Every employee in the corporate world experiences a condition that can have dire consequences. It's known as "Shiny Ball Syndrome," and it can cause significant harm to both corporations and their leaders.
Shiny Ball Syndrome (SBS) is characterized by an insatiable and constant desire to pursue the latest trends and ideas. If you've spent any time working in the corporate sector, you've likely encountered individuals suffering from mild to severe cases of SBS. Even prominent consumer brands and social media companies have fallen victim to this syndrome, losing sight of consumer needs and market demands in their pursuit of fleeting trends.
Today we’re going to examine one of the larger fads in the eCommerce industry — subscriptions. Nothing is quite so enchanting as the shiny ball of recurring revenue.
Operational leaders can become ensnared by SBS. They may latch onto these new revenue models, hastily added to existing businesses; or become enticed by subscription-based plans that offer the allure of recurring profits. These subscription services can be titillating, as they seem to promise a steady stream of income — not unlike "passive income" schemes promised by infomercials with dubious real estate schemes. But, I digress.
What eCommerce operators need to understand is that in order for a subscription offering to thrive, the customer need for a subscription must exist first. In the case of subscriptions, if you build it, customers will only come if they need it.
If the consumer need (note here that I said, consumer need, not business need, or, need for ARR) doesn’t exist for convenience as a service, sharing, or gifting of your product or service, your subscription offering will fail. Developing any venture based on a business (revenue) need in the absence of any consumer need doesn’t lend itself to any form of success or recurring revenue. Just because I want to get paid for lounging on the couch, and I do it repeatedly, doesn’t mean I will be paid for it.
We could get into how subscription services often offer a discount (“Subscribe & Save” is now synonymous with subscription services, as any of the 167MM Amazon Prime subscription holders and nearly anyone else in the U.S., would know). We could also get into why people use subscription services (see “Sub Out: Most Consumers belong to No Subscription Services,” on MediaPost), but as usual, I have a lot to say and I’d like to try to offer a unique perspective (pun intended).
To boil it down, offering a subscription service really only makes sense when it meets one of three consumer needs:
- Sharing — especially sharing of content when temporary ownership is better than a permanent option
Even in those use cases, you have to have a good understanding of how a consumer uses your product or service for a subscription model to work.
Let’s take these consumer needs (convenience, gifting, and sharing) and dissect each, and determine what has to be present for a subscription business to be viable.
Subscriptions for Convenience
In the case of a subscription business based on convenience, the key factor is the frequency of consumption. As a customer, I am interested in the convenience of having my razors shipped to me through Amazon (or Harry’s) so that I don’t have to think about the inventory level of razors in my bathroom and I don’t run out. This is a service of convenience that — given the many small items in my household that require inventory management — I appreciate. In the case of content, either music or video streaming services, frequency has to be there otherwise the consumer need dissolves. Isn’t it just that simple?
One such example of a thriving subscription based on convenience is Trade Coffee. The coffee subscription service, which partners with local roasters throughout the country, works with a very common human need (yes, need), and makes getting your weekly coffee beans easy. However, the coffee subscription doesn’t deliver its customers the same exact coffee every week purely for convenience (although customers could opt for the same beans every shipment if they so choose). Trade guides its users through the discovery of new flavors and types of coffee that they may otherwise look over. Convenience in coffee delivery and in curation? Yes, please.
In this case, Trade Coffee takes their customers’ need for discovery and convenience to drive user adoption and repeat business.
Subscriptions for Gifting
Gifting is another animal altogether. If I am gifting someone a subscription service, I am showing the recipient my understanding of their likes and preferences without curating the gift myself. I am demonstrating my knowledge of them as an individual, and leaving the curation up to someone who is more knowledgeable on the product or service.
For example, I lived for a time in the south, in a place where there were only two options for authentic Italian food. I gave my husband a sausage of the month club from the single authentic Italian deli in the whole state. I know he likes Italian sausage, but I don’t know enough about sausage to curate and pick an interesting and tasty one for him to try every month, so I leave that to the deli.
For the recipient of a gifting service, there is the benefit of discovery that is a direct result of good curation. This is where the boutique-esque skills of a true merchant are needed. Curation done well is not only a delightful experience, but it also lends itself to natural enlightenment and discovery.
The trick here is to know what type of gift recipient your customer is. Does your customer like to sample any and everything? Do they want to get deals on luxury items that otherwise would cost them a fortune? If your business is going to offer a subscription service, it’s important to identify who your key customer is and how you’re going to meet their gifting needs.
Subscriptions for Sharing
With the sharing economy, it often makes more sense to pay for temporary access to use something vs. to pay and to own it outright. Gone are the days of buying and collecting CDs, keeping them lined up (did you alphabetize yours?) on a shelf or in one of those handy Trapper Keeper-style zip-up cases in your car. Mp3s, DVDs — gone. Instead, we likely subscribe to Spotify, along with their other (229MM subscribers), Apple Music (38MM subscribers), Amazon Music (55MM subscribers), YouTube Music, or Pandora. Having a limitless supply of music that evolves over time and is always current (should I so choose…) is undoubtedly better than buying and buying and still feeling the need for something fresh and new. For viewing there is Netflix, YouTube TV, Apple TV+, Discovery+, Hulu, Disney+, etc.
A gym membership is another classic example. I could have my closet (or extra bedroom if I had one), filled with a bench, Stairmaster, treadmills, a TRX, and kettlebells of every increment…but, why? The real-life aspects of space, noise, and equipment cost make owning all this stuff, in most cases, just extravagant. Unless, of course, I live in a $29MM home in the Hollywood Hills in which case all the above is absolutely mandatory (...alas, that is not my reality).
A Subscription Use Case
Let’s take another real-life example and see how and when it works and doesn’t work based on consumer usage. I previously sold makeup for a beauty startup that was primarily a foundation brand. A large mix of our business was foundation.
Foundation, as a makeup category, lends itself very well to replenishment. A critical factor to success is giving the right guidance on usage or replenishment cycle, and with improvements there, we were able to grow our program.
Foundation as a gift (like a foundation of the month club) makes no sense at all whatsoever. You have no idea the shade of the recipient, as matching skin tone is an exact science, you also have no idea of the rate of usage for the recipient. Some people wear foundation daily. Some people wear it only for special occasions. And you generally only need 1, maybe 2 shades of foundation.
At this startup, we eventually launched a great lipstick line. Lipstick as a subscription service for convenience doesn’t make much sense, because most consumers use a variety of different shades based on wardrobe and usage occasion, and the frequency is simply not there. I may own the exact same bullet of red lipstick for all of my entire natural-born life given how frequently I wear it (hardly ever).
For lipstick, there is a fringe use case for gifting. A makeup brand could do a lipstick of the month based on knowing someone’s skin tone or preferred shade family (pinks, beiges, or reds, for example), but this use case is so niche and the logistics cumbersome enough that makeup companies are more likely to sell you a kit of 3, 6 or eight lipsticks at holiday to make for a great gifting presentation. Even today, in a non-holiday period, a search on Sephora for ‘lipstick kits’ returns over 15 options, 9 of which are at a value (discounted from the original price).
The point here is that you have to have an understanding of how your consumer uses your product, and in what context, to determine if a subscription (for convenience, gifting, or sharing) could work.
Subscriptions Done Well
One of my favorite examples of subscriptions for convenience that is done well is offered by the pet company Chewy. I wrote about this many years ago. They excel in subscriptions, allowing the consumer to control two critical things:
- The frequency of shipments
- The ability to cancel easily, at any time
One of the greatest fears that consumers have around subscription services is: “How would I cancel this if I wanted to?” There’s nothing worse than playing “find-the-cancel-button” for minutes on end, blood pressure increasing, as rage-clicking past each “Are you sure?” screen.
The bigger the problem, the more sticky the solution. In this era of pet-pampering, many pet parents today feed their pets specialty food that is likely not carried at most retailers. Not only is hard to get but who wants to be the awful pet parent that forgets Buster’s kibble??
Chewy also makes the front end completely frictionless, adding to the stickiness and increasing the likelihood you’ll do it again. It is so simple to create another “autoship,” add items to an existing autoship (I love a good AOV driver), ship now, change the ship date, or skip a shipment altogether. As of 2022, 44% of Chewy’s customers used their autoship program. In addition, Autoship customers buy 15.5 times annually versus 10.4 times for non-autoship customers, spending $53 per order compared to $41 for those who don’t choose automatic reordering, see below for a one-year LTV, a lift of 93% or nearly 2x!
What they don’t do, and could do (and far be it from me to criticize the autoship genius that Chewy has developed…consider it, more of a suggestion), is give customers some guidance on usage cycles for each product for a product category. For example, Buster has a normal weight, but a voracious appetite, so he is likely to go through his kibble slightly faster than the average pup, the recommended frequency is 30 days for this lb-pack of kibble. This may seem like too far to go, however, this extends the brilliance of Chewy’s subscription service by decreasing risk.
If someone is asking you to look at subscription businesses, do be sure to include the appropriate continuity disclosures. The ‘Restore Online Shoppers' Confidence Act (ROSCA) and enforcement policies from the FTC include basic guidelines like “clearly and conspicuously disclosing material terms, and avoiding unreasonable barriers to cancellation.” It behooves everyone to act appropriately where subscription businesses are concerned.
If your leadership team is asking you to tack a subscription service onto an existing business, without regard for fit, or consumer need, (only to chase the recurring revenue), think about convenience as a service, sharing, and gifting. Ask yourself whether it makes sense for the consumer. You will be able to make a cogent argument and you won’t be the one suffering from shiny ball syndrome.