The Robin Report's Pam Danzinger features the thoughts of OceanX CEO & Founder Georg Richter and highlights how the psychology of subscriptions can be the recipe for subscription success. Read the full article here an excerpt copied below.
Ever since the success of Dollar Shave Club, which sold to Unilever for $1 billion, the subscription marketing model is viewed as the path to fame and fortune. With its promise to grow business with a loyal consumer base and steady stream of repeat business, rumor has it that The Gap, Under Armour, Target, Walmart, P&G and Sephora are testing the concept.
Prospects look bright with a new study from McKinsey & Company reporting that subscription ecommerce has grown by over 100 percent a year over the past five years, reaching $2.6+ billion in sales in 2016. New subscription programs are popping up every day in categories as diverse as beer and wine, child and baby, meal kits, pet foods, vitamins, fashion and underwear and replenishment services for basics like contact lenses, cosmetics, women’s feminine products, and even dental floss. Cocofloss has a plan to keep an ongoing supply of luxury flavored dental floss coming to your door, 64 yards worth every four months for $14.
As tempting as subscription marketing is, there are painful realities that companies can easily over look. It’s hard to acquire new customers and it’s even harder to keep current customers. The McKinsey study, based upon a survey among 5,000+ U.S. consumers, finds only about 15 percent of online shoppers have taken the plunge into the subscription lifestyle for consumer goods.
While awareness of subscription offerings is fairly high at 53 percent, the percentage of converting those who are aware is incredibly low, with only 13 percent saying they’ve subscribed at one time and just 8 percent currently subscribing. In terms of subscribers, the replenishment-style of subscription plans (e.g. Dollar Shave Club, Amazon Subscribe & Save) have higher rates of conversion than do curation-style programs (e.g. Birchbox, Blue Apron, Stitch Fix).
As hard as it is to get new customers, it is even harder to keep them. The McKinsey survey found that nearly 40 percent of subscribers cancel out of their subscriptions, with one-third cancelling after only three months trial and over half only sticking around for six months. In particular, meal-kit programs have the highest falloff rate, with 60-70 percent of subscribers pulling the plug after six months.
Those realities haven’t changed since modern ecommerce-fueled marketing replaced the old direct-mail continuity and club plans of the past, explains Georg Richter, a 30-year veteran in subscription marketing. “My whole career has been in subscription. I’ve done Book-of-the-Month Club, Doubleday Books, Columbia House Records, Scholastic. I’ve been CEO or president of these companies,” Richter shares. “That led me to Guthy Renker, one of the premier direct marketing companies that has subscriptions at its core.”