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Separating winners and losers in the subscription economy

Separating winners and losers in the subscription economy Nick Worth

Last year Unilever ponied up big bucks to buy Dollar Shave Club, valuing the company above Gillette, its competitor with higher annual revenue. Followers of the subscription economy boom know that the real value of the Dollar Shave Club acquisition lies in its successful Millennial-focused subscription business model. Loyal subscribers who offer their data as well as monthly fees are why Dollar Shave Club shareholders find themselves fingering such a large check.

While Dollar Shave Club offers low cost, reliable razor delivery, funding has poured into a slew of variants across fashion, consumer packaged goods, food, fitness products, and even pet products. I recently saw a billboard for Harry's, a copycat razor delivery competitor to Dollar Shave Club.

All is not perfect in subscription land, despite the frothy investment market. News of shuttered startups has started to spread. Angry subscribers are fighting over confusing billing practices and are lamenting false promises of unique and personalized goods. Consumers that embraced the first wave of companies are starting to leave.

So what does it take to make it past the start-up phase and become a sustainable business? Consumers are becoming more interested in experiences than products. Unlike companies that sell products, subscription companies trade on genuinely valuable and personalized experiences as much as whatever product comes with them.

Marketers at subscription companies need to think of themselves as hotel concierges. By the nature of the subscription business, all customers are "loyal" and have elevated expectations for quality service. A subscription marketer must deliver knowledgeable communication and pain-free interaction that goes beyond clear billing and convenient delivery.

Yet not every company actually lives up to the expectations set by their "personalized" pitch. Stitch Fix asks for fashion preference details, but then sends products that don't take the input into account. Blue Apron only allows subscribers to select from a few broad categories such as meat or vegetarian. Consumers want know that like a good concierge, their subscription provider is bringing them an ever more tailored experience.

Subscription marketers must avoid a simple two-pronged marketing approach (acquisition/retention) and embrace a more individualized approach that gets more personal over time. The exciting first sign-up phase produces high expectations of a unique experience.

Once a consumer has been convinced of the value of this new relationship, the marketer must focus on keeping the consumer engaged. Connecting in creative ways that help the marketer gather relevant data and keep the consumer interested. Pley, a toy subscription company that offers a different custom package of LEGOs each month knew that many of their subscribers were adults that loved to work with LEGOs as a creative pursuit. To increase loyalty and relevance without much overhead cost, Pley, created an entire social community where subscribers share their designs with other subscribers and even rate them.

Being attuned to nuanced differences between consumers is key. Marketers can get creative about how they gather important data. Some customers might want a recommendation to wear the same dress that they wore before and liked, others will not. Having an option to check a "remind me later that I liked this dress" button creates a win-win for the marketer and the consumer, but the marketer needs to actually follow through on this cue.

Subscription businesses don't have to personalize every interaction to succeed. Dollar Shave Club wanted to upsell everyone, but quickly realized that individualized marketing to everyone was costly, while blanket marketing was too generic. They used data analysis to find a subset of buyers that were most likely to be receptive to increased engagement and generated a high return as a result.

Not every subscription will survive the investment frenzy of the past few years. As consumers lose their need to go to stores to shop or even to own the products they use, the best subscription businesses will stick around. Those that steadily improve their customer's lives over time are the ones that will thrive.

Digital marketing executive expert at scaling marketing services businesses with more than two decades of experience as a marketing and strategy leader in the US and Europe. Currently Chief Marketing Officer of the leading independent campaign...

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