Part Two of our report on the Touchnote panel discussion, which was held in February. Four industry professionals, Gousto CMO Tom Wallis, Perky Blenders Co-Founder Victoria Cozens, Financial Times Marketing and Communications Director Joanna Edwards, and Touchnote’s own CEO Dan Ziv, came together to discuss their subscription business models – which model has worked for them, what challenges brands now face, and what the future holds for the subscription economy. Click here for Part One.
All of your businesses have digital subscriptions with a physical component, so how have you found the physical component aspect of it? Do you think it’s hindered or really benefitted the business?
TW: For us it’s pretty tricky actually because I guess traditional subscriptions would be granting you access to something on an all-you-can-eat basis – as much TV as I want to watch, music I want to listen to, etc – but, with us, you’re going to get a box of fresh – or potentially rotting food if you don’t use it – on your doorstep every week. So we’ve had to think about it slightly differently and try to work with the fact that it’s not a subscription in the traditional sense, it’s really a recurring reminder or pattern that people want to be getting their food delivered every Monday typically, they want four meals ready for the week, it’s a way to support that habit for people who are busy and don’t want to think about it. The transactional customers we have that I mentioned before (see Part One) will order on those kind of days but they don’t remember as often and so a lot of people I think do like the subscription for the fact that it gets them into the habit. But we do have pros and cons of it because of the fact that you can’t even send it back – if you get this and you weren’t expecting it then you tend to find that people get a bit upset and the way that we approach that is to be really quite generous in our compensation, so if people receive a box that they didn’t want and they call and tell us then we say “that’s fine”, pretty much, and “have a refund.” And we build the cost of that into the margin and it can be quite expensive but the benefits we see in terms of overall satisfaction are much better.
VC: For us, as well, it’s about making sure the right coffee is going to the right customer. So, on occasion, we might send the wrong grind and what I tend to say is we’ll replace the bag straight away and they can gift the wrong one to someone else because it’s not cost effective for us, they don’t necessarily want to pay the postage to send it back, and if they gift it to someone else, the coffee is in their hand. But we’ve had to move our technology so much more forward in this last year to make it easier for people to be in control of their subscription. People like to feel like they’re in control, they don’t want to go on holiday and come back to four packets of coffee so the ability to pause has been very important, it’s something that we’ve introduced in the last year and also the ability to log in and deal with things like change of address. It’s about us trying to find exactly what’s right for everybody who wants to choose what they want to do.
DZ: I think that the physical element of our service is tricky, first of all because someone purchases this subscription but only 12 to 18 per cent of our customers send themselves a card. So 80 to 90 per cent of our customers never actually see the product that they send unless they go to that person’s house. So there’s a brand promise that we’re going to fulfil this for you and we give free worldwide shipping so you can send a card from Australia to the UK that will arrive the next day but if that doesn’t arrive then they don’t call royal mail, they send us an email or a tweet and we automatically resend the card, because there’s a brand promise there and if it wasn’t delivered because the post didn’t arrive or whatever, then we will automatically send it no questions asked and I think that’s part of how the subscription reinforces the physical product and vice versa.
JE: We’re in a different position because our product started as print and then the digital aspects were added on. Our print packages are still our most popular so they’re always the ones we lead on so we always go in with the print option first and then options to downgrade. We find the readers of a print plus digital subscription are more engaged with both aspects of their subscriptions, they’re less likely to churn, they have higher renewal rates, higher lifetime value, and – it’s a difficult one to measure – our anecdotal evidence for it is actually the reception of a weekly magazine coming through your door triggers you to then maybe go online, or book an event, or take another action that might be related. If you get a physical object through your letterbox I think most of us, even when we know something’s junk mail, we will still open it because a little part of us will be like “what if it’s a bill or something I need to read.” So if you’re getting through the post something you’ve actually paid for, then you’re definitely going to open it and that might encourage you to take further action online. One of our biggest issues is Royal Mail because it’s a timely publication so it’s not perishable but we are giving information on stocks and shares and companies that people might want to buy into and obviously that’s at a specific time and date and point and that can go up and down. If someone gets their magazine a week late that can have a massive impact on the content and whether it’s still valuable or not.
You mentioned the saga of complaints – how have you learned to manage them, particularly if people have forgotten to cancel their subscription and are charged after the free trial?
JE: It’s so important for us to engage and demonstrate value during that trial period, because I think if you can build it into somebody’s life and make it so it has a positive impact on their life, it’s less likely to be an issue because hopefully they will continue their subscription anyway. I think from our perspective we’ve learned the hard way in some cases that you need to be so clear in your terms and conditions, you need to be really sure people know what they’re signing up to and you will still get those people who take out a trial where you’ve said “this is going to be £4 for a month and then you’re going to go straight up to a full price subscription that’s going to be paid by direct debit” you still get people ring up and say “I didn’t know this was going to happen”. We also find that the marketing channels that are less in our control are a little bit less effective at explaining terms and conditions whereas, if it’s come through a direct mail campaign, or an email campaign that we’ve sent out, then generally we have a lot less issue with that. You can have the most effective, clear communication tactics in the world and you will still have those people who will ring up and say “oh I didn’t know it was going to happen” but I think we try to mitigate it as much as possible.
DZ: In some ways I think that a subscription flow can almost be too smooth, so the customer doesn’t realise what they’ve signed up for. Nowadays with Google Pay and Apple Pay, you can press three buttons and you’re subscribed to something without actually comprehending what you’ve subscribed to. If there’s one takeaway that I’d like to impart it’s don’t take that lightly because people will come back to you and say “wait a second, I didn’t understand what this was” and everything was written down and it was clear but not clear enough. So you need to add just a little bit of friction here and there just to make sure the customer knows in earnest what they’ve subscribed for.
VC: When we first started, we didn’t have the tech to have a pay-up-front model so it was just a direct debit whether you were buying coffee weekly, bi-weekly, or monthly but people who were enjoying the subscription really wanted to gift it to others and the only option we had was for them to start a subscription and they said things like “oh I only want to buy them six months’ worth.” So after two years we were able to put in the model where you were able to gift three, six or 12 months upfront and suddenly that really took off and three, six and 12 months are nice options for all budgets as well. We found there was a lot of uncertainty in the gifting side of things when people were paying for a subscription and needing it to come out of their bank account every month – they wanted to know what their present cost and go from there and that has been a key part to our growth. What we realised this Christmas, because we had a huge uptake on the gifts, was, because of the physical product, we’ve got to fulfil that now for the next 12 months so we’ve had all the revenue up front, but we’ve still got to buy the coffee and roast it for the next year so that’s something we need to plan in-house carefully.
TW: When people are signing up we do want to be transparent about the subscription and the fact that people are signing up to something that’s recurring, and we say it as much as we can, but of course you see that the bigger you say it and bolder you put it into the sign up journey the more doubt it creates for people and then the lower the conversion rates. So we’re trying to find this balance all the time between clarity and not putting people off. And then secondly, I mentioned that sometimes people get boxes where they weren’t necessarily expecting it – we’ve picked the food for them and hopefully it’s something they’ll like. Some people complain, and say “I didn’t want that, I’ll have my money back”, some people say “OK, I’ll eat it” and they carry on and so we’re trying to find the balance between those two things – how much the people work with the inertia of a subscription versus being completely able to do what they like and it’s fully open for them.
Keep your eyes peeled for Part Three of The Subscription Economy, which includes keeping up with the competition and advice for anyone thinking of coming into the market.