The subscription industry is growing at an astonishing rate, with McKinsey reporting more than 100 percent growth per year, over the past 5 years. As the availability of subscription services has grown, brands are starting to face many of the challenges their traditional e-commerce and brick and mortar counterparts have been dealing with for decades. The challenges such as high cost of acquisition, difficulty growing average order value, and high churn rates span all Shopify subscription services. But, the subscription model, whether replenishment or curation, can have a huge impact on the answers to the problem.
In this guest post, our partners at Annex Cloud will break down the specific strategies their customer success team recommends to tackle these challenges based on the specific subscription model.
Customers who subscribe for the purpose of replenishment are looking for convenience, utility, and reliability. They want to buy the products they’re familiar with and feel assured that they will arrive at their home when they need them.
Unfortunately, with big-box stores and companies like Amazon diving in, the space is getting noisy and harder to compete in. Amazon’s Subscribe & Save service currently has the highest overall subscription rate in the industry. But all hope isn’t lost for the smaller competitors.
Reducing Cost of Acquisition:
According to McKinsey, the two leading reasons customers choose to initiate replenishment subscriptions are financial incentives and recommendations. These factors represent a lot of opportunities for brands who are looking for ways to break into or grow their replenishment subscriptions.
20% of respondents to McKinsey’s poll say that a recommendation was the trigger for initiating their replenishment subscription. With this in mind, referral marketing is a great way for brands to proactively pursue recommendations. A tailored referral marketing program gives brands the flexibility to create incentives their subscription clients will respond to.
An astonishing 24% of consumers reported financial incentives were the biggest reason for initiating a replenishment subscription. Unfortunately for brands competing against the goliaths like Amazon, discounting isn’t always an option. It can quickly become an unsustainable race to the bottom. But, loyalty marketing can help smaller brands compete on price without the aggressive discounting techniques.
A well-designed loyalty program can offer customers the same, if not better financial incentives over the long haul. Smaller companies also have an advantage in their ability to adapt quickly. As competitive pricing gets worse, seasons shift, or other factors impact their customers, brands can adjust their loyalty rewards and offer special promotions to continue to attract new customers. Limited-time, high-value loyalty promotions are a great way to get customers in the door with your replenishment subscription.
For obvious reasons, increasing the average order value (AOV) of replenishment subscriptions can be especially challenging. For most customers, a replenishment subscription is a set-and-forget. But, a loyalty program that focuses on rewarding customers for engagement-based actions in addition to purchases can go a long way in combating this mentality.
By regularly engaging with customers in meaningful ways outside of their regular replenishment related communications, you keep your brand top of mind. You can also create a loyalty communication schedule that has built-in opportunities to suggest products they may want to add-on to their orders. This also gives you an opportunity to remind customers of the financial and time-saving benefits of adding products.
When you have established a rapport with customers through your loyalty communications, you can then use that channel as a way to suggest add-on products. Utilizing user generated content such as reviews and visual commerce in these suggestions is a powerful way to increase the conversion of add-on items.
Your loyalty structure can also play a huge role in increasing average order value. One option is to create tiers for replenishment orders so as customers spend more on each order they earn a higher rate of loyalty points or high-value rewards. Depending on your business model, this can mean increasing loyalty points for each product added to a subscription or adding additional points or high-value rewards when customers add one-time products to their regular subscription.
Reducing churn – Driving higher Rretention
For any subscription service, churn is the number one fear. Unlike curation brands, replenishment brands don’t typically have to worry about their service losing novelty. But, they do need to make sure that their service is always adding value to their customers’ lives. According to the McKinsey poll, the biggest reason for churn in replenishment services is dissatisfaction with the product or service.
Slow moving large corporations are at a disadvantage here – the adaptability of smaller brands puts them at an advantage. Smaller brands can keep better tabs on their customers’ satisfaction levels and react much more quickly when they notice an issue.
Subscription brands have a few strategies they can tap into when they are looking to tackle the issue of churn. Routine surveys are a great way to evaluate what your customers like and dislike about your service. And, loyalty rewards a great way to spur participation.
For brands that sell more than just replenishment products, creating stackable loyalty rewards is a great way to keep your customers repeat business. If customers are interested in buying other products (potentially at higher price points), giving them stacked rewards and effectively communicating these reward opportunities keeps them actively engaged with their subscription as they work towards the reward amount they want.
Finally, surprise and delight rewards are an excellent way to keep replenishment customers active. Regularly surprising customers with points and rewards make them feel genuinely valued, which goes a long way in reducing dissatisfaction and ultimately churn.
For curation brands, a loss of novelty is the biggest killer. Customers who subscribe to curation services are looking for something exciting to receive in the mail each month. Afterall, the biggest reason customers join a curation subscription is simply “to try something new”. This makes acquisition a little simpler, but unfortunately churn is significantly more challenging.
Reducing cost of acquisition (CAC)
For curation brands, acquisition is relatively straightforward. Saturation is the biggest factor that can impact acquisition, but it varies widely depending on the industry segment a brand is operating in.
Acquiring new customers to a curation brand comes down to convincing customers that your brand is exciting month-over-month and offers the most value for the cost. This can be accomplished in two key ways.
Referrals are the first strategy that a curation brand can capitalize on. 84% of global consumers believe recommendations from friends and family are the most trustworthy sources of information. Using your already happy customers to recommend a curation service is the best way to convince potential customers that your brand will bring them more joy and satisfaction than your competitors.
The second strategy for acquiring new curation customers is capitalizing on user generated content. Because of the role curation brands play in customers’ lives and the nature of social media, the internet is rife with customer-generated content. From blogs to Instagram posts and Youtube videos, customers are regularly creating content about their latest box or monthly delivery. Collating this content and collecting permission to use it in marketing is an excellent way to convince customers of the value of your curation subscription.
Growing average order value
Much like the replenishment model, the best way to increase the average order value of curation brands is through add-on items. And again, similarly to replenishment, the most effective way to encourage customers to add-on to their regular subscription is through strategic loyalty rewards.
However, curation brands can take a unique marketing approach when it comes to their product add-on strategy. Curation brands can utilize loyalty to offer even more points or higher-value rewards for adding on products a customer previously received in one of their curation orders. The high-value of the reward combined with the recent familiarity and excitement around the product increases the likelihood of a customer adding it to their monthly subscription order.
Reducing churn – driving higher retention
Curation brands are discretionary services which means churn is one of the biggest areas of concern. 29% of customers leave because they don’t see the value for the money and 27% of customers leave because they are dissatisfied with the product/service.
For curation brands, making customers feel valued and delivering high-value products and services is key.
Surprise and delight loyalty rewards are a great way to make customers feel valued. When you give customers rewards without any apparent effort or investment on their end, they will see more value in their subscription as a whole.
For some segments of curation such as beauty brands, a big factor in churn is simply an accumulation of product that a customer can’t keep up with. For these brands, their loyalty programs need to adapt and deliver rewards that aren’t just more products. Experiential rewards and unique services are a great option. Beauty and cosmetic subscription services can host exclusive events like workshops and meet-and-greets for specific loyalty tiers.
The subscription industry is exploding. The right combination of customer loyalty, user generated content, and referral marketing strategies can help any subscription business grow and retain their customers.