Ask any marketer with a basic grasp of the customer-acquisition process, and they’ll tell you it’s much cheaper to retain an existing customer than find a new one. Acquiring new customers accrues all the marketing costs associated with generating awareness about your business and its competitive edge, as well as the cost of any discounts or promotions. This makes acquisition about five times as expensive as retention.
“Going out and finding new customers traditionally can be expensive, because often they’re not going to buy right away,” explained Jeff Ragovin, global chief commercial officer for Fyllo, a data, marketing, and compliance tool powering some of the biggest multistate operators. “You have to hit them with your message multiple times, educate them, and then hopefully they recall the ad they saw right at the moment when they are ready to buy, be that in a store or online.”
Retaining existing customers, on the other hand, is cheaper and more lucrative. Research by Bain & Company found increasing customer retention rates by just 5 percent can increase profits by as much as 25 percent. This stands to reason. If an existing customer is nurtured properly, they will come to identify with your brand, spend more, tell their friends, and even reach for your products instinctually without giving competitors the slightest consideration.
“When you look at iconic brands like Tide and Pampers, they appeal to consumers because they have an intangible, emotional connection,” explained Mitchell Osak, a cannabis-industry consultant who began his career at Procter & Gamble. “When you ask consumers why they buy these brands, you often hear something like ‘my mother bought Tide,’ or ‘I wore Pampers as a baby.’
“That’s the highest form of loyalty,” he continued. “Consumers just go to the supermarket and buy the product. They don’t really think about it.”
In cannabis, the success of retention efforts between the two customer-facing entities—retailers and brands—looks very different. In the early stages of the legalized industry, retailers fared far better than brands at retaining customers. However, with increasing competition at the retail level and the overdue emergence of brands that command true devotion from their customer base, the picture of retention and brand loyalty is changing.
Consequently, so is the way the game is played.
How dispensaries retain customers
For millions of Americans, their dispensary of choice is the one closest to their home. In places with fewer dispensaries per capita, the market resembles a captive audience. Retention under those circumstances is fairly straightforward: Don’t mess up customer service or product selection.
For retailers in higher-density areas like Los Angeles, San Francisco, Portland, Seattle, Chicago, and Toronto, geographic proximity alone is unlikely to keep customers loyal to a single store. Marketplaces like Weedmaps incentivize browsing different dispensaries in the area, and customers’ weed-buying radius expands as more stores add delivery services.
With prices relatively consistent and inventory arguably similar from store to store, offering quality customer service is vital to ensure shoppers return. According to a survey conducted by digital customer-experience platform Khoros, 83 percent of customers cite good customer service as their most important shopping criterion, and 65 percent reported switching to a different brand because of a poor customer-service experience.
“We could put on all the marketing bells and whistles and be as price-competitive as anyone else, but if the customer isn’t getting a great shopping experience, they won’t come back. It’s as simple as that,” said Brian Miesieski, chief brand officer and head of marketing and commercialization at Ascend Wellness Holdings (AWH), which operates stores across seven U.S. states.
For dispensaries, maintaining high standards of customer service can be challenging. Extraordinarily high staff turnover makes building a consistent culture of excellence arduous, but the best budtenders and customer-facing employees can foster strong personal relationships with customers. Trusted budtenders become proxies for trust in the store. In that sense, loyalty from the staff begets loyalty from customers.
Interestingly, there has been some questioning of the retention semantics and general pursuit of “loyalty” as a goal. One of the more insightful articles on the subject was penned by Esprit Chief Brand Officer Ana Andjelic in Harvard Business Review. Andjelic argues loyalty programs almost always are “a sort of bribery,” incentivizing customers to stick with a product merely because it’s cheaper. This is neither sustainable nor desirable, particularly when true brand loyalty can be achieved without constantly discounting and eroding brand integrity.
AWH’s Miesieski said his company is about to debut a revamped rewards program called the Ascenders Club after determining the word “loyalty” wasn’t sending the right message to consumers. “We wanted to flip it around, because ‘loyalty’ to us felt self-serving,” Miesieski explained. “Instead of the company asking what’s in it for us, the customer should be asking, ‘What’s in it for me?’”
Reframing the loyalty program as a club encouraged Miesieski’s team to think more broadly about customer engagement instead of constantly reaching for the discount button. “Of course great discounts are part of being in the club, but you also get special news, offers, exclusive happenings,” he said. “When you can make your customers feel like they’re part of something special, that’s more powerful than asking them to be loyal.”
springbig is one of the industry’s most prominent customer-engagement and -retention platforms. The Florida-based company helps retailers and brands communicate with their audience via text, email and, more recently, native apps, which springbig has begun rolling out for retailers. While the company is best known for its texting solution, the app creates an ecommerce ecosystem the company claims drives loyalty and sales.
Mikaela McLaughlin, springbig’s vice president of business development, said customers who use the app frequent the store 54 percent more often than those who don’t use the app. They also spend 56 percent more over the course of a year. “What we’re looking to do is extend the dispensary experience into the mobile phone so customers can view their rewards points, see any deals, offers, or specials they have at the store, and then allow for seamless online ordering,” she said.
Multistate operator Jushi was one of the app’s early adopters. Its Hello Club app has been downloaded more than 50,000 times since launching in spring 2022. The theory is that showing users the points they have accumulated as opposed to keeping the information locked in the dispensary’s point-of-sale (POS) system makes the decision to shop at the same store easier. “It’s less about incentivizing people to buy and consume more cannabis than it is about making sure, when they make a purchase, they’re not going anywhere else,” said McLaughlin.
Rewards programs are becoming commonplace in the industry, with many deployed via stores’ POS systems. Flowhub’s retail and payments platform, for example, is integrated with springbig and Alpine IQ and allows stores to leverage deals, connect promotions to their marketing tools, and redeem rewards at the point of sale. “That kind of flexibility opens doors for dispensary operators to get creative about building hyper-personalized consumer experiences,” said Flowhub founder and CEO Kyle Sherman.
Sherman and McLaughlin agree stores ought to take advantage of the opportunity to be more targeted in their outreach, as the approach will deliver better returns. “Dispensaries have been notorious for overcommunication and not being particularly intentional, especially with their text messages,” McLaughlin explained. “We always recommend dispensaries focus on getting the right message to the right audience at the right time.”
She is adamant that targeted messages outperform mass text messages “every day of the week,” and maintaining good data hygiene—by segmenting data into relevant buckets, for example—should be a priority for dispensaries if they don’t want customers opting out.
springbig recommends dispensaries slow down and think about who might be enticed by a particular offering so they can create a sense of specialness or VIP membership. “Make the customer feel like this is really for them,” said McLaughlin. “If someone has never bought edibles, they’re probably not going to engage with a text [about edibles].”
Sherman also added stores should make sure their budtenders remind customers they have a loyalty program. “That added touch from a budtender asking, ‘Do you want to join our rewards program and earn 5 percent back on every purchase?’ has the power to bring a customer back,” he said. “It sounds simple, but it’s a foundational part of cultivating loyalty.”
How brands manage loyalty challenges
Fostering loyalty can be many magnitudes more difficult for product brands than it is for retailers. Brand loyalty requires time and familiarity. Very few companies have managed to achieve it thus far. With each state market siloed and built on a set of idiosyncratic regulations that can affect everything from packaging to marketing, potency, and flavors, building a consistent national cannabis consumer-packaged-goods brand is exceptionally difficult.
One core challenge many traditional product brands encounter is an indirect relationship with consumers. A brand’s customer is the retailer. The retailer’s customer is the consumer, so the vast majority of sales flow through them. This puts the capacity to foster brand loyalty mostly in the hands of retailers.
“You have a very limited number of retail gatekeepers who ultimately drive product adoption,” said Max Rudsten, chief revenue officer at POSIBL, which produces the flower brand Humo. “You’re really counting on them to articulate your brand story to the consumer, because we just don’t have certain marketing channels available to us.”
Rudsten added intense competition among licensed retailers against one another and the illicit market has forced stores to lean heavily on discounting strategies to drive volume. “I think that really dilutes a lot of the rich brand stories that are more prevalent in mature industries,” he said.
Brand and marketing agency 10K urges brands to take the initiative and engage in storytelling on their website and social channels. “Having an engaging content strategy that goes beyond weed and deals and into lifestyle and culture is really important,” said partner Rob Costello. “Consumers get hit with so much promo and sales messaging that they tune it out. Invest in keeping your conversation with consumers fresh and interesting. They’ll stick with you.”
Osak believes part of the problem is competition and the wealth of options consumers have. He sees the plethora of new products, particularly in the flower and pre-roll categories, as a major driver of experimentation—which actively works against brand loyalty. “If you’re a big cannabis consumer, there are incentives to try the next greatest thing, like higher THC, higher terps,” he said. “This experimentation is being multiplied by falling prices. So not only do they have new products to try, but those products are becoming cheaper all the time.”
Recreational brands are finding the best approach is to swim with the tide of experimentation and offer a breadth of options across numerous price points. “For flower, specifically, the data shows the more strains you offer, the more velocity you see,” said Rudsten. “You can keep your customers within your own ecosystem by offering variety.”
Humo’s product strategy is to maintain a stable presence of core strains and a rotating selection of new, more exclusive strains to encourage experimentation within the portfolio. The brand recently released its premium Reserva line, which features choice buds from more exclusive strains and commands a higher price than the basic Humo line. This tiered approach broadens the brand’s customer radius while giving its existing base more scope to explore upward within the selection.
Fyllo’s Ragovin believes brands of all kinds can sidestep loyalty-corrosive price wars by focusing on the connection between customer experience and product. He cited Honolulu Fish Company, a premium online seafood retailer, as an example of a company that won and has kept his business through a devout commitment to customer service and high product standards. “It’s that combination of a really high-quality product delivered with exceptional service that makes you feel special,” he said. “Do those things right, and you have the kind of product people will pay extra for and tell their friends about, which is pretty much the best form of marketing you can have.”
How one company breaks the mold
Jeeter is one of the industry’s more recent success stories. Known primarily for its infused pre-rolls in a wide variety of flavors, the brand is embarking upon a strategic expansion beyond the product line and into popular culture.
Jeeter customers consistently have shown a willingness to pay a little extra for quality, even as the infused pre-roll category has become saturated with competitors. The brand’s average price per unit is $31, and on 4/20 the company sold an estimated $1.4 million in pre-rolls in California alone. According to CannMenus, which tracks retail products in real time, that’s almost three times the amount sold by Stiiizy, the closest competitor.
“I think a lot of [the brand’s popularity] comes from the way we run our business, the products we’ve created, and how we connect with our customers,” said co-founder Sebastian Solano. “We’ve turned Jeeter into something bigger than a cannabis brand. It’s a true lifestyle brand.”
Solano and co-founder and CEO Lukasz Tracz cite Red Bull as a guiding star. The energy-drink brand has a small core of beloved SKUs amplified by a thriving calendar of sports, culture, and music events. “We want to be one of the culturally leading lifestyle brands, period,” said Tracz. “There’s Nike, Red Bull, Coca-Cola, and Jeeter.”
Entertainment and experience are part of the brand’s DNA. The four founders started their careers as festival promoters, known for the popular Life in Color event series, a roaming electronic-music paint party that embodied big-budget hedonism. They carried the emphasis on experience and content into cannabis. The brand has hosted events including an exclusive 4/20 party featuring live standup from Saturday Night Live comedians and releases exclusive drops like a nostalgic Blockbuster throwback capsule with a blanket, socks, popcorn, and a pre-roll. “Those types of releases drive people to seek Jeeter again and again, because they feel connected to the brand and want to be part of something,” said Tracz.
“You have to continue to give people a reason to buy your brand,” added Solano. “This could be with product innovation, but it can also come from making those cultural statements, like releasing a seven-gram joint to mark the Golden State Warriors’ championship win and giving all the proceeds to the Social Change Fund.”
Jeeter first claimed its spot as a leader in the pre-roll category by producing a consistent product, but it has maintained its position by building a vivid, authentic ecosystem around the brand. Limited drops, kitschy shops-in-shops, and fun events all come together to create an experience people choose to be loyal to despite a plethora of less-expensive options flooding the category.
“We’re always trying to deliver for the fans to the best of our ability and to continue pushing the envelope on what’s possible with a cannabis product,” said Solano. “The end product you see is the result of 2,000 people aligned and working together.”
Takeaways
The goal for any company right now should be to target a core consumer group and foster loyalty based on merit rather than price. Even stores with a captive audience eventually will be subject to competition, and the easiest way for competitors to pilfer customers is to offer lower prices—particularly during recessionary periods. “A lot of people are feeling economically insecure, and many of them are looking for the lowest cost per buzz,” said Osak. “They don’t necessarily don’t want to be loyal. They just want to save money.”
We heard from sources time and again that price loyalty is far more common than brand loyalty, and a significant subset of customers have learned to shop on deals alone. One source even cited a store that has a 30-percent-off promo on its house brand one day a week, and about 80 percent of the brand’s weekly sales occur on that day.
Every company could take a leaf from Jeeter’s book and start considering products experience enhancers rather than the experience itself. Jeeter withstands fierce competition on price, but very few brands attempt to compete by offering experiences.
Cookies also has sidestepped the price war and fostered loyalty through its quality products and merchandise. Legions of consumers are loyal to the brand. “Without our streetwear, we could not be a global lifestyle brand,” said Crystal Millican, Cookies’ head of marketing. “There is no greater affirmation of our customer connections than when someone steps out into the world wearing Cookies clothing.”
That’s loyalty—choosing to be an evangelist, not just a consumer. And it is attainable for most brands and stores if they think creatively and cherish their customers.
