Simon-Kucher & Partners and Babson College analyzed factors of success with subscriptions in the consumer goods sector.
[Boston, MA] March 17, 2021 – In Spring 2020, the COVID-19 pandemic forced companies into a world of uncertainty. Consumers shifted to online shopping in record numbers, and the internet became the platform of choice to buy anything and everything. The boom in online shopping amplified customer interest in subscriptions across various consumer markets such as fashion, beauty, pet care, and childcare, with an already well-established reputation in digital and news media markets. Subscription-based selling of consumer goods has disrupted the traditional pay-as-you-go transactional model over the last few years. In many instances, the pandemic drove subscription sales of consumer goods to new heights as they were well suited to deliver on the new needs for convenience and safety. In their research paper titled How to succeed with subscriptions in consumer goods: Lessons from the Best-in-class companies, Dr. Lidija Polutnik, Professor of Economics at Babson College, and Shikha Jain, Partner in the consumer goods practice at Simon-Kucher & Partners, surveyed 140 decision-makers in consumer goods companies to explore their best practices with subscription models.
Seven key takeaways for successful deployment of subscriptions in consumer goods
“Consumer goods companies in our sample all have the same goals for introducing subscriptions, but we find significant differences in how the Best-in-class vs. the Rest execute strategy,” states Jain. There are seven key takeaways for the successful deployment of subscriptions in consumer goods:
1. Needs-based product differentiation: According to Jain, “One of our findings is that the Best-in-class companies offer more choices to cater to a breadth of customer needs than the Rest. This variety allows the Best to offer customers plans that are easily understood and not overwhelming. What’s more, as differentiated plans and price levels appeal to a broader set of needs, this tactic also drives customer acquisition and retention.”
2. Personalization and customization: “The biggest difference among companies is that the Best are proactive vs. the Rest, who are reactive in how they understand customer preferences and customer information sources. All companies collect transaction and billing data, but the Best rely on formal market research more than the Rest. This allows them to cast a wide net, make key decisions for the entire market, including prospective customers,” says Polutnik. “This knowledge helps them personalize and customize offerings to get closer to customers across a variety of needs.”
3. Continuous customer relationships: Subscriptions build on continuous and fluid relationships with customers. “Sixty percent of companies in our sample keep in touch with customers, but only the most successful companies use technology to track and personalize to user needs and preferences,” explains Jain. “On the back-end, the app for the company needs to deliver information to manage logistics and fulfillment. This has to be cost-effective and sustainable.”
4. Responsibilities: “Our analysis shows that the Best organize subscription as a separate business unit, which means a dedicated team is focused solely on evolving customer needs. As a result, the company can make agile changes to enhance value for new and existing customers. Therefore, they may be better positioned for integrated relationship management over time,” notes Polutnik. “Conversely, when subscriptions are managed by a person or team juggling multiple roles, there is a greater potential to lose knowledge, and companies in this group may be less agile and less able to maintain customer relationships as their needs change.”
5. Managing customer interactions: Across the entire customer journey, the Best-in-class companies track, monitor, and involve the customer with every transaction and every interaction. “They do this with many activities, not just contractual or monetary such as billing or website purchasing. All customer interaction with the company is important for managing relationships. The Best use more data and technology than the Rest to learn about customer wants and needs. This helps them decide if and when to pivot product and business strategy,” adds Polutnik.
6. Retention vs. acquisition: “Our study finds that both Best-in-class companies and the Rest track multiple measures of success for subscription models. However, relatively more companies among the Rest track profitability per order, compared to the Best. We see this as a transactional short-term measure of success, not long-term and strategic thinking. On the flipside, the Best-in-class companies relatively focus more on relationship-oriented measures of success such as cost per acquisition and CLV,” continues Jain.
7. Future Outlook for Subscriptions: Polutnik and Jain sum it up: “Companies need to be deliberate and focused. They need to manage subscriptions in consumer goods with an eye on CLV maximization and financial success. The new normal will push companies to stay ahead of consumer needs. Competition will intensify, as will complexity and cost pressure for logistics and supply chains. Opportunities will open for companies that can work across functions, deliver customer value in real-time, and effectively use technology and data. The key factor of success is to build customer relationships for the long term.”
Complete report available upon request
Simon-Kucher & Partners: Simon-Kucher & Partners is a global consulting firm with more than 1,400 professionals in 40 offices worldwide focusing on TopLine Power.® Founded in 1985, the company has over 35 years of experience providing strategy and marketing consulting and is regarded as the world’s leading pricing advisor.
Babson College: The top-ranked college for entrepreneurship education, Babson is a dynamic living and learning laboratory where students, faculty, and staff work together to address the real-world problems of business and society. Babson continues to advance Entrepreneurial Thought & Action to generate sustainable economic and social value.