In an ecosystem of multiplying methods for shoppers to research, purchase and even waffle, retailers and brands are investigating new channels of recurring revenue. Potentially feeding the beast — or in this case, demanding consumer — subscription services have abounded.
With the news of Unilever’s relatively recent acquisition of Dollar Shave Club, a box-based monthly subscription that provides its members new razors and shaving accessories, it’s clear that this path is one worth considering. Dan Burkhart, chief executive officer of Recurly, a subscription management platform that specializes in secure subscription management platforms, discussed trends in the sector in addition to maximizing the variety of consumer data that subscriptions provide.
WWD: What are common challenges retailers are encountering when expanding into subscription services?
Dan Burkhart: Retailers in general have added challenges of shipping physical goods, shipping costs and deliverability. There’s not only interest and requirement of acquiring customers, but they have to look at profitability and how long they can retain customers over time. Retailers need to consider lifetime value, how much does it cost the company to service the customer — it’s not just shipping and handling, but also returns.
Looking into the subscription category, retailers need to try to understand these variables, price points and receiving value from month-to-month. Retailers need to be concerned with making [subscription service] relevant to the customer, help make [members] understand what’s coming and to anticipate something special. This can greatly influence the retention of customers and lead to loyalty for longer periods of time.
WWD: There are many segments of customer data collected from adding a subscription model, what are the most important areas for retailers to review?
D.B.: It’s important to look at demographics that have different characteristics — it all depends on the audience. For example, credit cards fail for different reasons: churn can be related to involuntary churn — something as simple as a credit card fails and the client chooses not to update subscription information to continue her subscription — to larger dissatisfaction. Be sure to look at the churn rate.
By ensuring the continuity of loyalty, involuntary churn can be prevented. On the retention side, look at free-trial conversions and coupons. Most companies should look at the level of engagement among subscribers. Which are most engaged versus those that they have lapsed or declined? Members of the latter are prime candidates to not renew in upcoming cycle. Marketers can put promotions in front of those customers to improve renewal rates. It’s more cost-effective to retain customers at lower levels than find new customers. Brands also can focus on hyper-engaged segments as well to reward them, or to offer gift subscriptions to champion their brand, and the customer.
WWD: What are the overarching trends in this business landscape?
D.B.: Really the subscription model in itself. This can be oversaturated by retailers giving too much of the same thing on a monthly basis. This model isn’t only about curating a variety of consumer products. They should offer the ability to upgrade or downgrade the level of subscription to find the right level of subscription to eliminate types of items that repetitively aren’t wanted.
From a marketer perspective, companies have had to figure out how to innovate on subscription plans and allow them to be tailored for subscribers so the subscription feels sustainable and fits their style. Shoes are an interesting category that’s had difficulties because of challenges to anticipate a move in trends, the companies had to innovate, and had to take feedback that dramatically changed the way they operate.
There’s a trend in technology devices that are being sold in adjacent subscription services across categories: FabFitFun offers general beauty brands intersected with fashionable items to lotions to makeup to something related to fitness.
WWD: What are key considerations for companies considering adding subscriptions to their business model?
D.B.: Subscription services are doing well. Subscriptions are putting a lot of emphasis on user experience from websites to the unpacking-the-box-moment. Customer service is simple and straightforward — style has a continuum and so does subscription. Subscriptions need to be consistent to be credible.
User experience design should always encourage merchants to be able to upgrade or downgrade to provide a pleasing experience. Post-sale, customer service needs to be impeccable as well. Companies that presume that they can sign up a subscriber and simply send box are making fatal assumptions. When shipping physical goods, there needs to be passion in the life cycle of continuum. Products are constant reminders, so the entire service needs to be continually pleasing and inspiring to the customer.