The Five Things D2C Subscription Business Leaders Should Consider In Times of Uncertainty

By Aarthi Rayapura May 11, 2020

The Subscribed Institute recently held a Virtual Exchange to bring Subscription Economy executives and experts together for conversation and knowledge-sharing around the right strategies for D2C businesses during times of crisis and uncertainty. The interactive event was led by Frank Ernst, VP of Subscribed Strategy Group at Zuora, Anthony Napolitano, VP, GM of HP Instant Ink subscription service, and Robbie Baxter, Strategy Consultant and author of The Forever Transaction.

The discussion focused on five key areas:

1) How Can You Help?
The question of how companies can help employees and customers during these uncertain times seems to be on everybody’s mind as a whopping 86% of the participants said that their companies were grappling with this.

Anthony Napolitano shared the ways in which HP Instant Ink was helping its employees. “Being able to connect with people and see them has a much different meaning now than it did just a few weeks ago. So, we’re doing things like coffee talks, brown bags, etc every week to get together and communicate. We’re also starting to share customer testimonials specific to COVID-19 and show how our service is helping people in ways that we never really thought was imaginable. This helps our employees feel like their work is giving back to the community,” he said.

Ernst agreed and added “We’re doing the same thing around customer testimonials. Enabling your employees to see the value of your products and your services is powerful during such times.”

The panelists discussed the issue of businesses walking the seemingly thin line between altruism and opportunism. “Sometimes, there are assets that an organization has that they feel obligated to share. For instance, the way a lot of publications are relaxing their paywalls around COVID-19 related content or Zoom is expanding its services to help educational institutions. That’s an obligation to the community. It also has the effect of creating trials and driving a huge spike in business. However, this can become an issue for some organizations if they’re going about it in a way that is not aligned with their values and mission, which can then have a negative impact on the organization as a whole,” cautioned Baxter.

Napolitano concurred and said that it’s important for businesses to find the right balance. He added that such decisions have an additional layer of complexity for subscriptions with physical goods. “You really have to have a good handle on your acquisition strategy, your value prop, and your retention strategy. It’s one thing to say, ‘Okay, I’m letting more people read my content,’ but it’s another thing to say, ‘I’m now going to go ship goods to somebody even if they aren’t a qualified customer.’ There’s a lot to think about during these times.”

2) Focus on Customer Lifetime Value
Ernst stressed that for subscription companies, long-term customer lifetime value is what really matters. “Now is the time to be empathetic with your customers. Assess how you can offer value, understand the service utilization of your products, and monitor requests for cancellations. It’s critical that you keep in mind that you’re building long-term relationships,” he said.

Baxter expanded on this and explained that there were two related but different issues at play–businesses being unable to provide value and customers being unable to pay. “If you have a business that depends on physical proximity to be successful such as sports or hospitality, you may not have the ability to provide value right now. In such a case, it’s the responsibility of the organization to make it really easy to pause or cancel the subscription. In fact, I’d recommend that such organizations do it automatically and maintain the customer relationship so you can pick it up again when the time comes. In cases where the consumers are unable to pay, businesses should consider what’s the right thing to do. It might mean offering freemiums or bringing down the paywall as many publishers have done. In both cases, businesses should focus on what’s the right thing to do for the long term. ‘How would I treat my customers if I knew I had to see them again tomorrow in person?’ That’s a great guide for this situation,” she advised.

“I think all of our business customer value proposition is being put to the test right now. So if you’re coming into this not knowing what your value prop is and what you’re solving for the customer, you’re surely going to find out now. For HP Instant Ink, we continually test and understand what we’re doing for our customers in terms of providing them value and resolving pain points. But what we’re doing now is trying to understand how different cohorts of customers are behaving. In our case, we look at usage but every subscription has a different behavioral element to it,” shared Napolitano.

He pointed out that this was one of the advantages of the subscription model. “One of the best things about running a D2C subscription business is that we’re drowning in data. We don’t have to guess who our customers are or what they’re doing with our services. They’re giving us testimonials, they’re telling us what they like, and what they don’t like. Transactional businesses don’t have this. Typically, the only time you’re talking to them is when they have a complaint and they’re calling your call center. The beauty of subscriptions is that they give you this opportunity to have a real direct connection with our customers. We should all be looking at our data, analyzing it, and understanding our customers needs and behaviors,” he advised.

3) Reimagine Your Innovation Strategy
Having access to customer data and a reliable feedback loop, and then being able to action it is key to innovation and new business growth strategies. Ernst stressed that the current situation provides companies the opportunity to experiment with new pricing options and new digital experiences. He was optimistic that a lot of innovation would emerge out of these uncertain times. Baxter agreed and said that “constraint makes us more creative and innovative in what we do. Sonnets are so successful as poetry formats because of the constraints that are set for them.”

Amy Konary, Chair of the Subscribed Institute shared her experiences of being a SaaS analyst during the last two economic recessions. “It was a time when SaaS was seen as the secondary offer. The view was that the functionality was not as robust as on-premise products. But suddenly, when capital and human resources became scarce, SaaS became much more attractive. And the industry really took off. We see incredible innovation when people are forced to be creative and think of different ways to do things.”

Napolitano shared the optimism and advised that companies tread with caution. “There are going to be new pockets of opportunity, no question about it. But, as much as we all want to act with speed, I think it’s really important to pause, think, and then act. We need to really be cognizant of our next moves because we don’t want to be working towards something that may not be the reality three months from now,” he said.

4) Revisit Payments and Paywalls
Businesses can be using so many different pricing and payment strategies right now–free trials, suspending subscriptions, new offers, etc. The challenge for most companies is maintaining the value of the product over the long-term. Ernst argued that this was an opportunity to acquire new customers and then maintain that relationship by providing them with a great experience.

“Under normal circumstances, a free trial is a taste of the delicious thing you have so people know what it tastes like. And so you want that to be like a short and delicious bite of the best thing you have to offer. A freemium model is where they get a ‘hamburger forever’ because you’re trying to change behavior or because the subscribers themselves are part of the product for the premium subscribers in terms of the network effect or even advertising. So, the question is, is this an opportunity? Are more people out tasting and so you want to open up a free trial or are you working on changing habits where you would offer a relaxed freemium offering? There’s also the question of ethical reasons where you would be making a decision not just based on ROI, but based on core values and the right thing to do. That’s something that some organizations do all the time but some businesses are really looking at it for the first time right now,” said Baxter.

Napolitano asked companies to view these strategies from a value prop lens. “In general, if you have a service that has any kind of longevity to it or scale to it, it’s typically good to let people try it because you have a value prop that once they try it, they’re going to stay. But, when there’s a physical good involved, it gets a little more complex. You need to understand the elasticity between extending trials and making it super cheap because then you don’t get the ‘qualified customer’ that you typically would in a normal environment,” he said.

5) New Considerations for Recurring Revenue CFOs
The only thing certain about the current crisis is that it will end sometime. And another certainty is that, sometime in the future, there will be another crisis.

“This event has been surprising. It’s not something that people might have expected a year ago or two years ago. But in general, we can expect that there are going to be downturns and times when business goes up. What’s really stunning to me is how little cushion some businesses have built to weather through these difficult times. I think scenario planning should be part of regular business. What if the internet broke? What if we had an economic downturn? What if there was a war? That will allow businesses to be a little more nimble,” said Baxter.

Ernst agreed that building in a planning muscle that’s pragmatic and allows companies the ability to pivot instead of being forced down a path was critical. Napolitano shared how HP Ink tackles such challenges. “It’s about looking at the scenarios of what the outcomes could be. We use a 2×2 matrix i.e. we try to imagine two different outcomes, put them on a matrix, and imagine different scenarios. What would the impact be? How likely do we think that outcome is? And then, pick the ones that we think are most likely and the most disruptive to our business and plan for those. The real decision is when do you start making investments? That’s probably happening right now in every company, big or small, around the globe,” he said.

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