The Subscriptions Future: Customer Retention Forever (Part 7)

Commentary – 2 lists out the 5 key benefits of a subscription model:

  1. Reduced cost of acquiring new customers: Long-term loyalty, as measured by customer lifetime value, will boost retention rates and increase CLTV. Having a better return on acquisition spending can increase your profit margins dramatically.

  2. Lower retention spend: You don’t need to remarket in great detail to your customers so that you can focus on other things. The cheaper your marketing is, the less likely your subscribers are to churn.

  3. Better financial forecasting: Subscriber-based business models offer the benefit of predicting your revenue stream accurately and reliably. With a solid grasp of your economic forecast, you can make better business decisions.

  4. Better inventory management: You can anticipate demand and supply more accurately, resulting in a more consistent business process.

  5. Opportunities for better relationships with customers: With an in-depth understanding of their customers’ preferences and usage behaviors, subscription retailers can provide customized content to them. Additionally, when you construct a strong relationship with clients, you can easily promote upsell and cross-sell opportunities.

McKinsey (from a 2018 article): “The subscription e-commerce market is growing quickly. For consumers, subscription products or boxes offer a convenient, personalized, and often lower-cost way to buy what they want and need. Companies in the space must develop great experiences (as opposed to great subscriptions) to avoid high churn rates and to accelerate both growth and profitability … There are three broad types of subscriptions: replenishment, curation, and access. Replenishment subscriptions allow consumers to automate the purchase of commodity items, such as razors or diapers. Curation subscriptions seek to surprise and delight by providing new items or highly personalized experiences in categories such as apparel, beauty, and food. Last, access subscribers pay a monthly fee to obtain lower prices or members-only perks, primarily in the apparel and food categories.” The chart below elaborates:

Forbes: “One big reason for the rise of the subscription model is price. Costco customers pay the annual fee for unique goods sold at low prices. A company like Dollar Shave Club exploded in popularity because it sold people cheaper razors than they could buy in stores, plus they were delivered directly to the customer’s door. This speaks to another factor: convenience. Of the three big subscription buckets — replenishment, curation and access — the replenishment bucket makes its bones off convenience. Personalization is a third reason subscriptions are so hot. Finally, there’s curation, which is slightly different from personalization. Curation is the feeling that an expert is pulling together pieces to make an exceptional product.”

Razorpay: “It took a while for the subscription model to gain a foothold in India. But the success of brands like Amazon Prime and Hotstar has proven that there is a massive market for subscription businesses in the country … Brand loyalty, which once upon a time guaranteed a minimum ROI, is no longer something can be relied upon. Today, you have to win your customers repeatedly with every interaction. While they need to see the value of your service each time they use it and every time they pay for it, they also expect a personalized experience.”

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Rajesh Jain

An Entrepreneur based in Mumbai, India.