The Subscription Era Comes of Age
By: Carl Venter
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The purchase of Dollar Shave Club by Unilever indicated that the ‘tipping point’ had been reached for the subscription era. Now’s the time for all savvy brands to rethink their strategies.
This was originally posted on LinkedIn.
Consumer attitudes toward purchasing and owning goods are changing. The reality is that people prefer to own less stuff, preferring to pay for access and use. This shift in shopper behaviour is ushering in a renewed interest in online subscriptions and creating huge opportunities for brands.
A secure stream of recurring revenue and the ability to nurture long-term customer relationships are two primary benefits of moving to an online subscription model. Once shoppers agree to regular payments for ongoing access, the renewal cycle becomes passive. They simply let the show go on – if, of course, they continue to find their subscription valuable.
The challenge for brands is to make sure that with every engaging experience they deliver, the relationship gets stronger.
Erasing the digital and physical divide
Although initially adopted by brands selling digital products – think ongoing access to software applications and online games – the subscription model is no longer exclusive to the digital world. Subscription boxes, for example, bring the model to the physical product environment. By bringing “a bit of playfulness back to shopping” subscription boxes are growing in popularity. Shoppers receive a package in the mail on a regular basis – say once a month. The contents of the boxes are wide-ranging, including everything from food, toiletries and vitamins, to stationery, hobby-related items and pet food.
Dollar Shave Club is a great example of the creativity that now characterises this new pay-for-use business model. When Michael Dubin came up with the idea of subscription-shaving, it was a cutting-edge strategy. Now millions of consumers have come around to pay-as-you-go shaving as good sense – such good sense that Unilever bought Dollar Shave Club for $1 billion last year. When Unilever is getting in on the act, you know something’s going on.
This event might indeed be said to have marked the point at which subscriptions very much entered the mainstream, as an increasing number of retailers are now mimicking the successful business model’s subscription pioneers. This is evidenced by the recent Digiday blog, Why big brands are getting into the subscription box business, which makes a compelling case for big brands to find sustainable success in the “sub-box” model.
It’s all about the service
Many big brands have been quick to spot the subscription opportunity, using it to offer consumers more than a product. Added value comes from delivering a personalised lifestyle experience that also meets a desire for convenience and choice. This type of relationship only gets better – and more profitable – if well played.
There are certainly cost advantages to retaining customers, compared to acquiring new ones – a strategy that underlies successful pay-as-you-use models. Recent research from Forrester Consulting found that acquiring a new customer costs at least twice as much as keeping an existing one. In addition, companies benefit from the inherent commitment a shopper makes to your brand when they sign up for ongoing payments.
Mutual commitment
Companies need to tread with care, however. If the focus shifts from acquisition to retention, everything needs to be done to engage customers, deliver ongoing value, and convince them that the service they signed up for enhances their lives. I’d recommend that you reassess how you position your product or service for it to make sense as a regular feature in your customers’ lives.
The pay-as-you-go model is an ‘inclusive’ idea; it can assume the appearance of a ‘club’ where you not only send the product or service asked for but you also communicate on areas that are of interest to your identified customers. They’re more likely to be in the relationship for the long-haul if you can demonstrate that you are too.
Your thoughts? I’d be interested to hear how this change in consumer attitudes affects your brand.