The evolution of the subscription model
In the early days of DTC, subscription offers flooded our screens and doorsteps as the new revenue model to drive consumer convenience and benefits of recurring revenues. With the inundation of subscription offerings, many worried about the longer challenges of subscription fatigue or that the assumptions baked into LTVs were too optimistic given nascent and developing consumer behaviors with subscription models. Years later, we’re seeing how the subscription model is evolving. And as DTC brands adopt broader omni-channel retail tactics and traditional retail companies increasingly look to DTC for inspiration, we’re seeing how the subscription model is evolving. This month we’re looking at how different companies have uniquely designed their subscription models, to either: 1) grow their subscriber base, 2) retain subscribers, or 3) add value for members.
Netflix is venturing into the gaming world. The streaming giant plans to bring games to its service ad-free and at no extra cost, beginning with games for mobile devices. While Netflix hasn't announced any specific games yet, the brand has said that it would experiment with creating games based on existing Netflix franchises as well as stand-alone games that could potentially spawn spinoff movies or shows, according to CNET. The company has said that expanding to Xbox, PlayStations, and computers is in the realm of possibility as it expands its gaming offers. This multi-year strategy is a big move to add value to the subscriber experience and retain subscribers amidst increasingly competitive streaming wars. Netflix will need to listen closely to audiences’ reception of the games and adjust future content to achieve relentless relevance. With overall time spent gaming or streaming gaming content increasingly taking time away from time spent on streaming movies and shows, Netflix is expanding its aperture to own more time spent streaming on the platform. And if done right, this strategy should help Netflix retain customers with the ongoing objective of delivering perceived value.
FabFitFun is expanding how they engage members through two new membership perks and experiences as it looks to grow its membership base and add greater value to existing members. Known for its flagship product, the FabFitFun box, the company is rolling out Shop with Friends, a new social commerce feature that allows members to invite their friends to these sales. They are also launching FabFitFun Week which will include a week’s worth of deals for members on curated gift items across the company’s e-commerce categories: beauty, fashion, wellness, electronics, home and more. Building a sense of community among members and continuing to engage them in valuable ways is critical for the brand, which describes itself as a “lifestyle membership and shopping experience.” By offering year-round perks, community shopping, and exclusive programs with influencers, FabFitFun is going beyond a generic subscription model to build a more interactive shopping experience that drives connection and loyalty among members. For brands that still think a subscription box alone is a compelling offer, take note.
Vince and Rebecca Minkoff
Over in the fashion world, Vince and Rebecca Minkoff are two brands that are growing their subscriber base by making designer fashion more accessible. Both brands launched rental services that will allow customers to rent high-end products. In this play to acquire new customers, users can rent pieces without a subscription fee and purchase them at a discounted price at any time. While luxury retail brands traditionally leveraged exclusivity and brand loyalty to drive purchases, both Vince and Rebecca Minkoff recognize the need to expand their business models to reach new audiences. DTC brands like StitchFix and Rent the Runway have re-shaped how consumers think about and engage with fashion. And it’s clear that these innovative business models are attracting consumers. Rent the Runway recently filed for IPO, showing confidence in the growth of the rental and second-hand clothing markets. Now with multiple ways to engage, we’ll be interested to see how Vince & Rebecca Minkoff can grow their customer base and drive greater relevance as consumers emerge from the pandemic and seek to freshen up their stale wardrobes.
Soho House, which offers access to exclusive clubhouses to members around the world, recently announced that they’re going public. While the company is most known for its traditional membership model that costs a few thousand dollars a year and gives members access to their local House, they’ve introduced other ways to be a member that go beyond local locations and leisure. Soho Works is their new coworking model that encourages members to treat Houses as workstations, which is a smart move given that 55% of Americans said their work can be done outside the office, according to Pew Research. The company has also let down the exclusive guardrails and introduced Soho Friends, which gives people limited access to Houses for about 10% of the usual cost. We’re eager to see if Soho House can translate its innovative membership models to newly acquired Line Group Hotels, which targets a lower-priced customer segment.
Tesla is known for its innovation, and its latest move shows how it’s using subscription to add value for existing customers. This month Tesla introduced an option for some customers to subscribe to its advanced driver assistance software, dubbed "Full Self-Driving capability" for $199 per month. While it may seem like a bit much to ask users to pay more money every month on top of their already expensive vehicle, it’s a small amount of money compared to what consumers have already paid to own part of the Tesla brand. Being able to say that you own a self-driving car (although Tesla is quick to point out that the car still needs a driver to operate it) is a clever strategy to add value to customers who are often fiercely devoted to the Tesla brand, and it helps keep Tesla at the fore of the autonomous vehicle conversation.
Tesla’s move is in contrast to popular subscription service Italic’s recent experience making a candle customers desperately want but that the company loses money on. Italic chose to add value to the customer while absorbing the cost themselves.
Sources: MarketWatch, The Verge, Forbes, Fashion United, CNBC, Business Wire, Pymnts