The subscription prescription
The recurring revenue stream at the end of the rainbow
A short update from Moving Tribes this week from a train in rural Japan - if nothing else, an interesting reminder of how technology has made the world a smaller place.
I couldn’t, though, let this story from Retail Week go by without comment:
I started my career in subscription-oriented businesses and I will have bent the ears of many Moving Tribes readers that I know in person about the topic. One interesting thing about a subscription revenue stream is that it brings a set of metrics and strategic questions with it that are completely different to the ones retail and consumer goods companies are used to. How much is the customer spending every month? How long are they likely to carry on doing that? How can we encourage them to stay longer, or upgrade to spend more?
For investment-minded readers, there is another interesting thing about subscription - a recurring revenue stream is valued by investors much more highly that a retail revenue stream for the probably self-evident reason that it is, well, recurring. A retailer has to re-earn their sales line every day, whereas a subscription business is building a stream of revenue which, whilst not permanent, has a demonstrable future value.
So, it is a fascinating question for all of us in retailing to challenge ourselves with - is there some portion of our revenue that we could turn into a subscription, with all the valuation and customer relationship management benefits that follow from that?
Consider, for example, the excellent strategic move a few years ago from Pets at Home to build recurring revenues on pet flea control and other product purchases which were going to be regular ones. It is no accident that that strategy, communicated loud and clear to shareholders, was one of the strategic initiatives that drove a remarkable and sustained growth in their share price.
No, you are thinking. My products are bought to infrequently or too casually for a customer to be willing to subscribe for regular deliveries of them. But don’t be too quick to write off the idea. As Pets (and no doubt Cook) demonstrate, subscription doesn’t have to be an idea that applies in some blanket way across your business but if it works for some customers for some products, it can still be transformative to your overall business performance. Think about all the retailers of health and beauty products who didn’t think of shaving subscriptions until it was too late.
Building subscription businesses isn’t easy, and success is not guaranteed, but the prize is big enough to make it worth some thought.
What do you think? Will Cook transform its fortunes with this move? Who else might successfully implement a strategy like this?