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Strategy

Retention Lessons From Subscription Box Services

You may hate churn - but not as much as subscription-based services do. Here's how to deal with it and come out victorious

Chris Morrison
March 31 2018

Subscription boxes are booming. From beauty supplies and clothing to foods and, yes, even sex toys, the subscription box business is one of the fastest growing retail models in the world right now.  According to Digiday, traffic to subscription box sites grew nearly 3,000% from 2013 – 2016, and last year more than 11 million people in the US subscribed to BirchBox, Blue Apron, Dollar Shave Club, Ipsy, or some other subscription business. As with any fast-growing and highly competitive market, subscription boxes rely on customer retention for a significant chunk of their revenue. But in their case, given the high costs of mail delivery and customer acquisition, retention is even more vital to their survival. So it is out of necessity they’ve succeeded. Subscription boxes like Ipsy and FabFitFun report achieving retention rates above 80%.

That’s because they have to get the numbers to survive. The numbers are also why subscription boxes grew so fast following the mid-2000s. There are now more than 2,000 subscription box services, including big names in traditional retail like Starbucks and Walmart. Subscription boxes aren’t the same as traditional ecommerce sites, yet both are designed to sell stuff on the Internet. So why can’t everyone else take a lesson (or four) from these boxes?

Reward important behaviors – as well as unimportant ones

All successful brands rely on Skinnerian psychology to an extent. The concept is simple: if you want customers to continue a certain behavior (like renew subscriptions or leave reviews), then reward them every time they perform the action. Subscription box services are just better at using Skinner’s insights than most. Ipsy awards points for obvious actions like referring friends or gifting subscriptions. But they also reward points for ordinary actions like following the brand’s official influencers (called “Ipsy creators”) on social media or leaving reviews (even negative ones).

Spread love to get love

 Great leaders don’t inspire loyalty with gifts. They use thoughtfulness, making employees feel their leader genuinely cares about personal growth. Surprisingly, this also works as a metaphor for marketing: a study on loyalty found that customers have a limited capacity to stay active in loyalty programs. A loyalty program needs to appeal more personally than other brands to exceed the average performance. Sip & Learn goes beyond traditional wine subscriptions with a 12-month educational course. This focus on personal growth means that subscribers are less likely to cancel before fulfilling their sommelier dreams.

Try The World, an international gourmet food box, makes culture guides, recipe videos, even sends lucky subscribers to different countries. “There are small initiatives that matter a lot to the customer. It’s sending them a postcard once in a while. It’s sending them a special offer that is only for subscribers. It’s always trying to innovate and make our community happier and happier,” shares CEO Vincent Bourzeix in an interview with Shopify.

Keep personalization thoughtful, but don’t be a creep

Box services are all about trying new products, and not all of them will be a hit. One in five subscribers still cancel because they don’t like the products they receive. The typical solution is product recommendations based on what other customers bought. But the best boxes go further. Liz Crawford, the CTO of leading makeup box Birchbox, asserts that subscribers need to be able to say “Oh! You know me!”

Some information is best gained simply by asking. Marketing researchers found that customers prefer when companies are upfront about data collection, rather than trying to hide their efforts. It’s a win-win: overt data collection benefits brands, too. Customer profiles easily lets Birchbox know not to send dry shampoo to customers with curly hair. Kids’ clothing company Mac & Mia reduces the number of returns (and therefore, unsatisfied subscribers) by making parents answer a fun “style quiz” that covers everything from color preference to fabric restrictions.

No messy breakups

Insidious cancellation and return policies are absolute no-no’s for boxes. “In one of the emails, where I distinctly told them to cancel, they told me that I have to cancel over the phone, but they will not answer the phone,” complains one of the many beleaguered customers of a household products company. Just don’t make customers pick up the phone, period. They hate calling. Cancelling should be quick and easy, like Pop Sugar and Tokyo Treats’ one-click cancellation process. Easy cancellation works so well there’s an entire startup for it. An upfront cancellation policy can be the final push that turns a curious visitor to a long-term subscriber.

Cancellations are part of the retention puzzle that includes personalization, added services, and loyalty programs. While all traditional ecommerce businesses are trying to crack the code, no one goes above and beyond like subscription box brands to please customers, driven by high retention standards and constant demand for value.

Offer a tiered loyalty program

Tiered loyalty programs are also vital to boxes. Half of respondents said they increased their spending or changed other purchasing behavior to achieve a higher tier status in a rewards program. Customers will spend more for better benefits, sometimes just to receive them. But the stronger motivation is competition: most people want to reach a higher tier than the “average” customer. The same concept in 1980s arcades compelled you to plug quarter after quarter in search of a leaderboard spot. Humans just feel better when we feel like we’re doing comparatively better than our peers.

Even if subscriptions aren’t your business model, brands have a lot to gain by learning from the companies who boast high retention rates. Reward your customers’ good behavior and treat them like they could ‘cancel’ your products and services at any time…because they can and will if you’re falling short of their expectations.

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Chris Morrison

Chris Morrison is a reformed game developer and a freelance writer specializing in game design, app marketing, marketing technology and other areas. He was previously a writer for VentureBeat before trying his hand at game design.

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