Magazines, newspapers, and fitness centers have been using the subscription service model for years. You pay a dollar a week, and you get a copy of the Wall Street Journal in your mailbox. For a little more, you can spend mornings working on your pectorals or getting your cardio in on the gym’s treadmill.
During the past 5 years, more industries have started to appreciate the potential of subscription-based marketing. At this point, every executive in every company should be asking the question: How do we build a subscription model into our business?
Reap the Benefits of Subscription Marketing
The inherent value is obvious: Subscriptions provide a recurring revenue stream and help cultivate long-term relationships with customers. For traditional retailers, most marketing is geared toward that one initial sale. For subscription service providers, that’s only the beginning.
In the not-so-distant past, if people wanted to watch a film, they drove to Blockbuster, found one they liked, and maybe grabbed a few more to minimize their visits. Now, Netflix has captured that market by drawing in movie hounds with a flat monthly fee that lets them find and watch whatever they want, whenever they want—all from the comfort of their easy chairs. What’s more, it remembers what they watched and makes recommendations based on viewing habits.
Building relationships is the key to successful subscription marketing. Blockbuster could choose which movies to display prominently, but it had difficulty targeting individual customers. All Netflix needs is an algorithm. With that, here are four steps to building a successful subscription marketing system:
As with traditional marketing models, you must first identify valuable customer segments and then target your campaigns. It’s not about reaching as many people as possible; it’s about reaching the right people. So it follows, then, that Dollar Shave Club probably shouldn’t pursue winners of the New York City Beard & Moustache Competition.
Under the traditional model, once a transaction is complete, the relationship is over. Customers might buy again, but it’s not a big deal if they don’t. However, with the subscription model, you need to keep hold of them and start building upon that foundation.
One way to build relationships is by sharing information, and the quality of your communication is as important as the quality of your product. Take Birchbox, for example, which provides a dual service. In addition to sending trial-size samples, it also provides advice and instructions to help subscribers get the most out of the products and details about where they can buy full-size versions.
A subscription marketer’s objective is to prevent lost revenue by minimizing cancellations. In traditional sales, if people don’t want to buy a product, they just don’t. But if customers want to cancel a subscription, they first have to open a communication channel, which presents an opportunity to convince them otherwise. Unlike traditional sales, this feedback loop allows for some fine-tuning.
The best subscription strategists build feedback into their models. When customers sign up for Birchbox, they’re asked a number of questions to help ensure they get what they want out of the service. Most are happy to do this because it’s in their own interest; and the more these products match customers’ needs, the more likely Birchbox is to make even bigger sales on the backs of subscriptions. Likewise, graze asks customers to rate the ingredients in the nutritional snack boxes they receive to optimize their overall experience and to ensure that subscribers get what they want, when they want it.
Once customers are engaged and happy, they need to be nurtured. If they’re pleased with your product and service, they’re likely to recommend it to their friends. A sense of satisfaction can be fostered with a sound social media strategy, through promotions like a discount for referrals, or by moving subscribers from one tier to the next.
Case in point: People can listen to music on Spotify for free, but if they want to lose the ads, they have to cough up some cash. Recognizing that students are enormous consumers of music, Spotify targeted them by offering a student discount on its monthly premium rate. These happy students shared the good news with their friends, and soon, Spotify was growing a customer base that might remain loyal for years.
Perhaps it’s time to forget the traditional point-of-sale model, where a customer is nothing but a consumer of products. Instead, you need to focus on building real relationships with real people through regular open communication and customized perks.