Winning in the subscription economy

The following was transcribed from a recent interview with Matthew Holman, Head of Growth and Co-Founder at Qpilot.cloud on The Agile Brand with Greg Kihlström podcast. 

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Today we’re going to talk about launching, scaling, and innovating subscription programs.

To help me discuss this topic, I’d like to welcome Matthew Holman, Head of Growth and Cofounder, Qpilot.cloud.

[Greg Kihlström] Let’s start by talking about launching a subscription model, because I think a lot of those brands that haven't done it already, they're certainly looking into it, if not already planning it. So how should a brand think about settling on a good, let’s say, minimum viable product for a subscription model to get started?

[Matthew Holman] Yeah, well, you hit the nail on the head. So one of the biggest mistakes I see a lot of brands making is they're overcomplicating things, right? They're trying to build that Tesla when they've barely got a skateboard working for them, right? So the idea with an MVP is just trying to make it as easy as possible to subscribe to a product or a service initially, and keeping it somewhat basic but with a very clear value offering, so that people understand this is what you're getting when you subscribe; this is the value, the offer included in that; here's a little bit of a discount because usually that's part of that transaction, right? The company's getting predictable revenue. The customer gets a discount exchange for that. But the biggest thing is collecting data. So whether you’re using post-purchase upsells, cancellation surveys, but also actually talking to customers, whether that's through e-mail or even through phone calls, trying to figure out what people really want and are expecting from the subscription, because that's what gives you the information you need to start iterating, right? 

So, you know, for example, you might be doing a health supplement service, but you're, like, next-gen diet program, and it can be really, really sophisticated in what people get on a given monthly basis. That sounds really cool, but until you know that people are at least willing to buy your stuff on repeat, it’s hard to bridge that gap between a really, really innovative purchase experience and subscription experience with just making sure that people are buying and that you understand what they want out of it.

So along those lines, what does success look like for a new subscription program, knowing that you want to start iterative; you want to do something like an MVP. How should brands be thinking about success?

I think the biggest thing is, it’s pretty rare when you just start it and it unlocks and you just start blowing up. That can happen, like in any business, but it's very remote. I think success would be understanding more about what the consumer wants and then understanding any friction points that exist in the current program. So, for example, the thing that's kind of scary is if you have a really, really high churn in the first month, like if you're at 50, 60, 70 percent churn, that can feel like a failure because you can't get people really to get past that first month on the subscription. And that usually reflects a problem with your offer. You're either offering it to the wrong audience or it's not enough value that people are sticking around. What success, to me, would be like, I'm getting people to month three or four and, when they cancel, they're telling me a couple of really key reasons and I'd spend time researching with them what that means, and now I have a plan to go after that. 

And as an example of that, a pet food brand that uses our system, iHeartDogs, they ran a subscription program kind of like a baseline, almost, for two years while they were working on other parts of the business. And they were collecting reasons for churn, though. They sell pet food, and the number one reason is too much product, which is a really common thing in subscriptions. But the reason they had too much product was they didn't know how much to order initially, because dogs come in different sizes. So they went back and they redid the product page to make it really easy for people to self-select based on their dog size, and it would show them how much they should order. And their conversions went up like 30 percent on the product page, and their retention went up like 40 percent. So that idea is, once you start to know what's working and what's not, you can go fix it.

So for those brands that already have a subscription model in place, so moving to that, let's talk a little bit about scaling that. So, you know, they've gotten some initial learnings, like the example you just mentioned. What are some of the common challenges that you see that brands need to keep in mind as they try to scale?

Yeah, I think it's really hard when you're in the middle between you're doing OK, you know, like I mentioned, if you have really, really high churn that first month, it's almost like you kind of have to scrap and start over. It's different when you're at 20 to 30 percent. So you're getting some people that really like it and stick around, but you're not quite really dialed in. And so that can be really difficult, and then there's often technical challenges related to managing the long-term program, like say you want to auto-send GIFs or discounts. Subscription software is still kind of trying to keep up with some of the innovation around customer experience. There is some really cool stuff happening, but that's another thing, is technical limitations. The cost of implementing what you would like it to be are another one. And then, ultimately, there's issues related to scale sometimes because, if you've specialized as a niche customer segment, which I think is the best way to start, sometimes maybe you're reaching some saturation, or you need to add other acquisition channels, which, any time you do that, it can affect your retention outcomes.

So as the brand’s scaling and certainly thinking about boosting retention, how do you also think about profitability, because it’s great to retain, but if you're losing money on your subscriptions, then you've got issues. So how do you balance retention and profitability as you're still growing, and learning, I would imagine?

Yeah, it really needs to start with acquisition. So I tell a lot of brands, if you can't afford to have somebody cancel the first month, so that high churn issue, if you can't afford that, then there is a problem with the offer because you need to be at least close to break even. If you're losing a lot of money if somebody doesn't make it to month three, there's a problem with the profitability and how you're pricing the product. So that actually comes down to the initial offer and acquisition, the customers you're going to. So sometimes that means you need to actually up the price you're charging and get less sales so that you can maintain some profitability. 

So that's part of it. The other part is, if you're starting to understand more of customer buying behaviors and reasons why, like their expectations, for example, if you're selling supplements to help people sleep better, and so it might be obvious that people want better sleep, but you start to uncover a lot of the people buying it are single moms, for example. So single moms are having issues with sleep because they're stressed, because they're doing too many things. All right. What can I add to my product line; what can I use as an upsell opportunity now in this group that I understand better?

So for me, I think the greatest opportunity with profit on subscriptions is not necessarily the fact that you have somebody around for six months or nine months and you can boost LTV that way. It's that you have an opportunity for greater engagement with an audience that likes your brand and your product and that you can learn from them what else they want help with. So in that instance, it might be you could start selling, like, a calming tea that somebody can take before they get ready for bed, right? So they can take their sleep supplement to help them sleep and you're selling a calming tea. And so that's where I think real profitability is, because now it's really just straight profit because you've already paid the acquisition costs to get that customer.

You know, a lot of the brands that I work with as a consultant, there's so much focus on now building first-party data – related, but a whole other tangent here is, you know, third-party cookies going away and mobile device ID tracking and all of that stuff. Brands are so focused now on how do we build an audience of our own and not rely as much on third-party data and third-party marketing and all those kinds of things? I mean, subscription model seems like a very natural way of doing that. But you bring up a great point, doing this, yes, it also accomplishes that, but also it's your own focus group, or whatever you want to call it, it's your way to expand offerings with a group of people that you know are interested in at least your base offering, right?

Yeah, I think where I see the real opportunity, this sweet spot with subscriptions, is that the value offer is also part of what you're using to get your hooks into people, if that's not too bad of an analogy – so, for example, a great example, and I have several of these, is the popularity of surveys and quizzes as a lead generation tool, right? So take the sleep problem, for example. I'm scrolling on Facebook or Twitter and I see an ad like, you know, “Having trouble sleeping? Take this two-minute survey to see if you could find better sleep,” right? So I take that two-minute survey and I'm giving them first-party data on me, what I care about, how it's affecting me, what I want, those types of things. And then now they can make a product recommendation, “Oh, you should be trying this,” or “You should be trying that,” right? And so now that's both an acquisition tool and it's a way of acquiring data. Community is the same thing. If I'm creating this awesome community of people that like these products, whether that's a Facebook group, whether that's events or activities or content, there's ways that I can scale those things really cheaply, and so I can offer them from a very profitable standpoint, but they're also, like, retention things, right? People see that stuff as offering value, but you're using that to create community and stickiness related to the product and the brand. 

So I think that, if you start thinking about it more like, “How can I get in there with them; how can I engage more with them,” you know, there's a company here locally in Utah, a woman’s supplement company, called Mixhers. They do some great stuff for helping women with managing period cramps, helping with libido, stomach issues, things like that. And they've just launched an app, so that she can track these things in the app. Now, the great thing is the customer gets this product where they can track how their pain from their period is affecting them in the app, and then Mixhers is getting data on their users, on anybody that uses the app is obviously going to be more profitable and more engaged, and they're going to be able to sell to better. But as you mentioned with the MVP, you don't launch the app right away, right? That's part of the roadmap as you start to learn more about what people like. But I think you can come up with tools that will offer greater value but also give you the ability to make more profit.

So let’s talk a little bit now about the future of subscriptions. As I said before, and you've been saying, there's a lot of brands that, if they haven't done it already, they're considering this, and this is everything from smaller companies all the way up to the Fortune 500s, 100s, of the world. And so we've been living in this some people call it subscription economy for a while, and certainly we're all used to this as consumers, and we're adapting to this in our lifestyles. How do you think the consumer expectations are changing the way that subscriptions are being either rolled out initially or just modified to adapt?

Yeah, absolutely, so I think what's really fascinating and one of the things that happened with COVID was that people became a lot more comfortable having food delivered to their home – and I don’t just mean Uber Eats; I mean, like, groceries and things. People are becoming more comfortable with local delivery. And I think that's a really powerful option for subscriptions because, instead of you thinking, “Oh, I need five tomatoes every week, it’s “I need five tomatoes this week, but I want two and some cucumbers this next week because of a different recipe I'm doing.” And so where the innovation is happening is this ability to have an engaged relationship where you don't necessarily need to go shop somewhere; you're getting a text saying, “Hey, it's time to edit your order for this week,” or if you want to get your order sooner, you can just log in and say, “Hey, deliver this today instead of two days from now.”

And so I think the future of subscriptions, the way we say it at Qpilot is you want to keep people from shopping. So you have an engaged relationship with them where, if they need anything, you're using either BI tools to understand better the needs or behaviors of your audience, and so you can offer them, like, “Hey, typically people that are using this product at this age, this size, they actually use it faster than average.” You're not saying that to the customer, but you know that, so you're sending a prompt sooner than you would maybe somebody else. And so I think what we're going to see more and more of isn't necessarily this world of complete automation, like IoT, like, you know, your smart fridge is going to auto-order its filter. It's more like your smart fridge is going to text you and say, “Hey, it's time to replace your filter. Do you want to do that now,” and you hit yes or no. And I think subscriptions will be the same thing. It's already happening with some just basic text prompts. You know, “Your order’s coming up; do you want to make a change, yes or no?” And you can do it right from the text prompt. So that's where I think the future will be. And it's pretty exciting just because I think it'll continue to innovate and be personalized, which is what drives really, really great value for businesses. Because the consumer is getting what they really want, each consumer.

Are there innovators in the industry that others should be paying attention to? Is there anything specific they're doing related to what we're just talking about?

I do think some of the really big meal companies, you know, like the Daily Harvests of the world, are doing a lot related to that because they're getting better and better at understanding what people like or want from the meals. You know, recently somebody was telling me that they now mention on the subscription there's a chef creating new recipes every week. And I would assume that's because it's in response to information of people telling them they feel like their recipes get a little stale. And the way that you can manage that and have those delivered and change your box size and what you're getting and make it really just unique to you, I think, is a great opportunity there. 

We're doing some interesting things with Qpilot, where we make it really easy to personalize or customize frequencies and things so that people can get stuff on the schedule that they want but, also, we track change data. So, for us, we like to really see how customers are changing. So what that means is, say, for a supplement company, you might have a lot of different people with different workout goals all using the same, say, five core products. And some people are going to use them faster than others or slower than others. Some people are going to have different workout goals, whether that's losing weight or putting on muscle. And the opportunity there is knowing more and more about what people are doing within the subscription program means that you can have a better understanding of what you can sell to them. It can be personalized to them. So now my protein powder comes every two and a half weeks instead of every four, or it comes every five or every six. If I start slowing down on using it, you know, maybe my goals have changed and they're going to ask me that so that they can offer me a different product, right? I'm no longer in my weight-cutting phase; now I'm going to try to add more muscle, for example.

Yeah, and just to give a little more detail, I know you shared a little bit at the very beginning, but who is a good customer for Qpilot? And how does someone work with you?

Yeah, absolutely, so we have integrations with WooCommerce and Shopify. And we're rolling out a Salesforce Commerce Cloud integration later this year. So for us, we work really well with physical good companies. We do really well with programmatic subscriptions, meaning you having subscriptions that change, like you're offering different products or things are changing from month to month. We also do really well with people that have shipping constraints. So we do a lot around local delivery, local pickup, and being able to, say, ship something internationally, that kind of thing, all within the subscription order. But, yeah, we work with a lot of CBD companies, pet food companies, you know, your typical or classic subscription opportunities. But for us the future is, again, we're getting into the IoT space, and we do a lot with B2B as well. We just think that, if a subscription is really, really flexible, that you can change it at the last minute, that unlocks some really interesting opportunities even for wholesale purchases.

About the Guest

Matthew’s life in marketing began when a friend needed help with graphics and prepress at his sign shop. He loved discovering how different technologies combined to create beautiful and informative graphics, and I applied myself to learning the art and science of design.

Being a graphic designer taught Matthew the importance of message and audience - knowing who you are trying to reach informs how you should speak to them, as well as researching what they are actually getting from the message. This lesson is important in web design and digital marketing, two other skills he’s worked hard on developing.
Transitioning into marketing and ecommerce in 2019 proved an interesting, but necessary challenge. He’s constantly seeking to grow and apply myself to new challenges, and if you know anything about ecommerce, you'll appreciate how challenging it can be.

His perspective reaches across the spectrum from marketing to operations to shipping. Matthew understands the balance that must be struck when developing a successful business and making choices about how resources should be allocated. His special skill is looking at the big picture and distilling down the steps that should be taken for success. At his core, he is a problem solver.

His prize learning, innovation, and the application of reliable techniques (like retargeting and email) in establishing success online. He regularly asks for advice and works hard to find a solution that fits the needs and unique position of everyone he works with.

He is currently working on two main projects: Essential Hub and QPilot. Essential Hub is a shipping technology platform that grew out of an effective sales program, but lacks a digital presence. He’s worked to develop branding, web assets, implement a CRM and CMS (Hubspot) with all the requisite automation, launch ads on FB, Google, and LI, and much, much more, but throughout his work is the mission to understand what small and large shippers truly need.

About the Host, Greg Kihlström

Greg Kihlstrom is a best selling author, speaker, and entrepreneur and host of The Agile Brand podcast. He has worked with some of the world’s leading organizations on customer experience, employee experience, and digital transformation initiatives, both before and after selling his award-winning digital experience agency, Carousel30, in 2017.  Currently, he is Principal and Chief Strategist at GK5A. He has worked with some of the world’s top brands, including AOL, Choice Hotels, Coca-Cola, Dell, FedEx, GEICO, Marriott, MTV, Starbucks, Toyota and VMware. He currently serves on the University of Richmond’s Customer Experience Advisory Board, was the founding Chair of the American Advertising Federation’s National Innovation Committee, and served on the Virginia Tech Pamplin College of Business Marketing Mentorship Advisory Board.  Greg is Lean Six Sigma Black Belt certified, and holds a certification in Business Agility from ICP-BAF.