There are core differences between retail and subscription marketing strategies, and marketers must understand these nuances in order to attract and engage with their differing audiences.
Generally, retail relies on impulse or irregular buying patterns from relatively disloyal customers. As a result, every sale counts and therefore the size of each and every purchase determines whether the sale is successful. Their commercial model also tends to require high volumes of sales from day one. As a consequence, they are impatient for growth and profit.
Subscription models, however, revolve around customer lifetime value (CLV) and rely on developing and fostering long-term customer relationships. They work off the assumption that the right consumer can be upsold in the future and that their engagement with the brand will be of a regular pattern and over a longer period of time.
As a consequence, a subscription model is far more likely to pay a higher cost of sale (even up to 100% of the value of a sale) in the first instance. The assumption here being that the customer will still be around for six or 12 months.
Subscription models are, by nature, patient for growth and – depending on the product or service – relatively patient for profit.
Attracting the right people
Subscription marketing isn’t just about quality over quantity; it’s about finding the right type of customer. One that will prove to deliver a higher CLV than the average retail consumer. With that requirement comes the question: where are those customers coming from (for example, coupon site audiences often have a lower CLV than someone from a more traditional content site) and how long did they maintain their subscriptions?
Conversely, for retailers the ultimate key performance indicator (KPI) is average order value (AOV) rather than CLV. How much a customer buys in a single transaction is key, so finding ways to increase this KPI is critical.
The marketing cost per customer acquisition target differs significantly for retailers versus subscription providers.
If a retailer is selling healthy snack boxes, their marketing cost will ultimately be dictated by the percentage of that sale (cost of sale), which could be 5-10%. However, if you’re selling snack box subscriptions, you won’t commit just 10% of an initial purchase to marketing. Instead, you’ll assume the subscriber is in for six to 12 months and as such, what you’re willing to spend to attract and retain that customer changes.
There exists an incentive to entice the customer to subscribe, even if it means initially providing the snack box free for a month. In addition, further strategies will need to be developed and deployed to keep churn rates at a minimum to ensure you get your return on (up-front) investment.
The retail mindset is far more resistant to “losing” revenue in the first few months. Subscription companies are willing to give up a substantial amount of profit to grow loyalty and thus a continuous payment model.
Growing those relationships
In the retail environment, you often see the traditional model of front-of-house (acquisition) versus back-of-house (retention) data silos. The data on who initially viewed, engaged and clicked on ads and then ultimately bought, versus those who buy multiple times.
Whilst KPIs are often reported across the business, the data is rarely aggregated for the purposes of end-to-end marketing. Instead, there is a disassociation between acquisition and retention/loyalty teams that prevents the efficient optimisation and hence growth of AOV/CLV.
To optimise marketing on CLV, subscription services must collate both front and back of house, fusing data with business intelligence. Marketers must understand the audiences the marketing activity is driving and the value associated with that activity, ensuring effectiveness of their efforts.
Subscription marketing is generally a longer-term approach than retail with a greater focus on finding, retaining and growing more valuable customers. Finding the balance between volume and quality is paramount. Your focus must be on quality (people) before quantity (sales). To do that takes significant effort to understand the affinity of your customers and adjusting your KPIs appropriately.