Subscriptions are becoming more popular than ever before. In fact, a recent report estimated that 75% of businesses that sell direct to consumer are expected to offer subscriptions by the year 2023. So what exactly counts as a subscription product, and when does the user benefit from a subscription model? In this episode, Ben and Joel dig into where subscriptions win, and where they sometimes fall flat.
- The three types of subscriptions
- Impacts of the hosting platform
- The importance of customization
- When the subscription algorithm fails
- The volume dilemma
- Dogfooding your subscription experience
- Subscription upsell tactics
- Check out 1-Click Pony
- Connect with Ben Fisher on LinkedIn or Twitter
- Connect with Joel Van Horn on LinkedIn or Twitter
4:15 - The three types of subscriptions
Ben cited a recent article that bucketed subscriptions into three types: replenishment, curation, and access subscriptions.
“So what I read was there's replenishment subscriptions, curation subscriptions, which is like ‘box of the month,’ and then there's access subscriptions. So I was wrong and there were sort of three categories. And what was interesting to me, I don't know how old this survey was, but it said that about a third of all subscriptions are replenishment. Half of them are curation. And then the last 10% are access subscriptions - so like free shipping, early access to new products.”
5:21 - Subscription as a new revenue stream
Joel said that the Amazon Prime model has really taken hold, whether it’s a literal attempt to copy the Prime model or simply a desire to create a new stream of revenue.
“It's interesting the Amazon Prime type of model’s come up a couple times recently. Just in terms of, it seems like something that even like food & beverage, CPG in general is trying to figure out how to layer that in. Whether it's literally Prime, like free shipping, or getting credits towards some sort of box or thing that you get every month. Like this idea of decoupling that psychological pain of having to shell out physically money every time, versus just something like $100 a month and you can get a box of whatever. $130 value of a box, you can choose what's in it, that kind of a thing. And don't actually have to think about the total price…it feels like it's something people are trying to crack, particularly when it comes to not just mimicking Prime, but trying to just create another revenue stream.”
6:52 - The community incentive
Ben noted that some subscription services thrive on the sense of community, even when financial savings aren’t part of the equation.
“I think Italic is the most obvious recent one because I signed up for it. Where you get like, we'll call it artificial discount on the products. Which is really the Costco model, right? Where if you have a Costco account like you - or I think of even Soho House, where you pay a subscription for a Soho House membership, and then you go in and everything's just overly expensive. So basically, you're paying money to have the luxury of going and spending even more money than you would at like the pub next door. I think that goes back to the we'll call it the ‘membership model,’ where a lot of these brands, even like food & beverage, these modern brands are really, there's the community angle.”
8:16 - Living life is a subscription
Joel made the point that many core tenets of modern life look and feel like a subscription. There are many things that would be impossible to opt out of, like insurance and healthcare.
“Like living life is a subscription. Like insurance, right? Like you have to pay for your car insurance, your renter's insurance. We're going to get a dog this month and we're going to get health insurance for the dog. And it's like, yeah. All of these services that you pay for, for convenience, just in case something happens. Because when something does happen, obviously it's much more expensive. But then, it's the things we entertain ourselves with. So, you know, obviously streaming, food. I mean, you can't easily cut out all subscriptions without like not fitting into society.”
17:43 - The impact of the hosting platform
When a subscription service relies on a platform to operate, there are inherent restrictions and experiential components that serve to define the consumer feel as a whole.
“I do think one thing that's interesting that might be worth us talking about is the subscription experience of products using Shopify. Because one of the things I do look at, like when I was using BarkBox, I noticed they're not on Shopify. They use their own, I believe it's a custom built platform. And you're starting to see - it's interesting to think around how many of the subscription experiences will feel defined by the platform that the brand is on. Because there was a period when you would get text messages. And you were getting text messages from multiple brands from the same long code. I don't know if I was Attentive or whomever. And so you do start experiencing - if you're a consumer and you buy from enough stuff, you start to, you start to almost be able to predict or anticipate what platform, or what experience am I going to get based off of how the brand sells it.”
19:24 - Consumers like to customize
Joel thinks that when customers are locked into restricted options, it’s a negative. It’s important to give choices whenever possible to optimize the experience.
“I liked Magic Spoon. I think they're one of the ones I've kept the SMS messages going...I think Magic Spoon is on Shopify. And I think going back to your question about noticing the platform, I think it is very cookie-cutter when it comes to some of these things. Like Magic Spoon for instance, when they were first offering subscriptions, you had to get a four-pack of individual flavors. I had never had it, and I was supposed to buy four peanut butter or fruity flavors. Like, I want one! Or give me a variety, or let me choose a variety. And it took forever for them to release that. So the question is, is it the platform that's limiting them to that? Or have they found that that's the most effective way to sell? And I would err on the former, the limitations. And just obviously for my own experience with those platforms. But at some point, you know, I do wonder. Are these experiences actually going to be optimized for the best, most effective way of selling a subscription? Or, are we always going to have weird user experiences because the platforms just aren't flexible enough?”
21:38 - When the algorithm fails
Ben recalls a negative experience with Verb Energy bars where he was urged to purchase a product he hated. The danger with subscriptions is that refunds and returns are difficult or impossible.
“There was one time where they released a new flavor that they recommended to me over SMS. And they're like, do you want to buy it? And I was like, yeah, sure. I got it. It was horrible. It was disgusting. And I texted them and I was like, ‘Hey, you know, I appreciate the recommendation. I'm not going to eat these.’ And they didn't just send me one, you know. There was no option just to get like one or two. I was like, can I get a refund? Like you recommended this. It's not right for me. Maybe it's good for some people. But like, you know, the recommendation engine failed for me. And that's where it gets tough, because they're paying for shipping. But yeah, they wouldn't give me a refund. What they gave me, it was I think a 25% discount on my next purchase.”
22:43 - The volume dilemma
Joel noted that order volume is a narrow tightrope that merchants need to walk. While it’s often better for the merchant to send more, a customer doesn’t want to have to order in bulk just to test a product for the first time.
“There's another thing too, it's a little related to the four boxes of cereal that I had to buy with Magic Spoon, is like the volume we have to get a lot of times. Because sometimes that volume is based on trying to make everything cost effective from the merchant perspective, right. I bought - and maybe I just bought more than I needed to, I don't know - but I also tried Cereal School. And when I got that order, it came with like 84 bags of cereal. I was like, okay, what? And it was like pre-portioned bags of cereal that were small, not like massive bags. But it was just bizarre to count the number of bags. I just got 84 bags of cereal when I just wanted to try it. So it was like, okay, is this such a large order because it's more cost-effective for them? Or is it because customers want to buy this much at once when they've never tried it before?”
25:03 - Dogfooding your subscription experience
Ben loves to experiment with the subscription experience across different brands. He says that at minimum, brands should test out their own subscription experience inside and out.
“It's buying a subscription for yourself so you can experience what are the text messages? What are the emails like? What's the unboxing like? One thing that's really interesting that you and I nerded out on even the other day was, we intentionally canceled on a subscription to see if they would try to get us to like - what was the upgrade/downgrade flow going to be like? And they didn't do anything. They just let us cancel. And didn't even ask ‘why are you canceling?’ And then there was another brand that we did it with where we said, we just didn't want this much product. And so they were like, ‘Hey, we have a smaller amount that you can downgrade to.’ And then you and I went through like every scenario, clicking different ones of like, what would it offer me there? And one of them was like $5 off, because it was too expensive, the product was too expensive. So I think as a brand and as someone even building tools, it's so important to experience it on the consumer side.”
26:25 - The subscription upsell tactic
Joel recently bought a gift subscription that routinely offered him upsells and addons. He chose to accept the upsells every time.
“I bought a subscription for my niece and nephew because I don't get to see them often enough. And so I wanted to surprise them...It was kind of a box of adventures for kids learning something about science or nature. And they got that on a monthly basis. In that case, myself being the consumer, because I bought it, I was being up-sold on additional gifts and toys and things to put in. And like every time I was like, yes, yes, yes, yes. Because I just wanted to spoil the kids with additional surprises. So that was a lot of fun. And it was a prepaid 6 or 12 month subscription. And they would call and do FaceTime or something like that and show us their new experiments. Like one of them was this volcano that exploded, and they're all excited about that. So it was really fun to see that they actually enjoyed it. And I being, again, the person who purchased it, had the opportunity to spoil them even more with some of the add-ons and so on each month, right before the renewal notifications went out.”