Adam Levinter’s “The Subscription Boom” provides many case studies of successful subscription businesses: Amazon, Netflix, Dollar Shave Club, IPSY and Stitchfix. Adam writes: “While recurring revenue is attractive, subscription also provides predictive cash flows, better inventory control, and juicy customer lifetime values—all while avoiding the volatility of a typical boom-and-bust product cycle. Most important, subscription creates better customer loyalty by building a relationship between brand and customer. A traditional model means a brand must go to great efforts to re-engage a customer to make a repeat purchase. Subscription, on the other hand, means that that onus shifts from merchant to customer, who, by default, is automatically opted in to repeats unless they sever the relationship by cancelling.”
Adam describes the origins of Dollar Shave Club, which offered blades on a subscription basis:
The men’s grooming industry is a great case study in understanding the fundamental shift in power—from corporation to consumer—at the center of this book. Gillette and Schick spent about a century pumping out variations of the same products, until Michael Dubin realized that their lack of customer insight was a major opportunity for Dollar Shave Club (and then its East Coast competitor, Harry’s) to disrupt the status quo.
Dubin’s plan of attack against the long-time incumbents focused on customer pain points. As Dubin put it to Fortune magazine, “the beginning of the story is about solving a problem for guys. And the problem that we’re solving at the very basic level [is] that razors are really expensive in the store. It’s a frustrating experience to go and buy them.”1 Shaving is a simple act, easily accomplished with a standard blade, so why did it have to be an expensive hassle? If a man could get cheap everyday essentials delivered via Amazon, a trip to the local Walgreens to ask a store clerk to unlock a display case—a brutal annoyance—shouldn’t be necessary. The solution to men’s shaving woes lay in a new value-driven formula, built around the customer, that would remove such headaches.
Dollar Shave Club was eventually acquired by Unilever for $1 billion in 2016. It had over 3 million subscribers at that time.
Another origin story: “Stitch Fix began in 2012 by targeting fashion-conscious women who loved looking great but hated going anywhere to shop. New customers to the website fill out a form detailing their style preferences, clothing needs, and price points. Algorithms then churn out a set of potential choices, which one of the company’s stylists tailors to the individual customer before shipping five items direct, for a $20 fee. Anything a customer doesn’t want can be returned free of charge. Should a customer keep any of the items, the $20 styling fee is applied toward the purchase—and customers who keep all five items receive a 25 percent discount.” Stitch Fix went public in 2017 and is currently valued at over $3 billion.
A common theme that Adam finds across the successful subscription companies: “… [A]s we enter the next chapter of consumerism, a customer can no longer be just a customer. They must be a loyal follower. A subscriber. A “true fan.” … The power of the fanbase lies in the multiplier effect. Fans become little marketing organisms that spread brand awareness through word of mouth at dinner parties, family affairs, conferences, networking events, and on social media. They write blogs, post product reviews, share photos on Instagram, and upload videos on YouTube highlighting what they love, and why they love it … Subscription is a mechanism that lets a brand not only establish an engaged fanbase, but also turn that fanbase into potential profit—fast. As musician Robert Rich pointed out in response to [Kevin] Kelly, it’s tough to make a living from only 1,000 fans if you’re only selling them one album and concert ticket a year. To generate real traction you need to sell them something several times over. Subscriptions are a great way to do just that.”
With success stories growing, the idea of subscriptions is expanding its footprint across many industries.