Every direct-to-consumer business wants customers to stick around.
Whether that means turning first-time buyers into repeat customers, or going all out to extending the lifetime value across your entire customer base, it all boils down to one ultimate goal: recurring revenue.
Many software businesses and brands like Netflix, Zoom, and Adobe nimbly shifted from license-based pricing to subscriptions. But subscriptions and other forms of recurring commerce have not been as sure a bet in fast-moving consumer goods (FMCG).
But the tide is beginning to turn. Recurring commerce is evolving — and DTC brands are seeing success.
In this article, we’ll take you through.
- The Revenue Opportunity In Recurring Commerce
- What Is Recurring Commerce In FMCG?
- 3 Recurring Commerce Business Models
- 9 Companies Rocking Recurring Commerce
- How Sonos Launched A Subscription Service In 105 Days
- If Your FMCG Company Should Turn To Recurring Commerce
Recurring commerce is about driving more value from your customers — and for your customers. Whether you’re a DTC CEO or a savvy FMCG marketer, you probably invest heavily to convert and keep customers. Customer acquisition costs (CAC) keep rising too. And then lifetime value can slip through your fingertips to a competitor. In fact, some estimates suggest retailers can lose up to 50 percent of their first-time buyers. Ouch.
Here’s a common scenario. You spend more money to get somebody into a store, website, or social media microsite. Then they buy from you once. Yes, they might have a great experience — but the reality is 50% of them never return.
Recurring commerce can help ease some of these concerns, when it’s done well.
Look at it this way.
Imagine somebody approaches a till in one of your shops. Or maybe they’ve begun adding products to your online shop’s cart. When this happens, you want to be able to say: “Oh hi, it looks like you bought this from us a few times before. Maybe we can give you 15 or 20 percent off — and we can even automatically deliver it to you when you run out.”
This makes sense in certain FMCG verticals, because people shop in a lot of different places for the same kind of goods. Unless you create a way to retain these people, it’s going to be difficult to get a predictable recurring revenue stream. John Warrillow, author of The Automatic Customer: Creating A Subscription Business in Any Industry, says recurring revenue can:
- Increase your company’s value
- Lift customer lifetime value (CLV)
- Make demand more predictable
- And put receivables on auto pilot.
It seems more businesses are realising these recurring commerce opportunities.
The Revenue Opportunity In Recurring Commerce
The numbers show it. Zuora’s Subscription Economy Index shows subscription companies across North America, Europe, and the APAC region grew sales by more than 300% in the past seven years.
What’s driving this? One recent analysis in the FT Adviser said subscription models are attractive to companies because they can provide benefits in both good and bad times — an appealing prospect in a volatile pandemic era. That’s because subscriptions can provide companies earnings quality and more stable cash flow.
It’s no surprise then that analysts say the global subscription ecommerce market could grow by 68 percent by 2025 to reach a value of almost $480 billion (US). That’s according to a UnivDatos Market Insights report, which also predicts almost 75 percent of DTC companies will offer subscription services by 2023.
(But Don’t Forget The Churn)
But of course it’s not all roses.
If we’re making recurring commerce sound like a superhero so far, then churn is definitely its arch-nemesis. Churn rates differ a lot across products within FMCG. But according to Recurly, they can be as much as 5-10 percent across all verticals.
This is frustrating. As a DTC brand, you can have many subscribers. But if they're churning out as quickly as you acquire them — then you have a classic ‘leaky bucket’ problem. All these subscribers are landing into your bucket, but others are leaking out after trial periods or a quarter, then you're forever playing catch up with revenue.
What Is Recurring Commerce In FMCG?
We mentioned subscription services like Netflix earlier on. But recurring commerce in FMCG is totally different. A good recurring commerce strategy in FMCG supports products and marketing systems that not only enable repeat transactions, but reward them. Unlike one-off sales, recurring commerce creates ongoing relationships with your customers. You’re saying goodbye to transactions, and hello to relationships.
Here’s another way to look at it. We all want our personal relationships to provide a good experience and positive emotions. Ultimately, we want relationships to make us feel good. Obviously, your favourite FMCG brand is a million miles away from true human connection — but it should still be able to provide some of the same satisfaction, in a small way. Put simply, FMCG brands should make people feel good. And recurring commerce offers a frequent way to do this. How? By providing beautifully packaged products, highly curated goods, and ‘bonus’ information and knowledge for shoppers who have stayed with you.
While the CFO may love the idea of rigid subscriptions. The average person often finds them annoying – because they pile up over time and can become just too hard to cancel. Think of your average telco or energy contract and try not to wince. But great recurring commerce is different, because it provides flexibility for consumers to control how they buy, when they buy, and how much they buy. We’ll give you a rundown of some great recurring commerce businesses like Bloomon.com and Dollar Shave Club soon. But first let’s quickly look at some of the recurring commerce business models that help FMCG brands excel.
3 Recurring Commerce Business Models
There’s a few ways to bring in recurring revenue — here’s how a McKinsey report described three common models:
- Replenishment: Replenishment subscriptions allow consumers to automate the purchase of commodity products. Think toilet paper, nappies, or skincare.
- Curated goods: DTC brands that offer curated goods try to ‘surprise and delight’ consumers with limited edition products, or personalized experiences.
- Club membership: Club members pay a monthly quarterly or annual fee for lower prices, ‘insider’ deals, and preferential delivery.
Different models will suit different FMCG verticals, so it pays to explore which option your customers want. One trait is common across all three models though — you’ll need to deliver a memorable experience to entice consumers to stay.
9 FMCG Companies Rocking Recurring Commerce
Now let’s take a look at some of the companies who are leading the charge in recurring commerce for FMCG.
- Nespresso: Coffeemakers are in an enviable position in recurring commerce: they have an addictive product that many people can’t go without. Nespresso now offers subscriptions to its coffee pods and espresso machines.
- Lumin: Male skincare hasn’t always been a profitable area for brands. But Lumin is bucking this trend by targeting 18-35 year olds with moisturizers, eye creams, and cleansers. The company says 80 percent of its sales come from the subscriptions.
- No Pong: This natural deodorant company offers a monthly membership to women. No Pong achieved $4 million in revenue in 2019, with annual revenue growth of more than 60 percent in 2018-2019.
- Artisanal Premium Cheese (APC): One for the true cheese lovers. When shoppers sign up to the Artisanal Premium Cheese Club, they get four cheeses delivered to their home every month. APC is a good example of DTC brands that understand experiences. Every box comes with ‘fromager’s notes’ and wine and beer pairing suggestions.
- Dollar Shave Club: DSC gets plaudits for its approach to subscription commerce, owing to its savvy marketing and well thought-out conversion strategy. DSC now sells members much more than razors — including shampoos, pomades, and hand creams.
- Taste Club: Beverages can be a lucrative vertical in recurring commerce. Taste Club, by Grape District, offers a flexible subscription model to bring the sommelier into people’s homes. Your wines and personal profile gets better as you rate the wines you receive.
- Marley Spoon: According to the Motley Fool, Marley Spoon had a very good year in 2020 — owing to a growing US subscriber base. The meal kit delivery company doubled revenue in 2020 and its share price rocketed 920 per cent in the same period.
- Bloomon.com: Here’s another twist: flexible flower delivery subscription plans. With Bloomon, you decide how often and when your new flowers should be delivered. And while subscribed you get account notifications of upcoming deliveries and the flexibility to postpone these, or your entire plan.
- Who Gives a Crap: Here’s another DTC brand that has cracked the code with great subscription marketing. UK company Who Gives A Crap allows shoppers to sign up for regular deliveries of toilet paper for households of different sizes. And 50 percent of profits help build toilets in the developing world.
Sonos Makes Subscriptions Sound Even Better
We should also mention audio pioneers Sonos. They’ve brought ear-tinglingly good sound into homes across the world since the early 2000s. Subspot and Sonos partnered to develop the audio company’s latest customer innovation: a flexible subscription offering to its multi-room speakers. Sonos and Subspot went from an idea to launch in just 105 days, helping the audio innovators to boost customer lifetime value and grow their customer base. You can read more about Sonos Flex right here, by the way.
Is Recurring Commerce Right For Your FMCG Business?
In 2020, we saw unemployment and unimaginable adversity across Europe and the globe. At the same time, a new dynamic emerged in retail and ecommerce. Many FMCG verticals have fared well with subscriptions as the pandemic rumbled on. Health and wellness brands like Peloton, beverage brands, and meal kits like Marley Spoon were just some of the areas to see an uptick in subscribers and earnings. Yes, many brands got lucky off the back of a difficult global situation. Because people couldn’t go outside, they chose to order goods online instead. It was convenient for consumers and it gave people something to look forward to across the drudgery of lockdown: a package in the post, however small.
We’ll probably only know if new consumer habits are here to stay after the pandemic ends. As a New York Times article explained way back in 2009, businesses have been trying to crack the subscription model for quite some time. As ever, brands need learn from consumers’ behaviour change — but also drive new behaviours. They must understand which habits are temporary and which are permanent. And they need to understand how consumers who adopted online shopping in the pandemic can now be enticed with valuable subscriptions and memberships.