Every guy has been in this situation: Your face is lathered up and ready for a shave. You reach for your razor only to discover that the worn-out blade you’ve been using is the last one in your medicine cabinet. You either have to sport a five o’clock shadow or make do with a painful shave and red bumps on your skin.
Razor blades are not a purchase guys spend much time considering. In an ideal world, there would always be fresh blades waiting in the medicine cabinet. That wasn’t an option until early 2012, when Dollar Shave Club disrupted the razor business.
Dollar Shave Club burst onto the scene with a hilarious advertisement and a unique approach. It has built itself into a billion-dollar brand based on two simple value propositions. First, it offers a small selection of high-quality razors at an accessible price. Second, it delivers the blades on a set schedule without any need to reorder.
The results are hard to deny: The company raked in $4 million in sales during its first year, $19 million in 2013, $65 million in 2014, and a staggering $150 million in 2015. Its success did not go unnoticed, as global conglomerate Unilever — the parent company behind Axe and Dove — purchased Dollar Shave Club for $1 billion this summer.
Dollar Shave Club serves a unique niche, but the service model it employs is not exclusive to razors. Startups such as Trunk Club and Blue Apron have attempted to similarly take the pain out of buying clothes and groceries, respectively. The subscription-based model offers an exciting new revenue stream for companies and has taken the retail world by storm.
A Win-Win Situation
Any retailer worth its salt should aspire to meet more of its customers’ needs. And every customer hopes to find better, faster, and easier ways to purchase the products he needs.
In theory, there should be quite a bit of overlap between those two goals. But in practice, the two groups often fail to synchronize.
The subscription service model has become so successful because it equally serves the needs of both customers and retailers.
Customers love the ability to have essential products such as razors, groceries, and clothes delivered directly to their front doors. They don’t have to waste time shopping, and they always have their favorite products on hand without reordering. Customers also are able to take advantage of discounts that don’t apply to one-off sales.
Merchants, meanwhile, see the cost of customer acquisition plummet because every client is likely to become a repeat shopper. While they might not have brick-and-mortar locations, it’s still possible for retailers to build fierce brand loyalty among their customers. Plus, the logistics of fulfilling orders are significantly simpler than trying to generate new orders.
By eliminating pain points of transactions for customers and merchants, subscription services provide a brilliant way to get both parties on the same page.
Joining the Game
While the subscription service model offers plenty of benefits, it’s important to note that every product is not ideally suited to this approach.
There are some items that people enjoy seeing, smelling, or touching before they make a purchase. In certain cases, shoppers actually enjoy the experience of browsing a store’s available wares. For example, companies that offer makeup and skin care products by subscription have struggled.
Birchbox, one of the first services to offer beauty products by subscription, has faced a number of hardships. The company has lost a significant number of customers, failed to secure more funding, and been forced to cut 12 percent of its staff.
If you determine that a subscription-based model might be viable for your company, a few key steps will help you make the transition:
- Calculate the lifetime value. The goal of all subscription services is to take advantage of a customer’s lifetime value. Don’t let existing practices based on the notion of one-time value influence your program.
- Set the right price point. Most subscription services offer a low introductory cost and a moderate recurring price. This helps get customers in the door and keep them engaged over the long haul. A cost of less than $20 a month is easy for people to stomach without any reservations.
- Make it unique. Subscribing to products is convenient, but it isn’t necessarily a fun experience. Find ways to add appeal to the program by offering big price breaks, free samples, or participation in a “cool” brand.
- Prioritize loyalty. Long-term subscribers provide the most value, so develop tactics to discourage people from leaving for your competitors. The most challenging part of this business model is retaining the same customers year after year.
- Develop strategic partnerships. Find ways to partner with other subscription services that appeal to a similar audience. Customers will have a chance to try other products they might enjoy, and the services gain increased exposure.
In today’s busy world, customers are clamoring for pain-free shopping experiences that don’t require a significant time investment. Retail giants such as Amazon and Target have seen the allure of the subscription approach, offering discounts to customers who elect to receive regular shipments of items.
A subscription service allows customers to get exactly what they want as often as they want it. It also makes it easier for customers to buy more of your product than they would through one-off transactions. By taking lessons from Dollar Shave Club’s success, you can hop aboard the subscription service trend and cultivate a crowd of loyal customers.
Kevin Meuret is the founder of Mantality Health