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A subscription model provides the flexibility customers want—but you have to engage them to make it work
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There's no denying the growing popularity of subscription offerings: People are subscribing to cars, flights, diapers, clothes, prepared meals, and anything else you can think of. In many ways subscribing to products and services is a better lifestyle fit with today's customers, giving them flexibility in delivery and payment methods. And subscription models provide a level of service and attention that customers crave—more of an ongoing, show-and-prove service model.

As consumers move more of their purchases to subscriptions, the businesses providing them are happy as well with what they're receiving: longer-lasting customer relationships, and more consistency/predictability in their business.

Companies seeing the best results with subscription models have a few important themes in common.

GOING FROM BREAK-FIX TO SERVICE FIRST

Adobe stopped selling its Creative Suite software three years ago and offered it as a subscription service—Creative Cloud. With Creative Cloud boasting about 4 million subscribers, the move has paid off and then some. Having the right service model in place was a big reason.

According to Rani Mani, director of customer success for Adobe, Creative Suite customers had one transactional experience every 18 to 24 months, depending on the release cycle. But with Creative Cloud, it's a monthly investment, which makes customers more aware of and interested in finding value. Customer service used to follow a "break-fix" model, but now it's focused on helping customers explore the tools and maximize their subscription. "It's more about a journey, and this changed mind-set results in us putting more focus on the overall experience."

SERVICE-FIRST MODELS CAPITALIZE ON SOCIAL

According to Amir Elaguizy, cofounder and CEO of subscription commerce platform Cratejoy.com, this service-first approach underpins the success of subscription models. "The cheapest customer to acquire is one you didn't lose. If you lose one, you lose revenue and have to pay more to bring on a new customer to net out the loss. So the key to good retention is great customer service."

Rohan Gilkes, CEO of WetShaveClub.com, would agree. Gilkes bought that domain and in one year turned a $4,000 investment into $350,000 in revenue. "Every happy subscriber is somebody you talk to every month, and every month you have an opportunity to say, 'Hey, delighted customer, why don't you tell your friends how awesome this subscription is?' Invite them to write a review or tweet that they just got their box or take a picture opening their box and put it on Instagram." Because you're having frequent interactions with subscribers, you can maximize the value you get from them.

FOCUSING ON CUSTOMER RETENTION HELPS CUSTOMER ACQUISITION

If you have a healthy relationship with a group of happy customers, you can invest more in customer acquisition, Gilkes says. "Because we have recurring revenue, we can have a higher customer acquisition cost. We could almost lose money on the first box, and make it back in month two, three, and so on. That let us go into Facebook advertising, AdWords, retargeting, and actually spend money to acquire customers."

PAY ATTENTION TO CHURN

According to Cratejoy's Elaguizy, grasping the importance of retention is one of the most challenging aspects to starting a subscription business—especially if your background’s in transactional businesses. "The thing people optimize for in transactional businesses is conversion rate—what percentage of people click the big buy button when they visit my home page." Elaguizy says conversion rate matters in subscription models in that you need to get customers on board. But avoiding churn matters more.

"If you're churning off 20 percent of subscribers every month, it doesn't matter what your conversion rate is because user-acquisition costs will eat up your money, and you're never going to have a very big business.

"It's a mind-set shift from trying to get as many people to click buy as possible to trying to make sure as many people are extremely happy with my offering as possible. It's more of a relationship and less of a transaction."

Brent Leary is cofounder of CRM Essentials, an Atlanta-based advisory firm focused on small and midsized businesses. He is also the author of Barack 2.0: Social Media Lessons for Small Businesses.

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