Think inside the box…

Subscription commerce has skyrocketed over the last decade. Not only can consumers subscribe to Netflix, they now have the option to hit subscribe on vitamins, groceries, toilet paper, makeup, and more. 

Subscription commerce for physical goods, led by direct-to-consumer brands such as Ritual, Dollar Shave Club, Birchbox, and Blue Apron, is offering customers a convenient and economical way to purchase online. The home delivery trend for everything and anything from diapers to dinners as a sales model works equally well for both consumers and brands. 

According to McKinsey & Company, subscription commerce has grown by more than 100% YoY over the past 5 years. 15% of online shoppers have 1 or more subscriptions, and nearly 35% of subscribers have 3 or more. This increase in demand has spurred more startups to launch subscription services: In fact, more than 2k subscription box services exist in the U.S. alone. The largest subscription retailers generated more than $2.6 billion in sales in 2016—an increase from $57 million in 2011—and visits to subscription box websites have increased by over 3k% in the last 3 years. 

“We are seeing enormous interest in subscription businesses both as standalone companies as well as adjuncts to existing retail businesses…The business is still being invented and it continues to have unlimited potential to influence how consumers shop.”

Richard Kestenbaum, Partner at Triangle Capital LLC – Forbes

With an increase in supply and demand for subscription services, there are a few tips, which if executed well, can help brands build a subscription model that works. A subscription-based business is fundamentally different than a traditional business—it can be difficult for a subscription business to acquire, more importantly, retain customers.  

5 Tips to Build a Subscription Model that Works

• Get Personal

Consumers expect personalization.   Be it movies, vitamins or makeup, they want their subscription to be tailored specifically for them, and they want to be in control of the relationship. 

• Competitive Pricing

In the overcrowded space of subscription, you want to stay ahead of the curve. View your pricing model as a strategic and competitive advantage—you don’t want your pricing to be too expensive or too cheap. 

• End-to-end experience

With seamless end-to-end experience, you can enhance customer satisfaction, improve sales and retention, achieve revenue and cost improvements, and gain an enduring competitive advantage. McKinsey’s survey respondents said they canceled their subscription when the quality or selection within the box was poor, when they didn’t feel that they were getting a great value for their money, or when the company didn’t allow them to tailor the subscription to their needs. Provide a higher quality product and a highly personalized experience. Surprise and delight your customers by throwing in deals, products, personalized notes, or something they weren’t expecting.

• Reducing Churn

More than one-third of subscribers cancel in less than 3 months, and over half cancel within 6. Customer churn is inevitable! Nothing guarantees that your customers will stick with you forever. But on the bright side—in most cases—churn is under your control. Conduct a churn analysis to understand your customers and identify how churn can be reduced. The analysis may lead to a new product roadmap, a need to invest in higher-quality customer support, or even changing your pricing model.

• Move Beyond the Subscription 

With one-third to half of the subscribers canceling, it’s important to consider the omnichannel nature of retail and add value to the overall customer experience. Blue Apron, after seeing a 24% drop in Q1 of 2018, opened pop-up shops in New York and several other cities, offering cooking classes and other experiential moments—catering to potential and current customers alike. Although the number of subscribers to Blue Apron has continued to decrease, the average revenue per person and average order value (AOV) have increased. Subscription services that continue to be successful will need to find new and evolving ways to add value to their services, not just in the box, but outside it. 

Whether subscriptions are a part of your business or you run a subscription-based business, embrace the fact that the customer is no longer loyal, and has seemingly infinite options. Give your customers what they want: a high-value, personalized experience and the flexibility to tailor their subscription to their needs.  

Hudaina Baig. Director of Marketing at SocialWithin.