and the referred.

Example: Customers who referred a friend received a $20 credit, and the friend received a 10% discount on their first purchase. Dropbox’s referral program, which offers extra storage space for referrals, served as a model.

Many of you may have noticed that I'm not a big fan of welcome discounts. This one is different. The customer perceives the discount as an offer from their friend. It doesn't dilute brand value because the offer isn't advertised on the store itself!

2) Promoting the Program

We promoted the referral program across all our marketing channels, including email, social media, and our website to a very targeted segment.

Example: You need to segment the customers who are the best promoters. A good starting point is to work with 2+ buyers with a low product return rate who have been active within the last 3 months. Once someone qualifies for this segment, you can start onboarding them.

Tools like RetentionX makes it super easy.

3) Simplifying the Process

We made it easy for customers to refer friends by providing personalized referral links and a user-friendly interface.

Example: Customers could share their referral links directly from their account page with just a few clicks. Glossier, Inc referral program, which allows easy sharing personalized links via email and social media, inspired our approach.

4) Tracking and Optimization

We monitored the number of referrals, conversion rates, and the overall impact on customer acquisition and LTV. The LTV of referred customers was 60% higher than from other channels, even after the first purchase offer.

5) Celebrating Success

This one is the magic key to success!

We celebrated and rewarded our top referrers to encourage continued participation and build a sense of community.

Example: We offered top referrers exclusive (unexpected) rewards, such as early access to new products and invitation to exclusive company events like fashion shows. Share pictures of these rewards and events with the community after they happen, not before!

Industry News

🧼 Beauty giant Estée Lauder completes DECIEM acquisition for $1.7bn

Estée Lauder has completed the acquisition of Canadian multi-brand company DECIEM | THE ABNORMAL BEAUTY COMPANY , known for The Ordinary and NIOD. ELC first invested in 2017, gained majority ownership in 2021, and has now acquired the remaining stakes for around $860 million, bringing the total investment to ~$1.7 billion over three tranches.

⚽🧃 Soccer icon Lionel Messi launches new sports drink Mas+ by Messi

Lionel Messi is teaming up with Mark Anthony Brands International - owner of White Claw, Cayman Jack and Mike Shard Lemonade. Their hydration brand más+ by Messi will launch on June 14 on the Shopify store masbymessi.com. All four flavors are packed with electrolytes, vitamins and minerals and are free of artificial sweeteners, colors and caffeine.

👟 Luxury sneaker brand Golden Goose targets $2bn valuation in Milan IPO

Italian sneaker brand Golden Goose is going public, aiming for a valuation of up to €1.86 billion ($2 billion) on the Milan Stock Exchange. The brand plans to raise up to €558 million by selling a 30% stake in the company, with shares priced between €9.50 and €10.50 each. The first day of trading is expected to be June 21.

🧢 New Era Cap to acquire sports lifetime brand '47

Iconic supplier of headwear to major US sports leagues New Era Cap agreed to acquire privately held sports lifestyle brand '47 . The deal between the two brands is expected to bring in $2 billion in annual revenue. Financial terms of the agreement were not disclosed.

💄 Beauty expert Sarah Creal launches own beauty brand for women over 40

American beauty insider Sarah Creal is known for creating and formulating iconic beauty brands such as Victoria Beckham Beauty, Prada Beauty, Tom Ford Beauty, Bobbi Brown Cosmetics. Now, she is making her mark and has set out to fill a gap in the market by creating a beauty line tailored to women over 40.

That’s it for this week! I hope this has been interesting for everyone, even if your business is not affected by returns. Next week I'll be covering a topic that is a game changer for any DTC brand!

Any questions or topics you'd like to see me cover in the future? Just shoot me a DM or an email!

Cheers,

Alex

P.S.: Don't forget to check this out 👇

Maximize your Profits per Customer with RetentionX!

Ready to take your DTC brand to the next level? Book a demo with us today and discover how RetentionX can transform your data into actionable insights that significantly enhance customer retention, optimize acquisition, and increase the profit for per customer. Visit the Shopify App Store to download the RetentionX app and start your journey towards higher customer retention and increased revenue.