When you talk to Josh Poole, you’re reminded of Shopify CEO Tobi Lutke’s old “arm the rebels” quote.
Josh is the founder and CEO of PEScience. He’s run the business for 15 years, and it’s been profit-first since the start. He didn’t even spend on marketing until 2018, choosing instead to grow through word-of-mouth, sampling, and more traditional CPG sales tactics.
He gauges, in part, whether something works by looking at what happens to the bottom line after doing it for a while. If it doesn’t work, he turns it off.
“We’ve done things like spend a whole year spending on Google Ads and, then, we've—you know—realized, based on our 10 years of history, this is not actually adding anything, so we're gonna throttle this back to like $50 a day on spend versus the, like, $25 or $30,000 a month we had ramped it up to. And, similarly, when we scale it all the way back down, we didn't notice a change.”
Josh Poole, founder and CEO of PEScience
So, when Josh leaned into optimizations for his loyalty program, you know it was impactful.
Scaling Amazon, But Keeping A Reason to Buy Direct
PEScience’s business is a mix of DTC, Amazon, and brick-and-mortar (in that order). And though their best margins are in DTC, Amazon has become a necessary part of the business.
The ability to sell to customers where they are (Amazon) means Josh is giving away about 20% of margin he’d otherwise keep via selling to the same customer DTC.
“The products sell for the same price on both (DTC and Amazon), but with Prime, a lot of people just habitually go on there,” Josh said. “Rather than competing with ourselves on price on Amazon, we wanted to find ways to make buying on our website more attractive.”
And that’s why Josh believes in loyalty.
Done right, loyalty programs are merchandising levers. Stamped is not only a leader in integrating those programs into the channels used to reach customers (email, SMS, etc.), it’s also a leader in sharing data around how loyalty programs can be structured to maximize profit.
Josh’s original reason to adopt loyalty was to reward customers for shopping DTC, since the margins on those orders were better. And since PEScience rarely discounts, offering a loyalty reward that was slightly worse than an Amazon order was worth the tradeoff—because every other order was significantly better.
Protecting Margins With Loyalty
Recently, Josh adjusted his loyalty program based on of Stamped’s studies, which found that discount-based rewards led to greater lifts in average order value and basket size than any other reward type. The goal was to further optimize the margin of the offer.
PEScience used to offer dollar-based rewards in the form of $10, $25, and $50 off coupons for reward redemption and switched to 10%, 15%, and 20% off coupons for reward redemption.
The results? A 45% lift in AOV and a 10% lift in basket size since making the change.
Those changes in consumer behavior have made his DTC business more profitable. It sounds counter-intuitive, unless you zoom out to Josh’s perspective as the founder and CEO.
“Our highest redemption used to be 50 dollars off when you got to 500 points, and customers would spend, like, 61 dollars on our website, which was less than they normally would for that specific customer. We like the loyalty side of it, and it's obviously keeping them around, but we could never really wrap our heads around, “How can we utilize this without feeling like we're really taking a kick in the gut when they use it?” And the funny thing is, using a percentage-based discount, even when they use the highest one, we don't feel like we're taking kicking the gut. That redemption of the highest one we now offer is probably the same margin we make on an Amazon order.”
Josh Poole, founder and CEO of PEScience
Often, loyalty is viewed through the lens of “my customer would have bought, anyway.”
When a program isn’t promoted well, that may be true. But what PEScience’s loyalty program optimization highlights is that giving a certain population of their customers a reason to buy direct (as opposed to opting for the convenience of Amazon) can save 20% in margin on each order.
So, any reward redemption is just the price of protecting margin.
For Josh, viewing PEScience’s loyalty program in this way is pretty simple. It isn’t as much about incremental revenue (that’s an optimization, in his mind), as it is about making sure his business stays true to its profit-first orientation. And that’s pretty smart.
