Much can be learned from the successes and missteps of companies large and small across the marketplace. My partner, Eddie Yoon, and I have begun to unlock the emerging theme for 2019 around subscription models and their potential for the marketplace at large.
As Eddie has discussed in several videos recently, subscription models are clearly not a one-size-fits-all phenomenon. There is important nuance in the merits of “subscriptionizing” products vs. categories, and the fundamental nature of the underlying business model. What has emerged from that are questions around how one can determine when it is time to make the leap for your business. And this is where we must take a look at the practical/tactical side of subscription models.
Repeat customer base: First and foremost, subscription models do not make any logical or financial sense without a sizeable share of repeat customers… either of the brand specifically, or the product category more broadly. It’s the fundamental underpinning of subscription models. The understanding of the percent of units that source from repeat customers is what should empower companies to recognize its time to make the leap.
As Starbucks began to realize that X percent of its customers were visiting Y times per week it was clear there was an opportunity to secure and cement those relationships to avoid a jump ship to the nearest Dunkin Donuts. This is obvious. What is less obvious is that not all repeat customers are created equal. There is a distinction between the repeat haircut buyer and the repeat coffee drinker, whose need can only be satisfied with a Starbucks latte.
That difference is in the Superconsumer, the subset of repeat customers who not only buy the category regularly, but feel passionately about it and evangelize the benefits of it to others. Establishing the presence of Supers (and they exist across every category) as well as the share of your customers that are Supers is an important way to tease out your company’s progress down this evolution pathway. Do more with your loyalty program data; don’t just use it to track purchases, but purchase frequency and spend levels. Start with this core and the option for the subscription program and build from there.
Value Delivery: As any good marketer will tell you, your value is only as good as your benefits delivered vs. your price commanded. What is mission critical is being clear that A) your product already delivers clear and differentiated value to the customer, and B) your subscription program will further boost the delivered value.
If the subscription model only brings dependable revenue streams to you but no further value to the end customer, the subscription model will ultimately die on the vine. The free coffee options, pre-ordering flexibility and early announcements for the latest products bring incremental value to the Starbucks Superconsumer and bring unique value to the subscription model for them. Caterpillar’s maintenance program allows those who are passionate and high-value buyers of Caterpillar products to share the burden of scheduled maintenance and ensuring the product’s optimal operation with someone else. It’s a valuable benefit they trust from Caterpillar corporate.
Pricing Power: The confidence to take, hold and see the positive financial result of pricing increases are credible markers to any marketer that your brand is ready for a subscription model. Why? It’s as solid an indicator as any that your products are delivering sufficient value to your core customers that they will and do pay incrementally for them. Netflix is a common example used in this discussion, but Dollar Shave Club and Amazon Prime demonstrate the success of this model as well. In all of these businesses, with a solid enough base of customers and delivered value price increases were a solid indicator of progress.
Find the Supers in your industry and document the benefits and potential benefits that could be unlocked via subscription models. The benefits are there. It’s just a matter of identifying your audience and delivering a valuable subscription option or options.
Linda Deeken is founder of Deeken Strategies, and an affiliate of Eddie Would Grow. Formerly chief marketing officer of The Cambridge Group, she focuses on developing customer-driven strategies, new product development, positioning and consumer segmentation, in addition to advancing critical new pieces of intellectual capital for her clients about go-to-market strategies centered on growth.
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