17 Dec The 5 Core Principles of Subscription
1. Category Fit
Finding the right subscription category fit is a good first step in assessing whether or not a business has subscription potential. Personal care, pet food, and vitamins, to name a few, are perfectly conducive to subscriptions. As we’ve seen with Harry’s and Dollar Shave Club, razors, for instance, are lightweight, easily packaged, and purchased frequently. This consumption and replenishment cycle fits neatly into the model.
Crossing over into other popular subscription categories, we see similar themes. Products like coffee (e.g., Blue Bottle), diapers (e.g., Honest Company), and snacks (e.g., Graze) make for great offerings. Beauty products, too, are generally lightweight, novel, and frequently purchased—and, as a result, we see companies like IPSY, Birchbox, GlossyBox, and BoxyCharm taking advantage.
Yet not all product categories fit the mold. Companies selling shoes, watches, or handbags, for example, will have a hard time coming up with a compelling subscription offering. Fashion apparel, while successful in certain instances, is also difficult to execute because of the importance of data science and personalized merchandising. Some clothing companies, like The Gap, that have attempted subscription apparel offerings have faltered in the absence of these important capabilities.
2. Data & Personalization
The success of companies like Stitch Fix, which have built their business around data and personalization, reveals another important pillar —subscription businesses gather data on their customers at a much faster pace than a more traditional business model. The continuity component of subscriptions means consistent touchpoints with the consumer. Data from those touchpoints compounds and can then be used to optimize subsequent offerings. Stitch Fix has nailed this data optimization game. Dollar Shave Club adhered to customer needs and upped the shopping experience by offering product trial kits, a fun-sized combo of grooming goods. IPSY and Birchbox leverage data from their sample boxes to optimize subsequent shipments so they’re more in tune with consumer preferences. Crossing over into content and all things streaming, there’s no question the success of companies like Netflix, Spotify, and Peloton is largely driven by data and personalization.
3. Relentless focus on Retention
While customer acquisition is crucial, arbitrage opportunities exist for brands savvy enough to focus equally hard on customer retention. Robust customer service teams that catch potential subscription cancellations before they happen, thereby retaining a subscriber for an extra month or more, stand to improve both lifetime value and churn; we’ve seen firsthand, through upstarts like DSC, Oatbox and Gentlemen’s Box and giants like Netflix, Amazon and Salesforce, how this type of customer-centric rigor can lead to massive retention.
Perhaps the biggest chunk of the failures will come from those whose customer-service infrastructure cannot match what the new online customer demands. While we see customer acquisition as an important part of any scaling business, subscription demands a more intense focus on the customer once they sign up (in other words, on customer retention). Columbia House and Fabletics missed the memo, and more recently, so did Starbucks Coffee—which, in 2015, launched its fresh-delivery subscription, giving online customers access to its line of premium small-lot coffees, only to pull the program two years later.
4. Transaction Commerce to Relationship Commerce
A focus on customer loyalty is critical. Yet, very few companies get it: we’re now in an era where consumerism is no longer about the transaction; it’s about the relationship. One-time transaction-based businesses are being replaced by consumer-centric organizations like Amazon, Stitch Fix, Netflix, Peloton, and others who build revenue year over year using subscription models. That recurring touchpoint between company and consumer means a deepening of the relationship over time.
5. Power of Storytelling
Forget marketing in the traditional sense. Fact is, people love stories about companies with a fresh take on an industry. Unique company stories sell. Regardless of operational challenges, the press gravitates toward them—providing a distinct advantage for subscription companies looking to drive meaningful consumer awareness.
Dollar Shave Club’s marketing is a perfect example of replacing “marketing” with “storytelling”. Instead of using traditional media to spread images of male models shaving with needlessly elaborate blades, Dubin took his message to YouTube for $4,500. This was not only cost-effective—it’s hard to find another example of an ad at this scale with a cost-per-view of less than a fiftieth of a cent—but a highly calculated branding play. Skipping TV, radio, print, and in-store promotion was deliberate, sending a pointed message to its prospective customer base: Dollar Shave Club was a new kind of shaving company, with nothing traditional about it.