How to make a success of subscription
TouchNote recently led a debate on showing how to make membership models work, as the year 2020 is set to become the 'decade subscriptions dominate'.
From movies to music, healthy snacks to food boxes and coffee to craft beer, subscription models are becoming big business.
With Netflix, Disney, Apple and Spotify among the big names making money by tying customers into rolling or long-term deals, many smaller companies are now following suit.
Over the last seven and a half years, the subscription economy is reported to have increased by more than 350% and on Tuesday, TouchNote - the creative platform for personal communication - led a panel discussion looking at the past, present and future of subscription as a business model.
Its CEO Dan Ziv joined representatives from Gousto (recipe/fresh food kits), Perky Blenders (specialty coffee) and the Financial Times (media) to talk through their experiences - the discussion makes essential reading for any business thinking of pivoting to subscription.
TouchNote itself adopted a membership model 18 months ago, after 10 years in business. It now offers members a number of different packages, making card-sending an everyday option and not occasion focused. This new approach has been transformative and driven the company’s growth.
Dan explained: "If you look at the success of the Apple share price over the past year, it has doubled. That's mainly because the market is taking a close look at its Services Division, which is responsible for Apple’s subscriptions offerings.
"In the US there is already a lot of talk around B2C subscription but in the UK there is less, which is why we wanted to host this event to share best practice.
"That is so important, especially when it comes to understanding where conversion comes from. How you get a customer from sign up to retained member or subscriber - that is the key challenge. It feels like this decade will see subscription models dominate. It is no longer a niche. Such business models are now a force for growth, delivering value over time and creating longevity with your customer."
Key members of the UK’s business community, many who are already involved in the subscription economy, attended the event at TouchNote’s Shoreditch HQ.
The panel comprised of:
- Tom Wallis, CMO of Gousto, which delivers fresh food and ingredients to people's door on subscription, whether weekly, fortnightly or monthly.
- Victoria Cozens, co-founder of Perky Blenders, which sees a third of its business from sending specialty roasted coffee by post via subscription.
- Joanna Edwards, Marketing and Communications Director - FT Specialist, Financial Times Group
- Dan Ziv - CEO of TouchNote
Here are 10 of the best takeaways for starting, running and succeeding within the subscription economy.
Make data a firm foundation from the start
Tom said: "Data is the lifeblood of a subscription business and getting the foundations right early on is crucial.
"We developed a robust data structure from day one that would allow us to analyse and understand our customers on an ongoing basis, even as we scale. It's very difficult to wind back if you discover that your data is no longer workable as the business grows.
"You must also build foundations for the operational challenges you will face so you can easily scale when the demand increases."
Be crystal clear on T&Cs for offers and trials
Joanna says: "You need to be clear on your terms and conditions. You have to be sure people understand what they're signing up to as when it moves to a full-priced subscription via direct debit, you will get people ringing to say they didn't know this was going to happen."
Dan adds: "If a subscription flow is too smooth and easy in just a few clicks, the customer doesn't always understand what they signed up for. So we add friction and challenges to slow this process down.
Drive scale and growth through difference
Dan said: "The move to a subscription model for us has been a great way to differentiate ourselves in our market. We are trying to create a different behaviour.
"It has created a scalable model where people can now send our cards all year round rather than being a business based around seasonal events. We are one of the first in our industry to move to this model.
"Today 80% of our customers come in to send regular and recurring cards. That has changed the entire customer and business profile."
Put the customer in control at all times
Tom said: “Subscription is not meant to be a trick. It is important to be completely transparent in the ways that a customer can control their subscription to suit their own needs."
"We aren't a traditional subscription, since we are sending a fresh product direct to customers' homes. Technology enables us to offer a flexible service to suit modern day lifestyles and inspire even the competitively busy, to cook from scratch at home.
Victoria added: "The ability to pause a subscription is so important. People don't want to go on holiday and come back to four bags of coffee.
Complaints can bring an unlikely commerical advantage
Victoria said: "Although rare mistakes can happen, the customer may receive the wrong coffee or grind. We tend to say we will replace the bag straight away but suggest the customer gifts the other bag rather than sending it back. We then get our coffee into someone else's hands."
Tom added: "Whilst they don’t happen often, some mistakes are inevitable. So we offer customers generous and fair compensation, which could be in the form of a swiftly made refund or a free next box. The benefit in customer satisfaction over time outweighs the compensation cost through their continued loyalty."
Physical product samples aren't always an easy win
Victoria said: "At London Coffee Festival, twice we have filled 500 packets with a discount code. Just one or two people subscribed. That really surprised me. Organic growth and word of mouth has been so much better for us.
"We have four outlets but when we had one, our subscribers were in the majority all local. They enjoyed drinking our coffee and then gifted it. That led to an increase in subscriber numbers across the UK and even worldwide."
Dan added: “The free dynamic is a very interesting point which was brought up several times. How do we use this leaver called free to actually create customers while not giving away your value proposition away?
“"Four Gousto giving away a third or fourth box or a months trial worked and created a retention loop for them.
I mentioned we tend to give away two cards as opposed to one so customers experience the repetitive nature of the cards.
Free does not have to be your starting point
Joanna said: "Sometimes with a trial-type package, it is actually harder to do it for free than to charge something. Often you have to give credit card details and that doesn't make sense to people when it is meant to be free.
"It can be harder for people to part with their details and can lead to suspicion. Giving a cheaper offer like four issues for £4 is easier for people to get their head around."
Engage proactively with customers when they cancel
Victoria said: "We have a team who get in touch quite personally to ask if there is anything we can do and sometimes we can bring them back to us. It is also important to ensure they can easily contact you to discuss their account."
Joanna added: "People can now just cancel easily with their bank and so you don't know until it happens. That intelligence can be so useful but it is so hard to gather."
Don't neglect your long-term loyal customer base
Dan said: There is always a balance to be struck between your long-term customers and new members. Those who have been with us for years use us in a certain way. They may not want membership with tonnes of perks, discounts and features. These are great customers as well. Don't shy away from them."
Joanna added: "We are always looking to add value. It is important to remember though that when, for example, you introduce a Premium model, you may upset those people who already thought they were on your best package. They may feel they are having things taken away even though it wasn't in their package to begin with. It's a fine line."
Learn from collaborations - don't sweat the competition
Victoria said: "Collaborations have been key for us. Tapping into another user base that isn't coffee but has people who would use it. We have one coming up with a baby brand.
"I also subscribe to lots of other things in other areas to see what they are doing and how that can be applied to our business. I also subscribe to my own coffee so I experience what the customer does.
"Don't stress about your competitor too much. Keep doing what you know is good and you will stand out from the crowd."
Respect customers and their changing lives
Dan says: "Respect the life cycles that a customer goes through, they come in and then cancel and then come back in and cancel again. Just try to build a product that can respect this and provide a good service at any level of engagement.
"Also you have to articulate your value position in a no-brainer way so they see the benefit. If you can do that then you will create a strong relationship with the customer."
Find better ways to communicate with your audience
Joanna says: "We have just launched an Instagram account for Investor's Chronicle. We haven't done anything in the influencer space before but this makes sense given the way younger people consume their news. If only we could have a Joe Wicks equivalent chatting about investment!
"We are always looking at how we can reach a younger audience - and thinking about how we can tap into changes in the investment world. The younger generations understand more about investing in houses and pensions so we need to work out how to reach these people."
The right pricing models are a priority
Dan said: "We offer a monthly and annual subscription with different tiers of usage, one card, two cards, six cards for example. We find most people prefer annual due to the discounts it offers."
Joanna said: "We offer quarterly direct debits or a one-off annual payment. The uptake on the latter is low. It suggests people don't want to pay a huge amount upfront and be tied into that same yearly fee. The quarterly payment allows people to feel more in control. But accept you will lose people each quarter.
Speaking at the end of the event Dan added: “This has been an amazing event. I genuinely feel I’ve learnt a lot - not just around the theory of when it’s right to pivot into a subscription model but a lot around the dos and don’ts - the real actions that make or break subscription models.
“For me the biggest takeaway from tonight is how a subscription service must be bespoke to customers. We’ve heard from some highly successful businesses - The FT, Gousto and Perky Blenders - and the common thread coming out is that you need to craft your service and offering to truly meet the need of your customer - a customer you’ve really taken the time to understand.”