The following excerpt is taken from the bestselling book “The Automatic Customer: Creating a Subscription Business In Any Industry.” The book’s author, John Warrillow, is also the founder of The Value Builder System™ — a 12 step method for improving the value of a business by 71%
Consumers are aware that a subscription relationship is much more valuable to you than a onetime purchase. So to get them to commit you’ll need to give them a big return on their investment. A consumer with an acute case of subscription fatigue is unlikely to subscribe just to save 10%, but she might be convinced to subscribe if you could make a case that she will enjoy 10 times the value of the alternative.
For subscribers to the online art school New Masters Academy, $29 per month buys access to 350 hours of video tutorials. The going rate for a one-day in-person art class from a New Masters Academy instructor is $600–800, so you get access to 350 classes each month for around one-twentieth the cost of an in-person lesson. As New Masters Academy founder Joshua Jacobo said, “We provide a ridiculous amount of value.”
There was a time when people would subscribe just to say they had a subscription to something novel like razor blades or condoms. Those days are over. The subscription business model has gone mainstream, and people are demanding that their subscriptions offer better value than the alternative.
Take Raz*War, for example. In March 2010, more than a year before Dollar Shave Club sold its first razor blade subscription, Raz*War, also a subscription razor company, won the People’s Choice Award at Plugg, Europe’s biggest start-up competition. Within 48 hours of the Plugg announcement, 1,100 men—mostly technology geeks and early adopters—signed up for a razor blade subscription.
Today, Raz*War subscribers behave much more rationally. They no longer see razor blades by subscription as a new concept they want to be the first to test, but they are still tired of going to the store to buy blades, only to find out the pharmacy is out of stock or the company has changed the blade handle again.
It’s not just personal products that can be sold to individuals by appealing to convenience—it’s hugely important when selling a B2B subscription. That’s how H.Bloom built a business case for flower subscriptions. H.Bloom’s cofounder Sonu Panda coaches his sales reps to explain how the company is able to offers hundreds of flower types, unlike the typical flower store, and bypass the middlemen so customers receive their flowers within 48 hours of the farmer cutting them, as opposed to 10–14 days later for a smaller outlet. By the time the sales reps are finished, they have presented a fully rational case for why it makes sense to subscribe to a bouquet of flowers.
This strategy can work when selling a subscription to a consumer, but it is essential when you’re selling a subscription to another business.
If given the choice, most consumers would prefer to keep their freedom and buy your product à la carte, on an as-needed basis. Depending on your appetite for building a subscription business, you may want to consider making subscriptions the only option for buying what you sell.
You can’t buy a one-shot ticket to the Grano Speakers series; you can’t walk into Staples and buy a box of Salesforce.com disks; you can’t sign up for a one-shot TIGER 21 Portfolio Defense; and you can’t buy a single movie from Netflix. These companies are 100% “all in” on the subscription model. They are giving their customers an ultimatum: subscribe or we can’t do business.
The ultimatum strategy can be doubly important if you’re targeting customers who are already buying from you on a one-shot basis.
If you’re going to force people to subscribe as your only pricing model, one way to overcome their anxiety about committing is to offer a free taste of what they will get from a full-blown subscription.
Mequoda Group’s Don Nicholas found that it is virtually impossible to sell first-time visitors a subscription to an information product (e.g., a magazine or membership website) until they have first opted in to a free e-mail newsletter to sample the value of the content.
Once they become an e-mail newsletter subscriber, they convert to a paid product at the rate of 3% to 30% per year, depending on the number of offers they are presented with and how carefully the publisher manages (e.g., weeds out undeliverable addresses and those who have opted out).
In this “freemium” model, you’ll want to leave plenty of value off the table to instill a sense of intrigue about what the customer will get from subscribing. A good taster gives you just enough to assess the product but leaves plenty of temptations behind the curtain.
If you have a product or service that is very hard to describe and that customers have to use before they will understand the benefits of subscribing, you may want to consider offering a trial. Unlike a freemium offer, which is typically available to a consumer forever, a trial usually has a start date and an end date.
Take a look at the trial subscription offered by Osler Bluff, a private ski club two hours north of greater Toronto. Arguably the best skiing in Ontario can be found at Osler, but you can’t just walk in off the street to buy a lift pass. Osler is a private ski club with a onetime $57,500 initiation fee, plus annual membership dues of a few thousand dollars.
That’s a big nut to ski a small hill, but it’s not just about the skiing. The apres-ski is chockablock with investment bankers and law firm partners to network with. There is a playroom where the kids can be entertained and a superb ski-racing program that has helped many youngsters develop into World Cup skiers. The main lodge is a beautiful post-and-beam clubhouse.
It’s an entire experience, but selling it to customers requires that they see its value for themselves, which is why the company offers a onetime, $2,500 trial membership that buys a one-year glimpse into life at Osler Bluff, after which you’re given the membership ultimatum: cough up your $57,500 or no more Osler for you. In any given year, between 90% and 100% of trial memberships convert to full memberships.
Free trials work well when you have any product or service that is better experienced than described.
If someone does you a favor, a thank-you gift expresses your appreciation. A birthday gift shows your love once a year. A wedding gift sends your best wishes. The problem with a one-shot gift is that it’s easily forgotten a few days after being received, which is why increasingly consumers are buying subscriptions for friends and family members as a way to express their appreciation over time.
Standard Coca, a service offering craft chocolate on a subscription basis, estimates that up to 75% of its orders during a major holiday season like Christmas or Valentine’s Day are gifts for other people. BarkBox offers a one-, three-, or six-month subscription as a way to show your appreciation for the dog lover in your life.
A word of caution: the challenge is that gift subscriptions are notoriously difficult to renew. The consumer of the subscription did not make the original buying decision and therefore has to go through his own buying process in order to renew. The person who purchased the gift subscription is unlikely to pay for someone else to receive a subscription’s benefits in perpetuity.
You can sell a gift subscription as a way to “top up” an already successful subscription offering, but given the lower renewal rates, avoid using it as your primary source of subscribers.
From a consumer’s point of view, the best part about a subscription offering is that it is always on. Unlike buying a concert ticket for a popular show that is sure to sell out, or a great sweater from a store that has only one left in stock, a subscription never goes away.
This “always on” feature is fantastic for consumers but can be frustrating when you’re trying to sell a subscription. If your service doesn’t change from one day to the next, why should a prospect buy today?
One way to get people to subscribe is to artificially simulate a burning platform that causes the customer to act to avoid losing something. When our company subscribed to a marketing automation software provider, we spent a few months deliberating the decision. As we approached the end of the buying cycle, I was
getting ready for a family trip. Sensing that the momentum of the sale was about to be lost, my salesperson put a compelling offer in front of us: sign up by the end of the month and the license would cost only $1,000 a month instead of the $2,400 a month the company normally charges. Saving almost 60% was a compelling enough incentive for me to prioritize the decision before I left for vacation. Did I think the same offer would have been available the next month? Yes, but there was enough of a doubt in my mind that it got me to act.
This strategy usually works best when you have salespeople who can quietly and selectively communicate the offer to only those prospects who have decided to buy and are just dragging their feet on committing.
Excerpted from The Automatic Customer: Creating a Subscription Business In Any Industry, in agreement with Portfolio, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC. Copyright © John Warrillow, 2015.