Subscription businesses are built on the premise of an ongoing relationship between business and consumer. I know what it’s like to have a personal relationship with a subscription business: for my entire childhood, my family subscribed to the magazine Reader’s Digest, which I eagerly devoured each month. My family’s relationship with Reader’s Digest was multi-generational, going back to at least my great-grandfather, who gifted a subscription to each of his grandchildren for their high school graduation. Those grandchildren included my mom, who re-subscribed for years. My family was not alone in its loyalty. In its heyday, Reader’s Digest was the most widely-circulated general interest magazine in the United States, with an audience of over 16 million monthly readers.
You might call Reader’s Digest the archetypal subscription business. Though the dawn of digital media has since brought difficult challenges, Reader’s Digest and other print publications laid out the simple but highly effective blueprint of a relationship-based business driven on the economics of customer acquisition, recurring revenue, ongoing costs, and retention.
Today, when Siri reminds you that it’s time to renew your subscription, she’s just as likely to be referring to your Dollar Shave Club razors as to a magazine or newspaper. Subscription businesses have emerged in a wide variety of contexts and formats—B2B and B2C, goods and services, mass market and customized, ongoing monthly payment and annual renewal. Not only can you get your media fix by subscribing to Spotify, you might also subscribe to weekly vegetable deliveries from a local farmer through a CSA (community-supported agriculture) business.
Because many diverse companies employ this model, it’s hard to define numbers for the overall subscription economy. However, headlines attest to its impact. For instance, Netflix’s early-2000s takedown of video rental behemoth Blockbuster is a textbook example of disruptive innovation leveraging a subscription model that emboldens recent startups like Birch Box, Honest Company, and Dollar Shave Club—all subscription businesses aiming to upend their respective industries. Despite marketplace changes and technological innovations, today’s subscription businesses are no different from the once-ubiquitous Reader’s Digest in their need to develop and deploy effective customer retention strategies.
Even though today’s subscription companies are built on a time-proven business model, they shouldn’t fall into the trap of using yesterday’s approach to customer retention.
Companies who handle retention the old way ignore one critical modern asset: data. Subscription-based businesses have an ongoing flow of information about their customer base that provides insight into future behavior at the individual consumer level. These data enable companies to develop predictive analytics that inform tailored retention offers that speak to individual tastes to increase acceptance rates, while also optimizing for company profitability on a case-by-case basis.
Not all companies will need to completely reformulate their subscription models. However, in-depth customer research may reveal foundational problems unique to the organization, such as consistent dissatisfaction with a certain element of the product or service, the emergence of a new competitor or substitute, or issues with subscription delivery or reliability—any of which could bring a subscription business to its knees if left undiagnosed. Even companies boasting good attrition rates should seek data-driven improvements to become the gold standard for their industry as they mature.Download Whitepaper