Take Every Opportunity to Delight

Your customers’ lives are busy. The time they spend interacting with your organization is only a minute fraction of their week—although for most firms, it’s the only fraction they care about. Building the kind of long-term relationship that supports contribution, and ultimately network orchestration, requires more affinity—on both sides of the relationship—than mere transactions or promotions can provide. On the other hand, a subscription revenue model brings a lot more benefit than simply ongoing and recurring revenue.

Of course, there are financial and operational advantages to subscriptions. Ideally, customer subscriptions provide stable and predictable revenue, something that greatly eases planning, production, and delivery. Further, revenue that comes from a customer you’ve already acquired is far less expensive than revenue from a new customer, who must be acquired through advertising and marketing. And revenue that was prebooked months ago is better still.

The advantages, however, go deeper than the numbers. Every time your customers interact with your organization, you have an opportunity to increase awareness and hopefully affinity. Amir Elaguizy, founder of Cratejoy, a platform for subscription businesses, says, “Every single month you have another opportunity to say, ‘Hey, delighted customer, why don’t you tell your friends about how awesome this subscription is?’”¹

The happy customers of subscription boxes, for example, generate an enormous amount of social media content. “Unboxing” videos, in which subscribers open, react to, and discuss their monthly packages, are a YouTube phenomenon, and a great deal of content also goes up on blogs, Instagram, and Twitter. Most subscription programs also lend themselves perfectly to referrals, where you get your next installment at a discount if you get a friend to sign up.

The mentality of a subscriber is simply different from that of a transactor. Transactors are nonrepeat, efficiency buyers. Subscribers know that their relationship with the products and the firm is ongoing, and they have good reason to stay in touch, learn what’s happening, and provide feedback. By helping the company understand their individual wants, subscribers can improve the next installment of a product or service they receive—whether it’s a feature update to software or a new box of carefully curated chocolates. It’s this mental model that helps persuade customers to contribute to the organizations they love.

This brings us to one last benefit of the subscription model: acquiring data. Through regular interactions and touch points with their customer base, subscription companies have a marvelous opportunity to learn more about what their customers want and how they want to engage. Each interaction is an opportunity to experiment with messaging, offer new products, and learn from the results. In contrast, many companies we repeatedly interact with fail to use these opportunities to learn about us as customers. Your family may shop at Whole Foods every week, but the store managers know a lot more about the bananas in their stores than about you. Some patients return to Massachusetts General Hospital every week for treatment, but the hospital still knows its billing codes better than its most frequent patients.

Don’t Get Hung Up on Revenue

Although subscription revenue is wonderful, there is also a benefit in having customers subscribe to nonrevenue activities—such as voting for Threadless t-shirt designs each week or reading the funny Trader Joe’s flyer—that complement revenue-generating activities. It’s easy to understand the financial benefits of subscription, but the point isn’t simply to make your customers keep paying.

For example, despite the recurring revenue we give them, few people feel positively about their cable or cell phone providers. In fact, most of us feel hamstrung by poor customer service and limited choices. In these cases, the lock-in contract only emphasizes to customers that their satisfaction is unimportant and likely will not be served. In contrast, positive externalities, such as increased awareness, engagement, referrals, and participation, result only from positive interactions. The goal is to regularly delight and engage your customer, not just to bill them.

Meeting this goal is certainly possible through activities that don’t generate revenue. Getting customers or potential customers to follow your brand on Facebook, LinkedIn, Twitter, Instagram, and so on is a great way to keep customers engaged. Having a useful or entertaining app that sits on people’s phones and tablets is another great way to remind them of your organization.

You can find ways to keep people involved by inviting them into the most interesting parts of the company. For example, if we return to the Threadless case study from principle 5, thousands of people visit the site every week just to see the new t-shirt designs and vote on the best ones. We all have opinions, and we love to be asked for them—and if we buy a new shirt in the process, so much the better for Threadless. Co-creation is one of the best ways to keep customers reengaging over time.

Principle 6, Revenues: From Transaction to Subscription

The sixth principle is to change your customers’ relationships with your organization from transaction to subscription. On the left side of the spectrum are companies that transact with their customers at the point of sale and seldom hear from them again until they return on their own to make another purchase. These firms may advertise and attempt to draw their customers in for repeat sales, but they do not have standard, ongoing two-way dialogue.

On the right side of the spectrum are the companies whose business models rely on subscriptions—ongoing, revenue-generating (and also insight- and affinity-generating) interactions with their customers. In the middle of the spectrum are companies that keep their customers “mentally” subscribed through social media, loyalty programs, opportunities to contribute, and other outreach efforts.

If you want to move to the right and create subscription opportunities for your customers, you need to answer both what and how. Surprisingly, the question of what tends to be the easier part, although it’s fairly industry-specific. Your subscription offering could be any of the four asset types.

• Things-based subscriptions include physical goods such as consumer or household products. Subscription boxes like Birchbox and BarkBox fall into this category.
• Service-oriented subscriptions include repair and maintenance, premium customer support, and education. Your lawn service fits this model, as do retainer agreements for legal counsel.
• Information subscriptions include software, product insights, research, and data. Microsoft and Adobe have both moved to subscription services for their software. Consumer Reports is another good example.
• Network subscriptions provide access to a platform or group of people. Examples include Angie’s List and LinkedIn premium memberships.

What is trickier is the how—figuring out how to create a subscription program that results in happy customers, creating both financial and affinity benefits. We’ve noticed a few themes in organizations that do this well.

SURPRISE AND DELIGHT. The first is that the best subscription models use each interaction to bring joy to their customers, increasing affinity and loyalty steadily over time. You offer, for example, a great customer experience, a beautiful interface, or an unexpected treat or benefit, whether tangible (products) or intangible (information).

One of the many subscription boxes, Phone Case of the Month, delivers stylish new phone cases to its customers on a regular basis. Imagine, instead, if AT&T, Sprint, or Verizon offered this service. For a small fee, their customers could enroll in a “Style My Phone” program in which each month their bill would arrive in the mail paired with a fun new phone case or even some decals. The service providers could partner with Etsy or Threadless to keep the designs fresh and on-trend. How much happier do you think their customers would be when paying their bill each month? And we don’t need to stick with the physical world. Other options to delight include free downloads of popular apps, phone- cleaning services, automatic data backup, or funny text messages from popular comedians.

GET DATA. Because increasing intimacy and affiliation is a key goal of subscription models, it’s important to use the regular touch point as an opportunity to listen to your customers and adapt your offering. The direct method is simply to ask for feedback during the interaction. Most people love to be asked for their opinions, and many will gladly give feedback if the process is integrated and simple. For example, customer-provided ratings are a key part of the Uber and Airbnb business models.

There’s also a great opportunity for indirectly provided data. Each interaction gives the company a chance to gauge customer reaction to various products and services. When Birchbox sends samples to its 800,000 subscribers, it can watch carefully to see how many of them then visit the product pages on the Birchbox e-commerce website and how many make purchases. Birchbox can then figure out whether lipstick is more popular than nail polish, whether mint green is “in” this season, and which age group of women is most likely to use styling mousse in their hair.

By increasing the cadence, and often the variety, of transactions, subscription models provide invaluable data about customers.

PERSONALIZE. What do you do with the data you accumulate? You use it to treat your customers as unique individuals, or groups of one, as Nike does in inviting its customers to design their own sneakers. Deepening the relationship between customers and companies isn’t limited to the customer side. Organizations must do their part, too, by learning about their customers and then using what they’ve learned to improve their communication and offerings.

In general, these approaches suggest that your organization treat customers as complete, interesting, valuable individuals. You build relationships with customers with the same care, attention, and dialogue as you do friends and family in your personal life. We didn’t always have the technology to do this. Now we do, and delightful interaction, deep understanding, and tailored offerings are quickly becoming the customer expectation. Now rank your organization on transaction (1) to subscription (10).

Do Subscription Right

Recurring revenues alone do not mean that you’ve succeeded at subscription. The goal is to get your customers to subscribe not only to paying you, but also to interacting with you and deepening their connection to your firm.

Let’s look at the subscription component of a classic business case: Netflix versus Blockbuster. At this point we all know the ending. After nearly thirty years in the video rental business, Blockbuster filed for bankruptcy in January 2014. Netflix is currently eighteen years old, with more than seventy-four million subscribers globally in more than forty countries. There were many reasons that the story ended as it did, but one thing that the two companies had in common is the use of a subscription revenue model.

Netflix and Blockbuster both offered subscription video rental services, but Netflix did a much better job of using the subscription model to build relationships. From the start, Netflix delighted customers with the novelty of DVDs coming to them in their mailboxes. Netflix also requested that their customers review the movies they saw and used this data to return value by suggesting movies aligned with their customer profiles, a classic use of big data to save customers time by doing the research for them. Going into 2014, Netflix had a Net Promoter Score of +54, and Blockbuster on Demand of +11 (a perfect score is +100).

Start Today, Small Is OK

Vitally engaged customers are essential to the valuable network orchestration business model. A subscription model of interaction will help customers return repeatedly. Orchestrated well, with ongoing development of customer relationships—and not customer transactions—as the key performance indicator, each customer revisit will generate greater affinity and value for the customer as well as greater clarity and value to the firm.