With all the recent hype about businesses like JustFab, ShoeDazzle, and BirchBox, you’d think that subscription commerce is a new thing. However, subscription commerce has actually been around for quite a long time. Subscription commerce works by getting customers to pay a monthly fee to receive some sort of recurring product or service each month.
There are subscriptions businesses for dog owners, ice cream lovers, fishing enthusiasts, the modern man’s pantry, and gluten-free dieters; there is a subscription out there for anyone and everyone. My Subscription Addiction is a review site that gives insight to the ever-expanding world of subscription commerce.
Competition in this field of ecommerce may be at an all time high, but businesses are gravitating to this model for a reason. Subscription commerce is based on a tried and true model that really works if done well. Let’s take a look at a business that started in one of the best possible ways: with a killer combination of a subscription model and celebrity backing. We’ve identified some of the mistakes that this business made, which caused it to fail and the lessons businesses can learn from.
ShoeDazzle Scales Quickly
ShoeDazzle was founded, in 2009, by Brian Lee as one of the first subscription ecommerce websites. It had a $200 million valuation and one of the biggest celebrities for added appeal. As a celebrity endorser, Kim Kardashian’s fame brought in a ton of free customers, allowing the company to grow and scale quickly.
Lesson #1: Don’t change something that doesn’t need to be changed.
During its rise to the top, Brian Lee decided to step down and bring in a new CEO, Bill Strauss. Brian Lee had built ShoeDazzle on the strength subscription model, but the new CEO decided quickly shook things up by changing the business to a traditional ecommerce model.
Lesson #2: Don’t value quantity over the quality of your customers.
Bill set about changing things, starting first with customer acquisitions. “The subscription model has been great,” said previous ShoeDazzle CEO Bill Strauss, who joined the company in September. “But not all women want to shop that way. We have 10 million members to date. We want tens of millions of members. We think the best way to get there is to give customers more choice.” Rather than focusing on the quality of the customers, Strauss was more concerned with getting the numbers of customers up. Customer acquisition is an important step in growing a business, but that is just the first step. After that, businesses need to retain and optimize the customer experience to have truly lasting growth.
Lesson #3: Subscription commerce requires a different brand strategy.
Bill Strauss was focusing on acquisition so he decided to eliminate the exclusivity of the store in order to broaden the appeal. However, by doing this it made customers feel that they were no longer part of something special.
Exclusivity was one of the differentiating factors that helped ShoeDazzle in its rise to fame. Of course, by taking away the key element of the business model, the business started to go downhill. While this might be okay for traditional ecommerce stores, it doesn’t work well with subscription commerce sites. Subscription commerce focuses more on building engaging, long-term relationships with the customers, rather than simply selling individual products.
Lesson #4: Choose a business that is scalable for growth.
The goal for most online businesses is to grow and make money. ShoeDazzle limited itself to only shoes when they chose their name. In contrast, their competitors, JustFab, created room for growth into new markets by choosing a name that can expand with them as they grow. A popular and successful model for subscription commerce sites is to lead subscribers to make additional purchases. “The idea behind it is to help you discover products and shepherd you from the first product to a transaction” said BirchBox CEO and co-founder Katia Beauchamp.
Lesson #5: Customer Lifetime Value (LTV) metrics need to be adjusted.
Customer Lifetime Value metrics are a much less tangible calculation for subscription commerce sites than traditional ecommerce sites. Businesses using the subscription model must get a very clear understanding of the customer’s opinion on the quality of the product. This is called the churn rate. Also, the longer the retention of a customer, the more successful the business will be. This is why it is very important to understand every aspect of the product, industry, and customer wants and needs. Strauss was not developing the brand with these additional factors of the calculation in mind.
While subscription commerce has the potential for great success, it also requires much different business approach than a typical ecommerce store. JustFab has since acquired ShoeDazzle after previous founder Brian Lee came back to save the sinking ship, unsuccessfully. Commitment to the tried and true subscription commerce model could have potentially saved this titanic of a business. However, these five key lessons are ones that every subscription business should keep in mind in order to avoid the unfortunate fate of ShoeDazzle.
Miva