With customer acquisition costs on the rise, DTC leans on referral programs – Glossy


Referral marketing is trending among young fashion brands.

These programs are nothing new. Recently, several fashion companies have launched a refer-a-friend option on their websites, giving existing customers discounts or perks for getting friends to make a purchase. With many companies dedicating a large portion of their budgets to digital marketing, referral programs are providing a more cost-effective way to acquire customers. Rent the Runway, Everlane, Dia&Co and Outdoor Voices have all honed in on this strategy since 2018. Moving into 2020, companies like Dia&Co, Soma and Hylete are placing a renewed focus on this type of marketing as Instagram and Facebook costs rise.

“Cost of acquisition is through the roof, but companies control the margins. If you have someone who loves your product, it behooves DTC companies to offer them referral fees, free product or discounts on future products,” said Aaron Schwartz, vp of business development at Returnly.

Dia&Co launched a program for its customers paying a monthly fee of $20 to receive a Style Box of five stylist-picked items. The offer gives a $20 credit to existing customers for referring a friend to the program. Referred customers receive free personal styling or one box sent to them for free. Customers only pay more if they decide to keep any or all items in their box.

“Creating a space where plus-size women can share their style and create friendships has been the most rewarding aspect of the business, so instating a referral program was a seamless fit. We’ve found that community begets community, and when customers feel welcomed, the experience is so much more special,” said Nadia Boujarwah, CEO of Dia&Co.

In the most recent iteration of Dia&Co’s program, referral links have been shared over 50,000 times, a spokesperson for Dia&Co said. 40,000 customers have shared those links. In the first month of the program, the company saw roughly 22 conversions per day. It’s shipped roughly 7,000 new boxes through the program.

“As we see a surge of direct-to-consumer brands that are bypassing traditional retail channels, it makes a ton of sense to build out their community through loyal consumers and unofficial ambassadors,” said Catherine Merritt, CEO at marketing firm Spool. “Developing referral programs — and this is not multi-level marketing — is a smart way to build engagement with consumers and to incentivize them to share their love for the brand with their friends.”

For women’s holistic wellness company Rae Wellness, word of mouth and referrals have been a big growth drivers. Since launch in September, the company has grown its Instagram following to 12,600 followers, and it started selling in Target at the start of the year.

Moving into 2020, referral programs will continue to be a big part of the marketing strategy, especially as customer retention becomes a bigger concern, said Rae Wellness’ vp of marketing, Jillian Froehlich. According to a report from Deloitte, customers acquired through word of mouth or referral marketing have a 37% higher retention rate.

“As a new brand, being able to establish an emotional connection with consumers that then end up generating advocacy is super important. We believe that if there is advocacy, we will end up seeing a longer lifetime value and retention with our customers,” said Froehlich.

Since launched, Rae Wellness has been sending sample packets of products in all of its DTC boxes, designed specifically for customers to share with friends. The package came with a notecard to share with friends featuring a 10% off discount code for new customers to use. Froehlich declined to share specific results and overall retention rates.

Rae Wellness also works with influencers to partner brands, working with the The Wing last year, to host a panel discussion at The Wing’s SoHo location and providing product samples for attendees.