In today’s crowded eCommerce landscape, securing customer loyalty is more challenging than ever. With an overwhelming array of options, brands constantly seek the “secret sauce” to foster lasting connections. Many turn to loyalty programs, hoping to incentivize repeat purchases and build a dedicated customer base. But what if your loyalty program isn’t actually driving loyalty? What if, instead, it’s an expensive, underperforming tool that drains resources without delivering real behavioral change?
This intriguing question formed the core of a recent Yotpo Podcast episode of “The Loyalists,” featuring David Baker, Chief Digital Officer at Beekman 1802. David’s journey offers a unique and compelling perspective, having made the audacious decision to shut down a loyalty program with over a million members at L’Oréal Paris, only to become a fervent champion of a different kind of loyalty program at Beekman 1802. His story is a masterclass in discerning genuine loyalty from mere transactional engagement.
To dive deeper into this fascinating discussion, you can watch the full podcast episode here.
Key Takeaways
- Loyalty programs aren’t a one-size-fits-all solution: Their effectiveness depends heavily on the brand’s business model (D2C vs. wholesale), industry, and ability to track and influence customer behavior.
- True loyalty goes beyond transactions: While points and discounts are appreciated, the most powerful loyalty drivers are emotional connections, product effectiveness that genuinely improves a customer’s life, and the feeling of being valued or receiving a compliment.
- Measuring incrementality is crucial: A loyalty program should demonstrably change customer behavior – increasing purchase frequency, average order value, or brand engagement – not just track existing loyal customers.
- Don’t be afraid to sunset underperforming programs: If a program is costly, delivers minimal ROI, and fails to drive desired behavior, a strategic, transparent shutdown can be more beneficial than perpetuating a drain on resources.
- Transparency and overcommunication are key when making big changes: When sunsetting a program, clear and frequent communication can mitigate negative customer reactions.
- Trust your customers: Focusing on the vast majority of customers who engage genuinely with a program, rather than over-engineering safeguards against a small percentage of potential “abusers,” can lead to a more positive and effective loyalty strategy.
- Integrate loyalty with core brand values: Programs that align with a brand’s mission (e.g., Beekman’s focus on “kindness”) can foster deeper, more meaningful connections and community.
The L’Oréal Paris Loyalty Program: A Million-Member Dilemma
David Baker’s journey into the intricacies of customer loyalty began at L’Oréal Paris in 2017. As the newly appointed Chief Digital Officer, he inherited a loyalty program boasting over a million members. This program, conceived during an initiative to launch a direct-to-consumer (D2C) website, found itself in an unusual predicament: the D2C site itself had been pulled, yet the loyalty program continued to operate.
This created a fundamental disconnect. L’Oréal Paris, a brand that primarily sells through retailers like Walgreens and Target, didn’t have its own eCommerce platform where customers could redeem points directly for purchases. Instead, the program required customers to scan receipts from third-party retailers to earn points. These points could then be redeemed for gift cards – mostly Visa gift cards – or, in some cases, donations or unique experiences.
The primary benefit for L’Oréal was data collection: an email address and proof of purchase at a specific retailer. While this data could aid in segmentation, David quickly recognized significant flaws. The cost of operating the program – scanning receipts, fulfilling gift cards, managing the overall infrastructure – was exorbitant. Furthermore, a crucial promise – a free birthday gift – had gone unfulfilled for six months, a “devastating moment” that highlighted the program’s broken foundation.
Defining Success and Measuring Incremental Loyalty
David and his team quickly realized that the L’Oréal program was failing to deliver incremental value. “The ROI wasn’t there,” he stated. “We weren’t seeing them come and buy through us. We didn’t have any incrementality that they were changing their behavior and buying more from us. We weren’t adjusting their purchase frequency.” Essentially, the program functioned as a very expensive analytics tool, tracking existing behavior without influencing it.
For a brand like L’Oréal, defining success in a non-D2C environment was a complex challenge. David envisioned success as fulfilling customer promises and, crucially, driving behavioral change. Could the program incentivize a customer to buy five boxes of hair color a year instead of four, translating to a 25% increase in purchase? Measuring this through receipt scanning was inherently difficult, as it couldn’t capture purchases where receipts weren’t scanned, and cohort analysis revealed no significant change in behavior within the program.
The beauty industry is notoriously competitive when it comes to loyalty. Brands like Sephora and Ulta set the gold standard, with Ulta famously boasting that 97% of its buyers are enrolled in its loyalty program. This creates a customer expectation that David acknowledged: loyalty programs are almost “table stakes” in the health and beauty space. This context made L’Oréal’s decision even more audacious.
The Bold Decision: Sunsetting a Million-Member Program
The realization that the loyalty program was a financial drain and a broken promise led to a “very tough decision”: sunsetting the million-member program. This was not a decision taken lightly, especially given the high penetration of loyalty programs in the health and beauty sector.
The key to navigating this sensitive transition was an aggressive and transparent communication strategy. Over a period of more than three months, L’Oréal Paris “overcommunicated as much as possible,” with a set cadence of notifications at 90, 60, 45, 30, 15, 10, 9, and 8 days out. Customers were clearly informed that the program would be turned off and encouraged to redeem their points. The ability to earn new points via receipt scanning was halted early to prevent a last-minute rush and avoid leaving a “bad taste.” Additionally, new, lower-point redemption options were introduced to facilitate redemption.
The outcome was nothing short of astonishing. Despite a million members, David revealed, “we had nine people reach out and complain.” This incredibly low number served as a stark validation of his hypothesis: the program wasn’t genuinely engaging customers or driving behavioral change. It was a clear signal that, for the vast majority of members, the program held little true value or influence on their purchasing habits.
Beyond Points: The True Drivers of Loyalty
The experience at L’Oréal Paris fundamentally reshaped David’s understanding of loyalty. He concluded that the “actual best part of being loyal to a brand wasn’t the value exchange of points for dollars.” While deals are appreciated, what truly moves the needle is how a product makes a customer feel and how that feeling is validated by others.
He drew a compelling analogy from his prior work with Bonobos: “the best way to get a guy to repeat purchase was to have someone else in his life, typically the woman in his life, say, ‘Your butt looks good in those pants.'” This external validation, this compliment, gave a confidence boost and fostered a deeper connection than any discount. For L’Oréal Paris, whose iconic belief is “You’re Worth It,” this translated to a crucial question: “Does she feel better? Does she feel more worth it because of the product she’s using?”
Following the sunsetting of the program, L’Oréal reallocated its resources. Instead of investing in a clunky receipt-scanning system, they focused on “surprise and delight” through sampling programs. They leveraged overstocked products – full-size items that might have been destined for write-off – and distributed them as free samples. This not only provided a valuable trial experience for consumers but also helped manage inventory and acquire valuable first-party data. This shift prioritized getting the product into customers’ hands and allowing the product’s quality and the resulting feeling of “worth it” to drive loyalty, rather than a transactional points system.
A Skeptic’s Re-evaluation: Loyalty Programs at Beekman 1802
David’s experience at L’Oréal left him largely skeptical of loyalty programs, particularly for brands that relied heavily on wholesale distribution. He believed they made sense for businesses with owned distribution (like Starbucks), hospitality (where upgrades are possible), or large retailers (like Sephora). For a single brand beholden to third-party retailers, he saw them as a “distraction.” This skepticism persisted even during his subsequent agency role, where he often advised against implementing loyalty programs for brands selling primarily through wholesalers.
However, his perspective began to shift when he joined Beekman 1802 in late 2022. Beekman already had a loyalty program in place. While David initially thought he wouldn’t have started one if it didn’t exist, he decided to keep it. The fundamental difference was Beekman’s robust direct-to-consumer (D2C) model. Unlike L’Oréal Paris, Beekman 1802 sold directly to its customers, providing the crucial data visibility and control that was missing before. This D2C foundation allowed for a completely different approach to measuring and influencing loyalty.
Measuring True Incremental Loyalty at Beekman
At Beekman 1802, David immediately focused on truly understanding the program’s impact. He didn’t want it to be another “expensive analytics tool.” Working with Yotpo, he delved into the data to prove that the loyalty program was, in fact, driving incremental behavior change, not just segmenting existing loyal customers.
Beekman measures incrementality along two key vectors: Average Order Value (AOV) and purchase frequency. Through rigorous cohort analysis – comparing customer behavior a year before joining the program to a year after – they observed a distinct lift. While AOV might sometimes slightly decrease (due to benefits like free shipping for top tiers), purchase frequency consistently increases. This net effect translates into a tangible and profitable gain for the business.
This data-driven approach allowed David to validate the emotional side of the loyalty program. They also use this data to test and learn from specific campaigns, such as “double points weekends” or unique, experience-based rewards. For example, they’re exploring options like allowing customers to use points to “name a goat on our farm” or “visit the farm,” or even “spend time with our founders on product development.” These unique rewards reinforce the brand’s identity and offer a level of engagement far beyond a simple discount.
Kindness and Community: Beekman’s Unique Loyalty Foundation
Beekman 1802 stands out with its unique mission rooted in “goat milk and kindness.” All their products are made with these two key ingredients: goat milk for its skin benefits and “kindness” as a core brand value. This philosophy is deeply embedded in their loyalty program.
For Beekman, the “compliment” mechanism, which David identified at L’Oréal, is paramount. They strive to create moments where customers feel better about themselves and receive positive feedback from others due to using Beekman products. Their marketing and review prompts even ask questions like, “Who told you? Did someone tell you something that made you feel better since using this product?” This actively encourages customers to share the emotional impact of the products.
The brand also cultivates a strong sense of community. Two days before this podcast aired, Beekman 1802 conducted a global launch of their new art serum. They proactively sent 500 units to their VIP loyalty members, offering them exclusive early access. This not only generated early reviews but also allowed these loyal customers to call into QVC and share their experiences live on air. This kind of “kindness” and exclusive access makes customers feel truly valued and part of an inner circle. As David eloquently puts it, “It’s a kindness that we’re giving to our consumers. We’re letting them know, ‘Hey, you can get this before anyone else. You can really experience it.’ We want to make certain you have and feel that connection to the brand and feel that exclusive part that you’re part of a community.”
Loyalty and Subscriptions: A Synergistic Approach
In the health and beauty space, subscriptions play a significant role, with 70% of brands utilizing them for retention. Crucially, 55-60% of these brands concurrently leverage loyalty programs alongside subscriptions to boost Lifetime Value (LTV) and retention. Beekman 1802 operates with both.
David acknowledges that not every brand needs both. Some, like supplement brands, are almost entirely subscription-driven, rendering a separate loyalty program less critical. Others are purely transactional, benefiting more from loyalty programs that encourage repeat purchases of individual items. Beekman 1802 sits in the middle. Their “kindness” value means they don’t auto-subscribe customers; they wait until a customer has purchased a product 2-4 times before nudging them towards a subscription.
For Beekman, the “strong integration” between loyalty and subscriptions means they are complementary, not exclusionary. Unlike some programs, Beekman allows customers to earn and redeem points on subscription orders. They even allow for stacking discounts during seasonal sales, such as Black Friday. This philosophy stems from a deep-seated commitment to “kindness” and trusting the customer.
David reflected on an early career lesson: “Trust others.” While acknowledging that a tiny subset of customers might try to “game the system” by stacking discounts, he argues that the effort and resources spent preventing this minimal fraud are better invested in rewarding the vast majority of loyal customers. “If I were to try to spend my time and my energy saying ‘no you can’t do this’ and ‘no you can’t do this’ and ‘no you can’t do this’ and playing whack-a-mole and building systems in place to prevent that, that’s going to be such a wasted effort versus treating people with kindness and saying, ‘Here’s our program. Here’s how to engage with us. Please do.'” This philosophical stance allows Beekman to foster a strong, trusting relationship with its customer base, leading to greater overall loyalty and positive word-of-mouth.
Conclusion
David Baker’s journey from reluctantly shutting down a massive loyalty program at L’Oréal Paris to passionately championing one at Beekman 1802 is a testament to the evolving nature of customer loyalty. His transformation from critic to evangelist underscores a vital truth: loyalty programs are not inherently good or bad; their effectiveness hinges on a deep understanding of a brand’s unique context, its ability to measure true behavioral change, and its commitment to fostering genuine, emotional connections with its customers.
For any brand contemplating a loyalty program or evaluating an existing one, David’s advice is clear: “You should be thinking about how you reward your loyal customers. Whether that is through a dedicated loyalty program, whether that is through community, whether that is through subscriptions, but that should be a fundamental part of every marketer of how do we reward our customers who are rewarding us? How do we trust them instead of making certain they trust us?”
Ultimately, loyalty is built on trust – both the customer’s trust in the brand and the brand’s trust in its customers. When a brand delivers a product that genuinely enhances a customer’s life, fosters a sense of community, and rewards loyalty with true value and kindness, the result is a powerful, enduring connection that goes far beyond points and discounts. It’s the “secret sauce” that turns a good product into a world-leading brand with truly loyal followers.
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