Dollar Shave Club: Product Perfection, on Subscription

Let’s rewind to a cold 2016 evening in New York City, where Dollar Shave Club (‘DSC’) founder Michael Dubin and Unilever senior executive Kees Kruythof enjoy a long conversation over dinner. The two sides hit it off and what started with an exploration around advisory synergies ended with Unilever becoming an outright acquirer, buying DSC for $1 Billion, cash. The acquisition turned the quiet business of subscription ecommerce into a category Wall Street media junkies were paying real attention to.

The street began to understand why the acquisition multiple made sense to both buyer and seller. Paul Polman, CEO of Unilever believed with the growth of e-commerce and the loyalty behind DSC’s brand, this was a good fit. 

Dollar Shave Club’s innovative viral marketing, and its sales numbers made for an attractive asset. But, what many business analysts missed in the mainstream media storyline is the power of DSC’s unit economics driven by its subscription model. Recurring revenue from their sticky member-base was predictable and stable. In terms of actual retention, a metric experienced subscription operators pay close attention to; about half of Dollar Shave Club’s customers acquired in month 1 remained subscribers after 1 year. Further along the customer timeline, Dollar Shave Club saw about 24% of its customers retained by month 48 — that’s about 1/4 of its subscribers still subscribing to the service 4 years later.

The healthy retention rate at DSC is not by accident. It first begins with the product category itself. Men buy razors, and need to change the blades frequently. This consumption and replenishment cycle lends itself perfectly to a subscription play. Next, the experience of buying razors in store was, and still is frustrating, and as Dubin pointed out, most men dislike the actual experience of shopping for razors in store – another win. Lastly, and perhaps the one component many companies overlook, is the ability to properly build a relationship with subscribers through great customer service - DSC has worked at perfecting its multi channel customer servicing. 

If we can imagine for a moment some of the programs we subscribe to as a consumer: an OTT content service like Netflix, a music streaming service like Spotify, perhaps a food service like Blue Apron. Every great subscription business has a retention model like the one outlined in the aforementioned paragraph. What’s different is each company’s ability to retain members over time. Netflix for example, perhaps the best at maintaining its customers, is said to have a retention rate of about 95% after 12 months. In other words, only 5% of Netflix customers cancel their account after signing up a year earlier. A steady and sticky subscription business almost always beats a comparable faster growing subscriber count with poor retention. 

Dollar Shave Club started as an underdog, but smart marketing and superb operational execution allowed the company to catch the attention of the big players. Beyond the Unilever acquisition, rival shave giant Gillette launched a lawsuit against DSC while also attempting to copy the company’s vision with a razor club of its own. Shave on .... 

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References: 

http://fortune.com/2015/03/10/dollar-shave-club-founding/

https://www.inc.com/magazine/201507/diana-ransom/how-youtube-crashed-our-website.html

https://www.entrepreneur.com/article/224282

https://www.nytimes.com/2016/07/20/business/dealbook/unilever-dollar-shave-club.html

https://www.youtube.com/watch?v=SIVn_nb26BE

https://en.wikipedia.org/wiki/Dollar_Shave_Club

https://medium.com/@nbt/the-secret-behind-dollar-shave-clubs-billion-dollar-success-in-one-graph-f02fba883635