Loyalty in The Subscription Model World

Mar 12, 2018

Subscription Model

Marketers and consumers alike are flocking to subscription-based shopping models. But these businesses face a daunting challenge: maintaining customer loyalty over the long haul.

Think about how difficult it is for a box subscription business like Birchbox or a service subscription like Match.com to earn their customers’ loyalty every month – constantly driving toward repeat purchase. This business cannot take a month off, or in the case of many industries, take six or 12 months off, before their customers fall into the dreaded “inactive” segment. For a subscription business, a customer who takes a month off is usually no longer a customer at all. For a marketer who manages customer loyalty in a subscription model, this is a challenge that must be overcome.

Rising Subscription Economy

With the number of subscription businesses booming, there are plenty of these marketers around. Business-to-consumer subscription businesses have attracted more than 11 million U.S. subscribers in 2017, and the industry as a whole has been growing at 200% annually since 20111. This market is also gaining notoriety and massive investment as small shops become targets for acquisition by much larger companies. For example: Nordstrom acquired Trunk Club, Unilever acquired Dollar Shave Club and Albertsons acquired Plated.

Most of these subscription businesses are new, having ridden the wave of box subscription launches over the last few years, but they also include other types of automatic or recurring billing services. Many have been slow to realize the need to pivot from a near-singular focus on customer acquisition to finding the right way to connect with their expanding customer base to drive engagement, reduce churn, and increase loyalty. How should a marketer think about customer loyalty for a subscription business, and what approaches will resonate given their early stage in the business lifecycle?

Success Elements

The path to customer loyalty can take on many forms, especially for a subscription business. This path should first nail the foundational elements of relationship and lifecycle marketing by using customer data to create personalized experiences, and fully leverage the convenience and stickiness inherent to the subscription model.

Top 5 Foundational Strategies:

  1. Reinforce the Value Proposition
    A sense of discovery can generate strong emotions. Receiving a box each month of new cosmetics from Birchbox or searching through the latest database of family history records on Ancestry.com are powerful reminders to the member that they are receiving value for the service each month. Feature improvements for how members access this content, such as search tools or recommendation engines, are another way to continue to add value, convenience and a strong incentive for your members to stick around. In addition, feature differentiation can be positioned to drive upsell and upgrades – another way to grow customer lifetime value.A subtle way to reinforce the value pledge and your company’s long-term dedication to earning customer loyalty each month is to refer to your customers as “members,” not customers. This may seem like a small token step, but it does help set the tone across the organization of the commitment to your customers’ success.
  2. Voice of the Customer
    A subscription model with continuous service provides a unique opportunity to develop an ongoing dialog with your customers. This feedback should lay the foundation for your strategic approach – identifying the needs, pain pointsand preferences of your customers. Capturing and operationalizing direct customer feedback from key listening posts such as social media, customer support, sales and surveys, allows your customers to share what their needs are and what is important to them. It may even help provide a sense of ownership in the service itself by asking for their help and participation in setting the ongoing value proposition (see Co-creation: Loyalty Marketing’s Big Secret).
  3. Lifecycle Management and Segmentation
    Customer segmentation is one of the most important elements in a relationship marketing program. It sets the table for an effective go-to-market strategy. The customer lifecycle is a good place to start as it allows you to focus attention on each critical part of the customer journey. Typical subscription life stages account for acquisition, conversion, free trial, onboarding, core and former customers. These stages provide a framework that additional segmentation approaches can then be built around.Let your customer data guide you to what is important and the key variables that can differentiate your customer base. Behavioral data tends to be an excellent differentiator and is highly actionable – how are your customers using or not using your service or products? How are they engaging with your brand? Are they finding success or are they struggling to realize value?
  4. Customization
    Creating personalized experiences for your customers is at the core of a good relationship marketing program. It not only creates relevancy but it amplifies the value proposition by proactively meeting your customers’ needs and catering to their preferences. Here are some examples of this:

    • ShoeDazzle engages its customers to take a short fun quiz to capture the customers “Style Profile,” and then provides tailored recommendations in a customized “Showroom.”
    • The style profile experience at Stitch Fix is similar to ShoeDazzle but they take it further by continuously learning what the customer decides to keep and send back to dial up their personalization for future “fixes” – a true learning loop.
    • On the customer communications front, Ancestry.com has been known to send emails with the names of their customers’ ancestors in the subject lines to engage their customers with new database releases, driving extremely high email engagement metrics.
  5. Churn Management
    As a subscription business matures, the importance of retaining existing customers grows. It is helpful to think about the customers lost in terms of churn and churn rate. By doing so, you are able to identify different types of customer churn and put strategies in place to address each.At a high level, there are two major types of churn: customer-initiated – when a customer proactively cancels the subscription herself, and company-initiated – when the business itself cancels a subscription. Company-initiated churn can be a surprisingly large proportion of churn, reaching up to 40% in some industries, and usually consists mainly of past due churn from the inability to successfully charge a customer’s credit card.

    Too often subscription businesses have little insight into the types of churn happening within their customer base and only focus on customer-initiated churn as one big bucket, without an understanding of the underlying churn reasons. Some churn is motivated by a customer’s changing needs or circumstances, rather than dissatisfaction with your product. A customer may be aging out of a given product or service, or their household composition may have changed. In cases like this, you might have another product more appropriate to their needs, and be able to retain their business. Ultimately, you will want programs and campaigns designed to understand churn and proactively intervene.

It is an exciting time for a marketer looking to increase loyalty in their subscription business. While there are certainly challenges, there are also pathways to success. If you would like to speak to someone at Kobie Marketing about how your business can benefit from these strategies, drop us a note at info@kobie.com. We welcome your questions and comments.

Once you have an established and effective relationship marketing program up and running, there may be an opportunity to introduce a more programmatic loyalty membership approach that rewards customers for their engagement with safeguards to ensure retention and revenue incrementality.