Can subscription retail solve its retention problem?

Discussion
Photo: Stitch Fix
Apr 03, 2019

John Gaffney

Through a special arrangement, presented here for discussion is a summary of a current article from the Retail TouchPoints website.

With churn rates seen as high as 40 percent, subscription retail has a serious retention problem. And there’s no simple one-time solution, either.

“Adjust your mindset because customer retention is not a problem to be solved — more like a chronic condition to be managed,” said Carl Gold, chief data scientist at Zuora, which specializes in subscription models and their associated data strategies.

A first step is identifying “at risk” customers. Signs indicating a customer is about to churn include erratic search behavior (i.e., a food box user starts searching for “recipes” or competing services); decreased app or online engagement; drop in overall usage or spend; and decreased social interactions with the service.

Once potential “churners” are identified, retailers can deploy the following strategies — which also can be used after a customer has actually dropped the service:

  1. Align acquisition tactics with retention. Many consumers churning quickly suggests companies overinvesting in free trials or heavy discounts without a clear payback. “Acquisition has everything to do with retention,” said Mike Zappulla, director, Paid Social for Elite SEM. “If customers are acquired through aggressive discounting, they will want more of that to stay. Find your most relevant prospects and acquire them through value instead of deep discounts.”
  2. Increase subscription and product options. Multiple subscription and product options offer more reasons for subscribers to stay and spend more. Clothing subscription retailer Stitch Fix lets customers order as frequently or infrequently as they like. High-end jewelry rental site Flont has partnerships with 65 different brands and offers five different monthly subscription options, with prices ranging from $59 to $379. Gaming subscription site Loot Crate has 22 different options for product boxes. “As this business model proliferates, expanding subscription options becomes a competitive necessity,” said John Fetto, senior analyst at Hitwise.
  3. Find Partnerships To Scale: Blue Apron got more attention for its retention problems than for the solutions it developed to address them. One of these has been partnerships, including those with celebrity Chrissy Teigen and Weight Watchers. Partnerships give subscription customers more reasons to interact and more reasons to spend.

DISCUSSION QUESTIONS: Are high churn rates a chronic problem for subscription retailers or more easily solvable? What advice would you have for those attempting to improving retention rates?

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Braintrust
"Value for services provided. That’s what consumers seek. "
"From delivery cadence to the products inside, if a customer feels they are steering the ship, I believe they will be more likely to find value in the program..."
"The best way for these brands to solve their retention problem is deliver more value consistently and stop chasing the promiscuous shopper."

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29 Comments on "Can subscription retail solve its retention problem?"


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Bob Amster
BrainTrust

Subscription models must offer the consumer a raison d’être. Amazon Prime, Costco (and other membership clubs), and a number of others do that now and I doubt that they experience anywhere near the churn mentioned here. There is definitely an alignment between the offering and the consumer: perceived value! If the consumer is going to watch Amazon Prime, or purchase repeatedly from Amazon, the deal is worth it, and that is also the case with all the others that are successful subscription retailers.

Bob Amster
BrainTrust

I see the word “value” in many comments today…

Brandon Rael
BrainTrust

Truly “valuable” thoughts.

Trevor Sumner
Guest

Prime and Costco are membership more than subscription models. There are very few successful retail subscription models (Dollar Shave Club, Gwynnie Bee, etc.).

Jeff Sward
BrainTrust

Number 4. Identify a profitable subscription service and study how they are handling 1-3. I totally understand the appeal of subscription services from the customers point of view, especially when it involves predictable, replenishment product. But where is the profitable, money-making model that really proves the viability and sustainability of subscription services, especially in apparel?

Shep Hyken
BrainTrust

I’m a big fan of the retail subscription. I understand the churn. The explanation comes down to the value provided. If the customer isn’t using the products they subscribe to, there is little or no value to maintaining the subscription. It’s that simple. So smart retailers know how to sell what the customer wants, what the customer uses, and what the customer needs. And they do it all in a way that is convenient to the customer – in the form of a subscription.

Bethany Allee
BrainTrust

Value all the way. Completely agree it’s that simple. Consumers keep the subscriptions that are of value to them and they cancel the ones that are not. Paying attention to evolving needs and potential churn indicators are solid ways for these retailers to stay on top of their subscription base.

Ralph Jacobson
BrainTrust

Value for services provided. That’s what consumers seek. Analyze your existing, loyal customers via NPS surveys and replicate what they like to attract and retain new customers. Simple, just not easy.

Rob Gallo
BrainTrust

Depending on the category and the cost, mitigating high churn rates can be very difficult. A one-size-fits-all subscription model will result in a niche business with a small, but loyal customer base. Increasing flexibility will increase the appeal and the customer base, but for categories like food and apparel the cost can be high and the excitement also wears off after a while. For food, the time commitment to make a Hello Fresh meal becomes one of numerous negatives. For apparel, the size, fit and sheer number of items you can accumulate becomes an issue. Add in the realization of what they are paying on an annual basis and they suspend delivery.

Brandon Rael
BrainTrust

Subscription services have surfaced as a prime revenue stream for both DTC and retail companies. At the surface, all the efforts in the customer acquisition process and all the excitement of joining quickly fades when the subscription services fail to amaze, excite, engage, and most importantly be more prescriptive in nature.

There is a delicate balance to keeping your customers interested and coming back for more. Dollar Shave Club has not only disrupted the shaving products industry but truly provides the great service, value, and transparency that customers are looking for. The company was founded five years ago with one simple premise: Every man deserves a quality shave at a fair price.

Stitch Fix has very successfully combined human stylists (the art) and algorithms (the science) to curate clothing assortments to customers on a monthly basis. The combination of data and technology is being leveraged to improve fractured customer experiences. In addition to all the technology, Stitch Fix actually “listens” to their customers, and leverages their feedback to become a more prescriptive service.

Jeff Sward
BrainTrust

Dollar Shave Club has waaaaaaaaay less moving parts than Stitch Fix. Return rate at Dollar Shave Club? Return rate at Stitch Fix? Profitability of each?

Brandon Rael
BrainTrust

Completely agree that there is no comparison between the two services Jeff. However, those companies were just merely used as examples of companies that are getting the subscription services right.

Here are some insights as to how Stitch Fix turns a profit. And the Dollar Shave Club.

Jeff Sward
BrainTrust

Brandon, I think you picked two great examples. I was merely trying to call out the disparity in the range of business models. And I should add that my skepticism is from an investment point of view more than from a user point of view. Stitch Fix is currently valued at almost $3 billion and trades at a multiple of almost 60 after losing money last year. So the founders did great and customers are enjoying their new shopping paradigm. Investors are in a precarious spot.

Lauren Goldberg
BrainTrust

For subscriptions, the more personalized they can be, the more engaged the customer will be. From delivery cadence to the products inside, if a customer feels they are steering the ship, I believe they will be more likely to find value in the program and continue their membership.

Dave Bruno
BrainTrust

High churn rates are a fact of life in the subscription business, and they must be factored into the business model. In my opinion, highly personalized curation is the best way to minimize churn. Each box must be highly relevant to the subscriber’s tastes, preferences and history, or they will quickly lose interest. There are no shortcuts here, unfortunately. Shopper insight data must be highly leveraged in order to curate packages that delight each subscriber every month. Surprises like gifts and free samples can also entice people to stay subscribed and seek the surprises.

Cynthia Holcomb
BrainTrust

Being boxed into items once received, miss the mark, ugh! The thrill of shopping, the dopamine high becomes laborious, tedious and annoying. Costco and Amazon Prime deliver personal choice along with perceived cost savings, day in and day out. Dollar Shave Club delivers a well-designed commodity at a price. Stitch Fix offers a subset of personal choice, stylist within a box, and the opportunity to be part of a tribe. Advice for those attempting to improve retention rates: Create subscription offerings with an “air” of individualized personalization and perceived value under the influence of time and cost savings.

Georganne Bender
BrainTrust

Subscription retailers need to give consumers a reason to stay after the initial thrill of receiving a box each month wears off. As a consumer I use subscription services for necessary and frequent needs. Amazon Prime is a no brainer, Dollar Shave Club continually offers new product suggestions so it never gets stale, and while QVC might not be considered a subscription service, it auto-ships me the skin care products I use every day. With each of these commodity services I don’t ever have to worry about running out. On the other hand, I dropped Birchbox after a few months because it delivered neither the value nor the hype it promised when I signed up. And maybe that’s the key: Retail subscription services must strive to deliver the same type of experiences customers crave when they walk into a store. Like brick-and-mortar retail, sometimes product is not enough.

Jeff Sward
BrainTrust

Necessary and frequent … perfect. I think in terms of “knowns” and “replenishment.” Same thing but yours rolls off the tongue a little easier. No-brainer for subscriptions.

Georganne Bender
BrainTrust

Thanks, Jeff!

Ken Wyker
Guest

Part of the problem with stopping churn is that it focuses the company’s efforts on the marginal customers. As the article states, the first step is identifying at-risk customers. That creates a focus on promotional concepts to keep them from leaving.

The opposite of churn is loyalty and I think that might be a good place for subscription retail to focus. I don’t mean a loyalty program, but a focus on creating ongoing value and understanding that increasingly builds a connection with the customer in such a way that they become less likely to leave over time. Exactly what that is will vary based on the product/service, but the idea is to learn how to improve your value to the customer over time based on how they use your service. The most obvious example might be Netflix, which becomes more valuable to the customer as they use it more.

Neil Saunders
BrainTrust

Churn rates are not easily solvable: they are a function of a more disloyal consumer who leads a transitory lifestyle that requires increasing flexibility. On top of this, you have a lot of “experimenters” who sign up for services, use them for a bit, then move on. Then add in the fact that more and more subscription options are being added to the market, which creates churn from competition.

The best way to mitigate churn is fairly obvious: it’s to provide a really compelling service which people use regularly. Embedding yourself in their lifestyles – such as Apple does with its various subscription products – is also a good tactic. Other than this, churn is simply a function of the market.

By the way, the idea suggested in the article that you track people’s searches to see whether they are looking for competing products seems a bit 1984ish!

Ken Morris
BrainTrust
Churn is a natural challenge with subscription services. There are a few subscription services that are more protected from churn because they sell products consumers need on a monthly basis and it is essentially a convenient replenishment program (razor blades, toiletries, and other disposable products). For most other subscription services, the draw is the surprise of what is new each month. After a while, consumers become bored if the monthly products are not noticeably different or exciting. How many different ties or socks does a person need? Some subscription services may just need to accept this and work hard to freshen the new product introductions fanatically to keep customers as long as possible. Acquisition of new customers and reengaging former customer is a top priority. I also believe subscription service folks need to spend more time and money to investigate why people are churning. This is hard work! My theory is that people churn based upon bad customer moments. This is an 80/20 business with 80 percent of the business coming from the 20 percent… Read more »
gordon arnold
Guest

This is a market share issue. Subscription retailers need to be able to redirect their market segment focus quickly and move away from the losers and into new places of opportunity. This is more a matter of finding rich fields of potential and communicating to the prospects that have customer potential. Doing the same thing that no longer works for the company is always a signal for necessary repairs. Start the repairs by listening to new ideas instead of the old pontiffs.

Rich Kizer
BrainTrust

With any retail business we work with, I always ask “What have you done lately for your customers? How did you thrill them? What will you do to bring them back?” We live in a world that forgets yesterday. Improvement in presentation, product selection, special and timely inside offers on occasion must be the norm. Even a great new product that thrills me becomes a staple to me in time. Subsequently, that demands constant focus on creating strategies to up the game and thrill the customer. That’s just what it takes.

Steve Dennis
BrainTrust

Subscription models can offer clear utility. But, so far at least, the relative price/value relationship keeps these businesses much smaller than their original VC investors hoped. Meal kits in particular are expensive at regular price so this limits the addressable market. The companies got in the practice of heavy discounting, which did two things. It made the market appear larger than it could be profitability and it taught what I call the promiscuous shopper (i.e. they don’t care that much about the product, they go for the best discount) to just wait for the best offer and bounce back and forth between brands.

The best way for these brands to solve their retention problem is deliver more value consistently and stop chasing the promiscuous shopper.

Trevor Sumner
Guest

The fundamental challenge is aligning with the need for replenishment. This is why Dollar Shave Club is successful. Razor blades go bad at a regular rate where it’s easier to automate subscription than to manage replenishment cycles. Trying to force regularity in replenishment or in new products onto other categories has been difficult. There are very few successful examples, Bark being a notable one, where bringing regular joy to your pet has created the “need” for regularity. Outside of that, I can think of very few successful examples.

Ricardo Belmar
BrainTrust
There are a number of factors to evaluate with subscription models. We’re now in a world where every product or service you can buy wants to be a platform with a subscription cost — but consumers only have so much disposable income for these services. That means building customer loyalty is paramount to success. Perceived value is key here, but not the only factor. The type of product/service is also key. Is it a commodity item? Or is it disruptive? What is the price point? Does it deliver convenience to the consumer? Is the value easily replaced by another equivalent service or offering? All of these issues matter in determining how to combat churn. If we look at meal kits, for example, it seems the price point vs the perceived value places them in a limited market segment. This is not at all what Dollar Shave Club went through with a truly disposable/commodity item (razor blades) and an automatic large market — anyone that needs to shave! Very different models, very different segments — and… Read more »
NAVJIT BHASIN
Guest

As any magazine subscription marketer can tell you, subscriber churn is a fact of life. But as a business model, there is hardly a better one to consistently deliver profits once a base is established. So all the prescriptions mentioned here – value, variety, tiers, offers, delight, timeliness, partnering etc. are crucial truisms. It is not an easy problem to solve. And it constantly evolves. A sustainable subscription marketer combines a dynamic merchandising element with a dynamic marketing element held to realistic financial boundaries and solid LTV projections. Laser focus of effort – recruitment, conversion, retention, re-activation are all areas to be constantly testing, reading and validating. Every once in a while, you’ll find a wonder product that can build your base and carry the business, but that’s not the time to coast, it’s the time to relentlessly look for the next new thing. No magic bullets here.

Oliver Guy
BrainTrust

What fascinates me about this whole business model is the metrics. A traditional retailer moving into this arena will still deliver standard metrics to their shareholders — sales and profit. The question is, will it be the same for a subscription only retailer?

My logic here is that the best know type of subscription business — telecommunications providers (think Vodafone, Sprint) routinely report ARPU (average revenue per user) and churn rates when providing details to shareholders. Measures focus behaviour and reporting these mean that actions taken by the organisaiton will be focused this way. ARPU and Churn, or their equivalents, need to be measures of note.

wpDiscuz
Braintrust
"Value for services provided. That’s what consumers seek. "
"From delivery cadence to the products inside, if a customer feels they are steering the ship, I believe they will be more likely to find value in the program..."
"The best way for these brands to solve their retention problem is deliver more value consistently and stop chasing the promiscuous shopper."

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