Retail subscription services are booming, with the subscription box market set to be worth £1 billion by 2022. But ensuring the long-term success of a subscription business isn’t easy. Especially where more budget allocation is given to customer acquisition than customer retention.
The simplicity and convenience of subscription businesses has ensured their continued relevance in a world that’s more time-poor than ever before.
With 2.9 million of us signed up to an online retail subscription, there’s clearly an appetite for retailers to satisfy when looking to experiment with a subscription model.
The likes of Birchbox, HelloFresh, The Chapar, Flavourly, and lesser-known subscription box brands have successfully tapped into this consumer appetite, with compelling branding and product offerings.
Research from Royal Mail found that more than 50% of the businesses they surveyed see subscriptions as a major focus for them in the future, with 58.6% saying they intend to invest in new or existing subscription services in the next 12 months.
Why? Because subscriptions are attractive to organisations looking for tighter control over their potential revenue as they create a business model based on predictable, repeatable purchases.
What’s more, these models offer opportunities to tie customers into long-term relationships, opening new doors to customer insight and loyalty, and enabling businesses to focus on servicing customer needs as part of an ongoing relationship.
Not all subscription services were born equal. So what are the different types you can offer your customers?
Curation services are collections of different items grouped together based on customer preferences or previous purchasing decisions (think fashion, health, groceries etc.). They are the most popular by far, representing 55% of total subscriptions.
Replenishment subscriptions allow shoppers to automate the purchase of commodity items (such as razors or nappies). This accounts for 32% of subscriptions and lends itself best to innovative initiatives such as auto-replenishment buttons or voice-based technology.
Access-based subscriptions allow customers to pay a recurring fee for lower pricing and exclusive perks. For example, Apple’sNews+ brings together more than 300 popular magazines and newspapers into the Apple News app for a set price.
One of the single biggest pitfalls to avoid when it comes to taking any subscription service to market is to invest heavily in acquisition tactics without focussing on the quality of the customers you’re seeking to acquire.
It’s easy to fall into the trap of chasing a target number of “subscribing” customers without considering how effective those customers will be in creating a return on investment.
Front and centre of any acquisition drive must be the lifetime value (LTV) of the customers that are signing up to the service you’re providing. It’s important to focus on drawing in customers who are likely to sign up for premium services and remain customers for a longer period of time.
With that in mind, it’s essential to form a customer strategy that concentrates on rapidly identifying and retaining valuable customers to then transform them into loyal shoppers. After all, research shows that the top 20% of your existing customers account for 53% of your sales.
To retain valuable customers, brands have forged loyalty programs to identify and reward their faithful customers. Some brands have long-established strategies, but solutions such as LoyaltyLion allow brands to create their own unique loyalty programs without requiring a large investment.
With a focus on driving engagement, loyalty programs can easily be created to reward behaviours across the entire customer journey whilst providing critical insight into those at risk of leaving the service, to win them back.
Key to the commercial success of any subscription service is to identify customers of worth and retain them long term by providing value to the customer.
Do this by intelligently segmenting your shopper base to identify which customers are costing your business money and, likewise, identify the behaviours that indicate that a customer is starting to disengage, or is at risk of leaving your service. You can then take action to encourage them to change their behaviour and drive out more profitable relationships.
For example, businesses who offer subscription-based free delivery can easily be selling low margin items at a loss. Combat this by using opportunities to upsell heavily discounted (but high margin) products to customers whose baskets would otherwise cost your business. This will turn the overall transaction into one that generates profit rather than leaving you at a loss.
Likewise, you could add disengaged customers into a tiered-based loyalty program. By offering bigger and better incentives (such as free shipping or first access to new collections) customers will be more enticed to spend more and engage with your brand to unlock exclusive benefits.
It’s far easier (and typically cheaper) to save a customer from leaving than to win them back once they’ve already left. To do so, you must first understand what customers perceive as value, and this may differ across a range of customer sets and personas.
By understanding what customers see as valuable, and by tracking and analysing how your customer base engages and interacts with you, you can start to build up a model that represents your customers’ “normal” behaviour. From there you can then identify behavioural changes that lead to customers cancelling their subscription.
Over time, patterns will start to emerge which can be used to identify trigger points for re-engaging customers. For example, if a customer visits the site on a regular basis, but then reduces the number of times they spend on a particular page, this may indicate a behaviour change consistent with customers who cancel their subscription.
The trick here is to discover customers at risk of churn early enough to do something to re-engage them, but not so early that it requires unnecessary investment.
From my own experience heading a multi-million-pound subscription business, and working with others since then, customers tend to stick with subscriptions for several key reasons.
On the assumption that the product and service that they receive is of good quality and meets their needs, the three key reasons are:
With a rapidly growing market, subscriptions offer an effective means of capturing a customer base to drive out predictable, recurring revenue.
But establishing customer relationships that drive out long-term engagement (and avoid high churn rates) requires businesses to develop great experiences that use insight and feedback to curate services that keep customers coming back for more.
Inviqa combines strategy, customer insight, and software development to craft game-changing digital experiences. We’re a team of more than 200 strategists, designers, and technologists. And with 12 offices across the UK and Europe, we’re a local agency with global reach. We have more than ten years’ experience helping brands including Virgin, Arsenal FC, Dreams, and Age UK to create digital products and experiences that deliver measurable impact. Inviqa is a regular feature in Econsultancy’s Top 100 Digital Agencies Report. Our work has been recognised at the likes of The Webby Awards, The Lovie Awards, and UXUK.
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