The dark cloud of the pandemic had a bit of a silver lining, and that was its impact on subscription brands. And it’s not for nothing, especially when you consider how the lockdowns changed people’s habits—from shopping, to working, to eating, and more. It collectively accelerated the shift towards e-commerce and online shopping, and for many consumers, it pushed them towards subscription-based purchasing for the first time.
Surveys show that one in five American households signed up for a retail subscription box during the pandemic, with sales surging to a hefty $23B. During a global recession. Beauty brands in particular were glowing (pun intended), with quadrupled sales compared to just five years prior.
Then again, why not, right? According to Royal Mail’s report, 55 percent of subscription box consumers stated that they signed up to a regular service last year because they wanted to treat themselves or to cheer themselves up during lockdown. Almost 60 percent of shoppers who were surveyed also said they had purchased a subscription box as a gift during this time, as they were unable to see friends and family in person. There was also the emotional and entertainment factor, cause I mean hey—doesn’t it feel nice to receive a little something every month? Especially if it helps pass the time in one way or another? That explains why twenty-three percent of subscription users subscribe to beauty boxes (compared to 19 percent for food and drink and 15 percent for fashion).
But the key point here is that all this growth was merely the honeymoon phase. Now that we have collectively entered the new normal, things are getting real. I’m sure your team has picked up on the fact that scalability has dropped big time. It’s getting increasingly difficult for brands to maintain their growth and performance.
So what now? What should your brand do to avoid downturns, to ensure being on the right track for continued exponential growth? Well read on—I gotchu!
In order to support your brands future growth efforts, you MUST have the infrastructure set in place that allows you to collect, analyse and activate your data. The more relevant data you collect the more chances your growth efforts will be successful. This is made all the more richer when zero-party data is incorporated. According to research by Forrester, zero-party data is “Data that a customer intentionally and proactively shares with a brand, which can include preference center data, purchase intentions, personal context, and how the individual wants the brand to recognize her.”
As we stated in a previous post, zero-party data will help your brand get a better grasp of the LTV of your different customers, thereby helping you make strides in acquiring additional customers that demonstrate similar LTV, especially when using a LTV predictive model. Such a model can help you acquire and target loyal subscribers who are more likely to engage with your brand, so you can increase sales while lowering churn rates.
One of the best ways to obtain zero-party data is by asking your customers the right questions straight away. More on that in the next section...
When a subscription business starts to get to scale, one often-overlooked factor is win-back or resurrection potential. Also, how can your company turn previously churned subscribers into paid subscribers again?
Even for the most superior of brands, churn is inevitable. However, it CAN be reduced, and it all starts by focusing on high value users. That brings about the next question—how can you identify the high value subscribers? There’s one more simple-yet-amazing tactic that brands tend to forget to capitalize on: questionnaires. These can be the secret weapon to winning the user acquisition game.
Churn has too high an impact on the revenue stream and profitability of subscription brands. By gathering information from a questionnaire, you can predict a user's true value and focus your marketing efforts on the highest-yield audience segments to drive profits. BUT before you jump into whipping up a questionnaire, be sure to have some the basics right:
With that in mind, it’s highly recommended for your team to capitalize on loyalty-focused campaigns, which become all the more effective if you use predictive models to determine which customer would have a better LTV over the other. You can then signal the users who are more inclined to make purchases over time.
This is another area where predictive modeling can help make life easier for your growth team. That is because it eliminates the guesswork, and helps amplify efforts with long-term profitability prediction. And it’s all done in an efficient and cost-effective way, while enabling you to check yourself versus benchmarks for retention. This might bring about the question—what is good retention? While there are many variables to consider, expert Lenny Rachitsky expanded on this in one of his posts, based on experts’ experience and data gathered from companies. Rachitsky claims that great user retention at month six is above 50 percent, and great revenue retention at month 12 is above 80 percent.
Please note: cohort analysis does not solely revolve around the raw percentage of subscribers within any time frame, but rather the slope of the curve in outer months. The general rule of thumb is that the flatter and more asymptotic the curve, the stronger the positioning of the subscription business.
Hope is not lost with former-subscribers after they churn, and having a strategy of how to win-back users to subscribers can make a big difference. It’s doable because you already have an open line of communication with those users anyway, which is typically emails. Also, if you had previously implemented the questionnaire, that’ll put you in an advantage. You will be in the position to present them with personalized offers, and quick deals to win them back.
Many subscription brands are shifting from CAC, to payback strategy, in an effort to revamp their UA strategy. That is mainly because changes in ad networks and operating systems led to rises in CAC, thereby making it increasingly difficult for brands to maintain their previous momentum while increasing, or even maintaining profitability. CAC strategy ended up limiting a brands ability to scale, because it only “locks” the price they are willing to pay. Locking your price implicitly assumes locking your customer's LTV. That works, on average, but it doesn’t scale well, because it does not distinguish between "somewhat good" and "terrific" customers.
Inversely, payback/return based strategy allows growth teams to “stretch” that limit by focusing on the return, and not limiting networks to “fish” in a limited pool. If you’re looking to get on board the payback approach, have a look at this post.
Many subscription brands collectively gain major profit from offering last minute additions to customers before orders are finalized. With that in mind, you should have a good understanding of the percentage of users and revenues from those last minute purchases, and how to promote/capitalize on those. This can be done either by better funnel/product work, or by marketing work (encouraging subscribers to make those impulse purchases.) And once again—having a good LTV model set in place will help you better understand who your most valued users are.
When it comes to making your subscribers want more, there are many interesting (borderline psychological) tactics used by some awesome subscription brands that you might want to consider for your own.
For instance, some brands start off by throwing some bait to their customers, and slowly working their way up from there. Okay, that sounded a little weird… but take Dollar Shave Club, for instance. They started off offering super affordable razors. That led to razors and wipes. Now they offer several different products that fall under mens skincare.
If relevant to your brand, you might also want to consider giving your customers the option to purchase bundles of multiple products in one package—kind of like how Amazon Prime does it.
All in all, there is still time for your brand to get back on track for sustainable exponential growth. LTV predictive models will help give you the boost you need to intelligently amplify all your growth efforts, without having to lose blood, sweat, and tears over it.