DTC's endgame: Creating a subscription business

The power of D2C lies in eliminating middlemen. And subscriptions seem to be the eventual next step. Here are things to keep in mind while building a successful subscription model.
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Subscriptions are a double edged sword. Right from firming your footing as a brand (revenue forecasts, customer loyalty, community building, and so on) it can also derail your customer base with one wrong move because you’re under a magnifying lens with your customer.

We will talk about some bits (for advanced high growth brands) that we overlook while building a subscription model.

Why subscriptions?

The power of ‘direct to consumer’ is that you bypass middlemen, thereby reducing costs and increasing direct customer connect. Subscriptions seem an eventual next step for any DTC brand. Some metrics that make a brand more affluent as a business:

  • Either High AOV (avg order value) + low frequency of purchase; or
  • Low AOV + high frequency of purchase
  • Economical shipping and logistics
  • High margins
  • Faster consumption of the product to encourage re-order / refill (enter: subscription)
  • New variants and options at regular intervals
Ideal adopters of a subscription model would be beverages, foods/snacks, cosmetics, health supplements, fitness products, apparels, or anything that fits into a routine. So, you either organically fit into one, or you convince your customers that it must.

What you get in return with subscriptions is guaranteed recurring revenue + higher valuation + lower CAC (in the longer run by reducing dependency on ads)

Customers: why would they subscribe?

If you’re not doing most of these, it’s time to re-think your subscription model. It can't just be a plug-in on your platform that lets people subscribe rather than buy. You have to focus on:

  • Exclusive invites and priority access to new product launches
  • Exclusive availability of variants
  • Discounts/better pricing (a given)
  • Convenience in delivery (customer log-ins that lets them reorder with minimal steps)
  • Access to people/events through the brand (read: community)

Advanced subscriptions: For high growth brands

Beyond the basics covered above, what would differentiate you as a brand with your customers are some of these:

  1. With more people entering subscriptions as a model, it would be essential to differentiate. One thing that you could start to introduce is more personalisation and a big focus on the customer experience (by personalising checkout processes, packaging and delivery, personalised onboarding, feedback loops, returns and exchanges)
  2. Exclusivity being publicly displayed with banners on your platform that say: “We're currently only serving members." So members get their first pick of products and if you aren't a member, you’re not included. Taking your FOMO a notch higher.
  3. Adopting a QVC live sort of strategy: Amazon already has it and now even Instagram Reels. But imagine if as a brand, you could do a live representation of the products, showing it and then people making the purchase right then and there. I think what I'm most excited about, just like the overall experience enhancing, this makes it easier for people to check out, subscribe to the product, and really again, especially with the pandemic and what's happened, less people are shopping at retail levels.

E.g. I’ll use an example to elaborate more. Consider one of my fav brands: Sleepy Owl

Image Credits - Sleepy Owl

This is the subscription tab on the desktop website. Now imagine if the images could be replaced or extended with a video. Perhaps a DIY video of buying coffee.

It would only amplify the experience with customers + tap them right at that moment of purchase when they’re unsure about buying.

  1. Don't slap on a subscription band-aid on your existing products and services and call it a day. Focus on a key segment that you want to serve better and a really good place to start. The people who love you the most: your fans, and this is even taking a page from celebrities, but find your fans and say what is it that they want more of from us and what is their goal with us and how can I improve on that experience for them.

How do you measure the success of a subscription model?

Metrics for engagement with your subscriptions: recency, frequency, depth and breadth of engagement with you.

  1. Recency: When was the last time they did something with you?
  2. Frequency: How often do they log in, do something with you?
  3. Breadth: How long are they spending each time they come?
  4. Depth: How many of the features that you make available to them are they using?
If you're only using one feature, let's say you get the box every month, but you don't participate in the community, you don't read the emails, you don't watch the videos, you're more likely to cancel because there's a huge amount of value that you're paying for that you're not making use of.

So, if there's one thing that I would advise people to do, it's to really think about engagement, particularly in the onboarding experience (give them the special treatment like a child on his birthday party: pamper them with information, love and feeling of belonging, all with your experience). And then as you go and adjust based on what you're learning.

This is like 2005, if you were a retail company and didn't have a website, you were behind. If you're in 2020 and you're not thinking about subscription, like the boat's going to be sailed pretty soon.

Well, that’s it for me today. I hope this has been a fruitful read. As I always say, if there’s one thing you can do as a gesture for the effort put in here, is forward it to just ONE person who you feel could benefit out of this. I’m sure someone will pay it forward to you as well.

Edited by Saheli Sen Gupta

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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