Using Subscription Commerce to Retain High-Value Customers

According to the Internet Advertising Bureau, global companies will spend $69 billion on online marketing this year. That number will reach $100 billion by 2014. These billions of dollars are spent for one goal: to acquire new customers. From paid search, display and video to email, social marketing and website optimization, online marketing has become a key business driver for almost every industry worldwide.

Retailers, in particular, spend billions on customer acquisition but then spend very little time or money on the next step: getting customers to stick around. Most retailers have become extremely adept at getting their messages and promotions in front of prospects. But even when they succeed in acquiring a new customer, that person usually only makes up to two purchases per year. That equates to billions of dollars spent for very little long-term value.

What if there was a way to turn newly acquired customers into loyal brand enthusiasts who return to make up to six purchases a year? Wouldn’t most retailers want to deploy such a tactic?

Well, there's a method that works to “lock in” high-value customers: subscription commerce. Retailers ranging from Amazon to Sally Beauty Supply are already deploying subscription commerce programs to improve customer retention, boost repeat purchases and deliver a superior customer experience. The trend is even growing to encompass retailers like high-end tea supplier Teavana and office supplies upstart ReStockIt.com.

Here's an example of how subscription commerce works: A consumer arrives on your site either through direct navigation, organic search or a paid ad. The person makes a purchase of diapers, baby formula and a new stroller. This is when a subscription commerce platform kicks in. The site automatically offers the customer the chance to sign up for a subscription for repeat purchases, in this case diapers and baby formula.

The customer has complete control over the subscription — e.g., timing, products and shipping info. The subscription can be cancelled at any time directly on your site. Now instead of having to remember to come back to your site once a month, the customer gets to put her regular purchases on autopilot. As a retailer, you retain a high-value, repeat customer and save her time and make her life easier in the process.

Of course not every customer will sign up for a regular subscription. But even if 3 percent do, and these customers purchase more frequently with no additional marketing spend on your part, you’ll see a significant boost in revenue. All the money you spend on acquisition and conversion tools will be well spent because you can lock in your most profitable customers. You're now relying on an annuity.

Subscription commerce works equally well for B-to-C and B-to-B companies. A beauty supply retailer could send a customer the same shampoo every eight weeks, while an office supply retailer could regularly send toner ink and printer paper to a business owner.

Even retailers that don’t sell consumables can significantly boost sales using subscription commerce. Teavana, which operates 150 retail outlets and a website, uses subscription commerce to offer tea lovers special monthly "clubs." Customers can sign up for a club and get a new tea shipped to them each month, discovering new products they might not have otherwise tried. This same concept plays well for retailers of shoes, clothes, fashion jewelry, gourmet food and other discretionary purchases. Consumers may wish to become part of a member-only club where they receive more of a surprise and delight in limited-edition products before the general public.

Subscription commerce offers other advantages such as a chance to improve brand sentiment, customer satisfaction and marketing upsell. Each month your products arrive in a box with your logo, putting your brand top of mind for the shopper. In this box you can include promotions, coupons and other marketing materials.

You can also upsell subscribers with products they may be interested in, such as baby shampoo and formula for the buyer of diapers. Try setting up an automated email campaign that asks the customer a week before their subscription is set to be sent if they’d like to add anything else to their shipment. Or offer them a percentage off a purchase of relevant products.

Many subscribers will happily set it and forget it if they don’t have to think about reordering each month. Today’s time-strapped consumer appreciates this type of convenience and customer service.

With the billions retailers spend on acquiring new customers, subscription commerce is a compelling solution to amplify this marketing spend by offering services that encourage these shoppers to stick around.

Greg Alvo is founder and CEO of OrderGroove, a subscription service platform provider.