Subscription services like Netflix, Amazon Prime and Birchbox have quickly become household names and left consumers craving unique and valuable commerce experiences from every seller.
The challenge in succeeding with subscription-based commerce, however, is that the business model is far from what is now considered traditional. Merchants must not only understand what it takes to initiate relationships with prospective customers, but also what it takes to maintain the subscriber base they acquire.
As interest in subscriptions increases, consider these three important rules:
Rule 1: Provide genuine value.
Although Netflix, Amazon Prime and Birchbox are dramatically different types of subscription services, they have one thing in common; they provide consumers with continuous value. This is the best way to sustain success with a subscription-based business model according to Tien Tzuo, CEO of subscription services provider Zuora.
"We're shifting from selling products to providing services, and in the "Subscription Economy" companies are focused on generating recurring revenue," said Tzuo. "So it's not about the price of the product and the margin. It's about delivering ongoing value to a stable customer base."
Amazon Prime, for instance, provides consumers with a membership that includes benefits like free two-day shipping and early access to deals on Amazon.com. Conversely, Birchbox provides value both monetarily and convenience-wise, as the company delivers a variety of beauty samples to its subscribers for just $10 each month. These samples enable subscribers to avoid the hassle of traditional shopping and try products they may have not purchased otherwise.
While quite different in scope, both Amazon Prime and Birchbox are successful with the subscription model because the benefits they offer provide genuine value to consumers, which in turn drives loyalty. For example, an Amazon Prime member is likely to make future online purchases on Amazon, just as a Birchbox subscriber is more likely to purchase the full size of a sample product from the company's online store.
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Rule 2: Focus on customer retention.
It is much less resource-intensive to build on existing customer relationships than to acquire new ones. In fact, Tzuo notes that most large subscription companies generate just 15 to 25 percent of their revenues from new customers. To improve retention efforts, merchants should identify their brand's "churn trend."
According to CEO and Founder of subscription commerce platform OrderGroove, Greg Alvo, churn trend can be found by identifying how long the average customer is staying subscribed and why they are churning. When identified, merchants can take steps to deliver enough value right before the customer is projected to churn to get them over the virtual hump. Merchants can also get more detailed churn insights by using cohort analysis, a means to understand how specific groups of customers evolve over their lifetime as a subscriber.
Using cohort analysis, merchants can gain useful insights by comparing trends like the churn rate of new versus existing customers or the churn rate of subscribers acquired through different channels (e.g. social versus referrals).
Rule 3: Be equipped.
Ensuring subscription-based businesses have the right tools and technologies can significantly help in a merchant's quest for success. Zuora, for instance, recently introduced a solution called Z-Insights that provides merchants with a complete picture of every subscriber, enabling them to identify subscriber usage patterns and interactions. Merchants can also use the solution to segment subscribers by common traits and behaviors, which can help them look for signs of churn or subscribers in need of an upgrade.
OrderGroove is another company helping merchants develop better relationships with their customers. For example, OrderGroove provides subscription offer testing and optimization tools to help merchants discover if customers will respond better to offers like discounts versus free samples. By leveraging the testing data, merchants can optimize both their acquisition and retention efforts.
Subscribing to Success
The increasing popularity of subscription-based business models has given consumers even more reasons to demand unique commerce experiences. Merchants must now leverage the right strategies and technologies to meet consumer demands and make the most of these recurring revenue opportunities.
