By Matt Cronin
Subscription models have experienced explosive growth in recent years. McKinsey & Company found that subscriptions have managed to grow more than 100 percent per year for the past five years. VCs have jumped into the game, funding subscriptions for everything from wine to pet food, and big retailers like Walmart have staked their claim on the subscription market.
Leaders have seen the writing on the wall: The subscription e-commerce market has exceeded 100 percent growth each of the past five years, marking just shy of $3 billion in sales in 2016. Millennials are credited with fueling this trend, with 92 percent of them carrying active subscriptions.
It’s clear that the subscription model has gained traction with consumers, but marketing it is a little trickier. And CMOs can’t treat subscription marketing like everything else.
Where Subscriptions Differ
Perhaps the biggest difference — and most enticing aspect — regarding subscription marketing is the type of customer it serves. Whereas most forms of marketing are focused on attracting new sets of eyes and winning them over, subscription marketing serves new and existing customers in an effort to delight them enough to stay. Retention, not surface-level conversion, is the name of the game.
Matt Cronin, a founding partner of House of Kaizen, which helps grow subscriber revenue, says the economics of the subscription model justifies a more competitive investment in customers. “The model is based upon a well-known customer lifetime value — that means a company can go beyond the cost of acquisition and immediate ROI to consider how the cost settles across the duration of the subscription,” he says.
That longer-view and higher-value payoff allows for more customer-centric marketing tactics that pull customers through the subscriber journey effectively. The cost layout may be higher initially, but the subscriber campaign setup results in higher efficiency and ROI across the entire effort. That, in turn, allows CMOs to focus on the quality of the subscribers, not the number of subscribers or the cost of maintaining them.
“Subscription-focused strategies that bring in and keep the subscribers who are most valuable to a company doesn’t just help the bottom line; it also eliminates the need to deal with massive churn,” Cronin explains. “A lot of marketing efforts are designed to drive a high number of low-value acquisitions, who often never come back for another interaction. Subscription marketing expects a relationship with customers.”
Subscribers Are Members, Not Prospects
To find success, brands have to consider subscribers members of their roster. The “member” definition helps subscription marketing initiatives focus on ongoing communication, ensuring that a brand delivers on the expressed needs and wants of its subscriber base. We’ve long heard that existing customers are more affordable than new customers, but in terms of subscriptions, they’re also much more valuable.
While the subscription market more than doubled in a four-year span, Fluent found that subscriptions can be plagued by high churn rates — nearly 40 percent of online subscriptions are canceled. The meal kit category has been especially hit hard by this, but it’s a reminder for all subscription-based businesses to deliver impressive service and products to their members. Acquisition tactics have to give way, at some point, to retention tactics.
Karl Wells, general manager of The Wall Street Journal’s membership, subscription sales, and marketing, worked with House of Kaizen to conduct over 100 optimization tests last year aimed at boosting the publisher’s subscriptions. He said that the brand’s subscriptions had become memberships, leading to the creation of a customer-first mentality and a customer-led paywall. “It’s a very different approach — you have to think how you can best organize your resources to ensure you have someone worrying about each piece of the customer journey,” Wells explained. “You have to structure yourself to extract the maximum value possible from your customer lifetime value. How can you make transactions repeatable?”
Brad Birnbaum, the CEO and founder of Kustomer, a platform for customer experience, service, and support, explains, “For subscription businesses, the longer customers are with you, the happier they should become…[agents] have to become makeup stylists, fashion advisors, and pet experts. In other words, agents have to become consultants. Only with that level of deep engagement can they connect with customers and anticipate potential pain points while surprising and delighting them when it counts most.”
Check back next week for Part II.
This post was updated February 26th, 2022.