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The Retail War Is For Long-Term Subscribers, Not Unit Sales

  • Written by  Amy Konary, Subscribed Institute at Zuora

0aaaAmy Konary ZuoraAs any major sale comes to an end, millions of customers around the country rejoice at having scored excellent deals and reflect on some well-earned retail therapy.

What is unclear is how long the euphoria at owning the latest thing will yield to buyer’s remorse. While the experience of shopping can be delightful, more of us want to own less stuff.

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The results of an international survey conducted by The Harris Poll on behalf of Zuora suggest that we are witnessing a new commercial era defined by “the end of ownership.” The study found that 57% of the people surveyed wished they could own less. That’s six out of every 10 people around the world who don’t want to own things anymore. The poll also found that 70% of people believe that subscriptions free them from the burden of ownership.

Major trends in the retail industry today, including subscription commerce and experiential retail, reflect the fact that consumers are no longer interested in simply owning products but instead want engrossing experiences and personalized services.

These trends already have had significant implications in the retail industry, where success has traditionally relied on selling as many units to as many people as possible. If you’ve noticed a lot of stores closing, you’re right. Nordstrom, Macy’s, CVS, The Gap and other stalwarts of the physical retail scene haveclosed several stores over the last few years.

People are still shopping. They are just doing it differently. Subscription commerce generated an estimated $14 billion in aggregate sales last year, according to a Canaccord survey. The growth for that market is 22% compounded annually through 2021, reaching a whopping $26 billion.

It’s becoming clear that the future of retail lies in subscriptions. The question is, how do retail companies succeed in this new space?

Evolving Your Business Through The 5 Stages Of Subscription Maturity

For starters, successful subscription companies focus on building long-term, personalized relationships with subscribers, not on unit sales. To build these relationships, they must have a Direct-to-Consumer (D2C) model that allows them to engage, measure, iterate and serve their customers directly. A successful D2C subscription play relies on offering exceptional value to customers and creating frictionless opportunities for them to see the value of your services on an ongoing basis. A number of established retailers have entered the subscription market — Ann Taylor with Infinite Style, Urban Outfitters with Nuuly, Express with Style Me, Rebecca Taylor with RNTD and several others. While these companies have had early wins, success is not a foregone conclusion.

Zuora’s Subscribed Institute studies hundreds of subscription businesses and has found that the most successful companies are those that have an executive-level commitment to building the subscription business, a clear set of goals and objectives, and organizational agility. In addition, subscription businesses mature along a defined curve, with most falling somewhere within these five stages of subscription maturity.

Stage 1 — The Wild West: Acquiring New Subscribers

In the early days of a subscription business, the retailer is likely focused on signing up new subscribers above all else. To acquire subscribers, they should build a service with clear customer outcomes in mind, and make it as easy as possible for people to subscribe and see the value. Companies in this stage often focus on marketing, offer freemiums, and look at innovative ways to increase their subscriber base. The “refer a friend” button on Ann Taylor’s Infinite Style web site is a good example of a young subscription service looking to grow its subscribers.

Once a retailer sees good traction for new subscribers and starts to receive customer feedback on what they value about the service, it can move to the next stage.

Stage 2 — Opportunistic: Developing Pricing And Packaging

In the second stage of maturity, retailers fine-tune their approach by looking at customer segmentation and pricing and packaging that aligns more closely with the subscriber experience. They begin to segment their approach in response to patterns that emerge in how different cohorts of subscribers use and value their services. Companies may offer starter packages, flexible pricing tiers or bundles so that subscribers can tailor their experience. For example, Dollar Shave Club offers its starter sets for new subscribers, as well as premium products for customers that want high-end products.

Stage 3 — Defined: Reducing Subscriber Churn

Now that the retailer has an approach to bringing on subscribers and a segmentation strategy, companies in stage 3 begin to focus on reducing churn. While signing up new subscribers will always be important, it costs much less to retain existing subscribers than to acquire a new one.

There are many reasons that churn occurs, and analyzing these reasons and trying to mitigate them is one approach. Another is to consider what makes your service sticky — what makes subscribers come back again and again? It might be convenience (shaving razors and replaceable toothbrush heads), or price (affordable jewelry), or speed (same day deliveries), or personalization (clothes picked by a stylist just for you) or any number of things. Honing in on what makes your service sticky and revisiting that often can help you keep subscribers in tow.

Stage 4 — Quantitatively Managed: Using Data To Drive Personalization

Delivering a personalized subscription service that provides ongoing value at scale is impossible without enterprise agility and lots of customer data. Companies at this stage have not only developed and articulated subscriber journeys but also are using data to help manage and drive all aspects of the business. They are more proactive in adapting their services to meet the unmet needs of customers; offering new services that are based on data and hence are more likely to succeed; and continually improving their service to enhance the subscription experience.

For instance, Rent the Runway uses customer data gathered to personalize the browsing experience and gives customers access to personal stylists who recommend items that align with the subscriber’s style preferences.

Companies in this stage also offer subscription agility, such as the ability for customers to pause, cancel or resume services, as well as easily add services or change service tiers. Trust is now a core value and an essential component for moving to Stage 5.

Stage 5 — Optimizing: Achieving Outcomes

In an optimized subscription business, suppliers and their customers work together to achieve outcomes. There is a clear and systemized cadence of customer contacts focused on building and deepening relationships. A sign of an optimized subscription business: while they continue to sign up new subscribers, the majority of recurring revenue comes from upsells, cross-sells and renewals.

As the maturity approach illustrates, subscription success for D2C retailers is a process. Companies must continually ask themselves — What are subscribers coming to us for? And what will make them stay with our service? With this north star vision in mind, retail companies should assess where they are in their subscription business maturity and work towards progressing to the next stage.

With many of the traditional retail companies trying out subscription services and new subscription native retail services launching, it will be interesting to see how these companies deal with the competition. There’s no doubt that converting a large percentage of the seasonal sale customers into long term subscribers will require a combination of high quality, sticky services and subscription business maturity.


 

Amy Konary is Zuora's VP of Customer Business Innovation with close to 20 years of experience advising companies on subscription business strategies following a tenure as an industry analyst at IDC. She is the founder and chair of the Subscribed Institute at Zuora, a think tank for the subscription economy.

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