The Direct-to-Consumer business model has gained popularity in recent years, with DTC sales expected to account for $17.75 billion of total e-commerce sales in 2020. However, like anything too good to last, momentum seems to be slowing as the market gets crowded with new entrants and customer acquisition costs rise. On top of that, brands are facing the ever-changing uncertainty of a global pandemic and the related economic downturn.
DTCs are embracing new growth strategies, from opening brick-and-mortar stores and partnering with established retailers to adopting hybrid subscription models. In addition, many are pivoting from a pure acquisition play to a greater focus on member retention and driving growth through increasing customer lifetime value and per-subscriber revenue.
In this article, we’ll discuss winning member-centric strategies used by two popular DTC brands to tackle challenges and fuel tremendous growth.
A Member-Centric Approach Reduces Churn & Keeps Members Loyal for FabFitFun
FabFitFun emerged onto the scene in 2010 as a lifestyle blog and newsletter for women. Three years later, the brand launched its flagship product, the FabFitFun subscription box. FabFitFun Seasonal or Annual members get a box of fabulous finds in beauty, wellness, fashion, and fitness － hand-picked by the FabFitFun team. Over the years, as the company has expanded from a few thousand subscribers to over a million, it continues to set its sights on growing its member base. FabFitFun’s approach is the quest after the holy grail: loyal customers create recurring revenue, automatically. That’s why FabFitFun doesn’t refer to their customers as subscribers, but as members — it’s representative of their commitment to their community of members for the long haul, ensuring they consistently deliver on the value promised.
“We say membership versus subscription because that’s what we’ve evolved into,” says co-founder Katie Rosen Kitchens. “The box is really the premium piece of the membership, but we are continuing to layer on lots of different perks so that, even if you didn’t like all the products in your box, you’re still getting so much value from the overall membership.” These perks include access to VIP flash sales, an exclusive vibrant digital community, and shoppable video content that helps bring items to life. This comprehensive “beyond the box” approach delivers continuous value for the members, which translates into greater retention for the company.
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Diminished loyalty and member churn is a challenge that every subscription commerce company faces, and FabFitFun is no exception. FabFitFun addresses voluntary churn by listening closely to its members and offering them a variety of channels to engage with each other and the company. From its consumer insights team to a members-only community, the knowledge the company gleans from these interactions is priceless toward keeping its members loyal — which in today’s fiercely competitive environment is no easy feat. Gleaning insights about which products its members enjoy the most helps the brand shape future offerings for its diverse group of members.
The brand is also in tune with its members’ need to occasionally “take a break” from a subscription. If a member encounters a financial challenge like a layoff or simply wants to skip a box, FabFitFun makes it easy to opt out of a quarterly shipment with just a click or two. By making the process low-friction for their member-base, FabFitFun continues to ensure their members stay loyal and engaged even when they might be on a “break” by fostering a sense of community through their FabFitFun community, FFF TV, and blog.
When COVID-19 hit in spring 2020, the brand seized an opportunity to leverage member insights and respond in an agile manner. In the early days of the pandemic, many consumers were focused on procurement of basic essentials. FabFitFun responded to this change in their members’ needs by shifting some of their product offerings to ensure those essentials were available to members via its website.
As the pandemic dragged on, FabFitFun also recognized that after months of being stuck inside, members wanted to treat themselves to little luxuries and started offering fun items that would brighten their moods and deliver the hope of better days ahead.
The company’s attentiveness to their members’ needs, fast adoption and quick thinking paid off. After 10 years in business, its member retention continues to grow strong. “One of the key reasons why we’re able to get where we are,” Anton Jusufi, Director of Product Management at FabFitFun says, “is that we are very fast to react and also very flexible.”
PupBox Uses Flexible Terms to Benefit Members and the Bottom Line
PupBox is the brainchild of Ben and Ariel Zvaifler and their 7-year-old fur daughter, Maggie. When Ben and Ariel welcomed Maggie into the family, they felt unprepared for the many different stages of puppyhood. One day, they felt there must be a better way to prepare for bringing home a new puppy, and PupBox was born.
Like many of its puppy customers, PupBox faced growing pains early on. PupBox used to work with a subscription billing and management provider that lacked flexibility in its subscription terms. This impacted how PupBox charged its customers, limited the plans it offered, and impeded its ability to effectively offer promotions and discounts, which stifled the company’s acquisition and retention efforts.
While PupBox offered customers tiered pricing and an option to sign up for a 1, 3, 6, or 12-month plan, the limited functionality of its previous platform forced PupBox to charge for the entire subscription term upfront. At a price of over $300 for an annual subscription, it was difficult to encourage customers to opt for the longer-term plans with customers gravitating toward the shorter 1- and 3-month options instead of the 6- or 12-month plans. Shorter plans meant higher customer churn.
The brand needed to find a way to decouple subscription terms from billing to lower the barrier of entry for longer subscription plans. By signing-up customers into a longer plan with a minimal upfront financial commitment, PupBox would be able to drastically improve retention. In order to do so, PupBox adopted a new subscription billing platform with Recurly that offered greater pricing flexibility.
“Switching from an upfront billing model to a subterm model allowed us to double the number of new subscribers we were acquiring in a month,” says PupBox founder Ben Zvaifler. “Our growth has exploded over the last few years.”
Zvaifler notes that adding the ability to sign customers up for 3, 6, or 12-month plans and bill them monthly encouraged more new customers to purchase the longer-term plans at an affordable monthly rate. While the jump in subscriber acquisition was a big win right away, PupBox also started seeing the desired improvement in its churn rate.
To double down on the successes they were seeing as a result of adjusting sub-terms, the company started optimizing its promotion strategy.
“The more you discount a product and lower your prices, the more volume you can drive; but the risk with this is customers typically churn out more quickly,” said Zvaifler. “Being able to offer fixed price discounts on a customer’s first box, even when the customer selected a longer-term plan, allowed us to drive exponentially more volume at a much lower cost.”
The halo effect of this change had a positive impact on PupBox’s bottom line. The increase in acquisition, coupled with improvements in retention, allowed PupBox to scale its marketing spend more efficiently and increase its ROI. Having the ability to play with the plans and promotions helped PupBox test and learn what combination of promotions, marketing channels, and term length deliver to the highest lifetime value. A win-win all around.
FabFitFun and PupBox have experienced massive growth by taking a member-centric approach — and it’s paying off. Thinking outside the box helps both brands break the mold; it ensures they stand out from the crowd and retain their most valuable asset: their members.