Creating Value: How to Run a Successful Subscription Service

By Business.com Editorial Staff
Business.com / Starting a Business / Last Modified: February 22, 2017

The good, the bad and the ugly of the subscription sales model.

There is virtually nothing you can’t buy online.

But even if you aren’t physically going to a store, you’re still shopping, looking at products, weighing pricing, and taking time to consider what you want, when you want it, or even if you actually want it.

Subscription services are made for people who really hate shopping, even with the ease of doing it from your smartphone. It’s still something that takes time and effort. 

Wouldn’t it be better just to get whatever you need when you need it? Without having to think about it? And at a fixed price that isn’t going to cause you to overdraw your bank account?

That’s the brilliance of the subscription sales model. If you’ve got a product that you regularly use, it just arrives. Like clockwork, when you need it, there it is.

Better yet is when something arrives and it surprises you. In a good way.

These are basically the two kinds of subscription services. The ones that send you a specific commodity and those that send a curated box according to a general interest (e.g., eco-friendly soaps, or kid crafts). You don’t know what exactly is in it until you open it.

An example of the first is the Dollar Shave Club, which provides a basic shaver and disposable blades for as little as its name implies, a dollar a month. Birchbox sample kits are an example of the second model.

If you have a product that might lend itself to the subscription model, be advised that it’s not just a matter of making sure everything gets in the mail on time (as important as that surely is). Based on what the most successful subscription services offer to customers, here are the key elements to follow.

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Provide Full Transparency

Adore Me features monthly collections of lingerie with a niche toward plus-sizes and anyone else who doesn’t quite fit into a Victoria's Secret outfit. It reported 2014 revenues of $16.1 million and came in 14th on the 2015 Inc. 5,000 list.

It also received an "F" rating from the Better Business Bureau based on 675 complaints filed in the last three years. Many of the complaints allege that an individual purchase on the site results in automatic enrollment in a VIP program that costs $39.95 a month.

Trouble was that some consumers weren’t even aware that they had been enrolled, and the only way to cancel once they found out was by telephone, which involved very long wait times before reaching anyone.

If that weren’t bad enough, apparently the company’s marketing claims are a little, well, exaggerated, at least according to Cora Harrington of The Lingerie Addict, who writes, "Adore Me pitches itself as a place to get ‘designer lingerie’ for less money... [and claims] they design and manufacture all their lingerie sets in house."

Harrington continues: "The only problem? Adore Me’s lingerie is neither designed nor manufactured by them. It’s not designer, and it doesn’t come from the finest houses of anywhere... [but are] sourced from brands... like Parfait by Affinitas, Jezebel, Felina, Rene Rofe, Leg Avenue, and Seven ’til Midnight.

Now there’s nothing wrong with selling items from these brands... However, I do take issue with a company using buzzwords that imply high-end, expensive, luxury lingerie when they’re really just relabeling items and selling the same stuff everyone else does."

In response to these complaints, Adore Me claims it does disclose the rules of membership. Let’s give them the benefit of a doubt and suggest that they truly feel they are being transparent. The fact that they have received so many complaints and some bad press may indicate Adore Me needs to rethink how they can be better at fully and clearly informing consumers of exactly what they are getting into.

Be Responsive to Your Customers

Contrast Adore Me’s seemingly stalling tactics in handling customer complaints with a different experience reported by a Dollar Shave customer. A few weeks after he joined, Kent Sanders received a survey questionnaire in which he honestly responded that he was so far a little disappointed in the product quality.

Shortly thereafter, Kent received a personal message offering a free trial of a different product. "I was surprised and happy to receive this personal message," Sanders says. "I mean, how many times do you get a personal response back from a company whose products you don’t initially love?"

The Los Angeles Times reports that Dollar Shave employs about 36 service agents as opposed to, as is typical, outsourcing it to a third-party customer service company. Moreover, agents do not follow predetermined response scripts.

In other words, when you talk to a Dollar Shave service rep, you’re talking to a human being charged with understanding your issue and developing a solution.

David Pierson writes: "Company leaders say the time a customer service representative speaks to members is the only chance to pamper them and make them feel like they belong to an exclusive club. Agents are allotted a budget to send gifts, like the Godfather DVD box set sent to the member who joked that being in Dollar Shave Club was like being in the 'family'."

Related Article: It’s the Year of the Customer: Getting Customer Experience Right the First Time

Nix the "Negative Option"

Alas, for many subscription services, being less than clear is part of the business model. Sapna Maheshwari of BuzzFeed details a series of ventures that seem based on enticing consumers into subscription services using less than forthright tactics. The granddaddy of them all, for those who remember a time when music came not from digital files downloaded or streamed off the Internet but on shiny discs (and before that not-so-shiny vinyl), was the Columbia House Music Club.

You signed up and as a new member you get a bunch of "free" recordings for joining. You also got enrolled in automatic shipments, what’s called the "negative option." So unless each and every month you explicitly rejected that month’s selection, you got it, and were billed for it. And the charge with shipping was usually higher than what you’d pay at a store.

But it was easy to forget, and it was a hassle to return, and you had to buy so many recordings anyway before you could cancel your membership (or else return the “free” records). 

As Tien Tzuo points out in re/code, "Rather than trying to entice consumers to want to make purchases and building a business around their relationship with their consumers, it shipped by default and made consumers literally pay the price."

The record club filed Chapter 11 in 2015. True, part of their problem was the growth of iTunes and similar download services, which in turn were overtaken by streaming services. But it wasn’t just that physical media was no longer a product that could be sold as a subscription service. It was the way it was sold.

Related Article:Share the Love: Increase Your Empathy for the Customer Experience

Provide an Experience

Consider, for example, Vinyl Me Please, one of several upstart vinyl subscription services: Every month you get a specially curated record, maybe one you weren’t even sure you wanted. How are they different from the old Columbia House model?

To begin with, the records are handpicked by the company founders, who also send subscribers regular humorous emails not only about the records they carry, but on the topic of music in general.

Moreover, while these recordings are oftentimes available elsewhere in physical, digital and streaming formats, Vinyl Me Please editions contains a unique piece of art, as well as a cocktail drink recommendation to accompany listening, unlike other versions, these recordings are true collectors items.

Co-founder Tyler Barstow describes the company’s guiding philosophy: "The quote on our wall says, 'The Best Damn Music Club That’s Ever Been Created.' And so that’s what we ask ourselves before we make any big decisions. I know it probably sounds corny, but we always ask ourselves, 'Is this something the best damn music club on the planet would do?'"

It’s the kind of question any subscription service, or any business really, needs to ask itself to get and maintain loyal customers.

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