Are subscription models the future?

Published: March 29, 2022

Welcome to Get In My Basket, the newsletter that will tell you everything you need to know about digital marketing for direct to consumer brands.

In this newsletter, you will find insider knowledge, tips and tricks to get your brand into more baskets.

In this issue you will find:

The razor brand that’s cutting up the competition
How DTC brands can tackle subscription models
What happens when you mix a social platform, a TV channel and a fizzy drink?
The hottest collaboration
The future of social conversation

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What’s HOT?!?! This section of the newsletter showcases brands and businesses doing something innovative in their space.

The shaving industry has had a couple of waves of disruption and innovation over the years and with a value of $2.1 billion, it’s no surprise that there are many brands competing for a slice. The likes of Gillette and Bic were challenged in 2012 by male-dominated challenger brands such as Dollar Shave Club and Harry’s, offering digital-based subscription models.

Dollar Shave Club saw huge success within the first 48 hours of business, acquiring 12,000 customers within that same window. However, although they didn’t struggle to acquire customers and had a price tag of $1billion, 7 years after launch they still weren’t turning a profit, making them tricky to sell to the big players.

Enter the next wave of digital-first, subscription-based razor brands with strong brand purpose, aesthetic and watertight products. Our favourite? Estrid. Female founded (it was IWD this week after all), Swedish based, DTC brand laser-focused on providing a product that presents consumers with a lifetime of value, without compromising the quality or the planet.

Estrid creates longer-lasting relationships with customers via what they say and how they say it. Recognising consumers’ interest in “The Great Restoration” (see in tricks below for Twitter’s most recent report diving into the most emerging conversation topics on the platform) they have married purpose with creative to engage, convert and retain their audience.

Estrid is a vegan and cruelty-free product that lasts a lifetime and is built around a community focused on respect and inclusion. They are a brand that is helping to lead the way in cultural shifts and just one of these movements that their community first model is passionate about is gender-based discriminatory pricing. Portraying these missions in consistent, engaging and powerful creative that matches their product and ethos, allows them to stand out from their competition and has their customers coming back for more. Add to this a subscription model (deep dive incoming) and you’ve got yourself a DTC brand that’s going places.

Are subscription models the future?

If you’re at all involved with a DTC brand, it is likely that you have thought about using, or are using a subscription model in some way.

It might even be your main business model as a DTC brand. Is anyone else still feeling the scars of ReCharge?

Well, for those of you paying attention to last week’s newsletter, a whopping 75% of DTC brands are predicted to have some form of subscription model by 2023. Let’s unpack the basket to understand more about subscription models to see why this number is so high.

What is the real benefit of using subscription models? Why are some brands so against them? And why do others make it their main model?

The way we see it, there are two different approaches to a subscription model for a DTC brand.

1. Subscribe or nothing

Think Netflix. We have all had it for a long time now right? Even when we don’t use it, we are still paying for the privilege. The only way to have access to the product or service is through committing to a subscription. It’s a bit like a membership.

This sort of model is very common in the tech space. Think music streaming services, fitness programs and apps that you pay a monthly fee for. This model has also been utilised by many food delivery boxes, animal food suppliers and beauty boxes.

At 303, we have had a lot of experience with this model, and to be honest, it is a strong model once you have converted audiences onto a service like this. With subscription models, once you have got a consumer to commit, you have to ensure that the solution you are providing with that subscription delivers, otherwise, you will see a drop-off and because the cost of acquisition can be high, it’s important to extend the lifetime value as much as possible.

Setting up subscription models for DTC brands (particularly product-based ones which need to account for stock, deliveries etc) can be a lengthy process but is one that has to be perfected. Consumers commit to them if they are making their lives easier, they are signing up for convenience or they are signing up for something they can’t live without. It’s imperative that you deliver on your promise from the get-go to keep the lifetime value high.

If you deliver on this promise, it provides a strong customer base and a huge opportunity to upsell and increase AOV. It also can be a valuable tool to predict sales forecasts month on month.

So, the biggest challenge with this type of subscription model; how do you convince your customer that it is a worthy commitment and then extend their lifetime? We have had a lot of experience in this area and for us, it comes down to two things; added value and community.

When a consumer has signed onto a subscription model, you have gained their trust and their loyalty. To keep them long term though, you have to look after them and foster this sense of community.

It’s like being in a marriage. You know your partner is going to be around for the everyday part of the relationship but you know that you have to show your love and appreciation for them in order to keep it a happy relationship. This is the same with a subscriber. In order to keep them happy, you have to go above and beyond to keep them bought in.

With a subscriber, this could be newsletters, discounts, social media shoutouts or random small gifts in their deliveries or add-on features to make them feel special and thus keep them for a long time.

So, what is the downside? It’s a hard sell with a high cost of acquisition. Don’t get us wrong, when you have the right product or service and it is well communicated, the model can work incredibly well. However, consumers are scared of commitment. They look at the £12.99 monthly fee with the same decisiveness it takes to name a child. Unlike naming a child, decision-makers can change their subscription (most of the time), but audiences don’t always see that and it can be a massive factor in bad conversions. So, appreciate the time and consideration they put behind these decisions and see what you can do to make it easier for them. Clearly show USPs, be flexible with your offering and prove that you can deliver on your promise.

Some other tips that we have to build community and add value are:

1. Communicate your subscription price clearly and keep it consistent. We find showing a weekly price has converted the best from experience. Not: “£12.99 for your first week and £10.99 for your second week, if you agree to 4 weeks subscription of £1.99 a day”. Smoke and mirrors on price don’t work.

2. If commitment is a big barrier due to fear, make it easy for consumers to cancel at any time and show that to them. You might be surprised to see how many potential customers check the cancellation policy and process before committing. Be transparent about your policies. Not only does it make it less of a gamble for consumers, but it also shows you trust and believe in your offering. If you make it easy to leave, but people still stay (which can be shown in reviews and testimonials) it speaks volumes.

This traditional subscription model is still highly effective for many DTC brands, but the space has evolved to another model.

2. Subscribe and save

Amazon has been listing “Subscribe and Save” on selected items for the last couple of years, with no extra fees and cancellation at any time. It’s not new to any of us, but it’s definitely picking up momentum in DTC brands. Other brands that offer this model are personal care brands such as Fills, F&B businesses including PRESS, and lifestyle products such as Freddie’s Flowers.

This model is more of a way to hook customers in and then be used as a way to upsell and increase their lifetime value. Often it will apply to brands who are offering a product that can be easily positioned to be a monthly purchase or frequent, recurring order. Or it could be part of a gift that can last longer. They are then likely to position the subscription model as “It’s more convenient and cheaper for you” which, to be honest, it is. However, it is still possible to enjoy the products if you are not bought into a subscription.

Although it seems simpler than the first model, this model does still have its floors. The biggest? Why would someone subscribe? Most of the time, subscribing gives customers a cheaper unit price, but they do have to commit to a higher overall spend. They will continue to have access to this product even if they are not subscribed, so what is the point in subscribing?

If the product/service isn’t set up purely for a subscription (i.e. Netflix) it means that the way customers consume it is likely to be different. Take Fussey, our “What’s Hot” from last week. Not many people know exactly how long it will take them to get through one stick of deodorant and so don’t feel ready to commit to a subscription for fear of it not actually making their life easier. Will too much arrive that they’ll never get through? Or will they never get a delivery when it’s needed so will have to substitute elsewhere, diminishing the point of the subscription? All of this is often too much for a consumer to think about when they’re at the checkout and so often avoid it.

Other obstacles include: What if they don’t like the product after the first purchase? What if they were getting it on a different website as part of another shop? It requires more time and thought from a consumer and as we all know, consumers will most likely choose the most convenient option which might be a one-off purchase.

In order to convince those one-time buyers to subscribe, there are a few things you can do:

1. Make the subscription a REAL saving. Not just a few percent of, make the price as attractive as possible

2. Look after your subscribers by building community and making them feel bought in – use the approaches above here – discounts, emails, promos etc.

3. Think about when you should push subscriptions. Is it to the first-time buyer, or do you only offer it to consumers after they have used the product once or twice? Understand their purchasing habits and then offer a way to make it more convenient for them.

Disney will offer an ad-supported subscription in the U.S. later this year, with plans to expand internationally in 202
On March 24th, Becoming A Popstar will premier in the US. With a tagline of “discovered on TikTok, showcased on MTV, launched into superstardom by Pepsi” – exploring ways to integrate TV and social
Palace collaborates with Elton John
Tiktok launches agency centre which, when activated, will signal to talent agencies that they’re open to additional guidance and support with the goal of enabling creators to build audiences and incorporate tools such as live shopping and promotions
Pinterest Elevates program, Pinterest announces a new program to support, fund and train female-owned businesses
Twitter has published a report that analysed billions of tweets over the past two years to look at the key emerging topics of conversations in the app. The three topics of focus Twitter identified are:
1. The great restoration – addressing climate change
2. Fan-Build worlds – fans looking to collaborate in the creation of art and take the reign in artists’ and creators’ success
3. Finance goes social – linked with the rise of cryptocurrency and the discussion revolved around that

To finish off our newsletter we want to highlight some of the best creatives that we have seen recently, and tell you why we think they are a slam dunk win.