What you will learn from reading The Automatic Customer:
– Why incorporating subscription into your business will increase the valuation.
– How to incorporate subscription into your business.
– How subscriptions can be used strategically.
The Automatic Customer Book Summary:
The Automatic Customer book summary is the definite guide to building a subscription business. John Warrillow discusses the merits of building subscription into any business before showing you how to. Subscription businesses are all about dependable income. If you’re interested in building more dependable income then this book is for you. Read on.
The Secret Sauce to Successful Businesses – Dependable Income:
The secret is to build recurring revenue that brings in sales without having to resell the customer each month.
To improve the value of a traditional business, the two most important levers you have are (1) how much profit you expect to make in the future and (2) the reliability of those estimates.
In the home security business, for example, companies have two forms of revenue. They receive installation revenue when they come to your home or office to install the keypad and wire things up, and they receive monitoring revenue in the form of the monthly payment for keeping an eye on things.
The catch?
You need to be willing to jettison the old way of doing things to pioneer a new business model.
Vijay Ravindran on Amazon Prime
“It was never about the $79,” said Vijay Ravindran, who worked on the team that launched Prime at its original price of $79 per year. “It was really about changing people’s mentality so they wouldn’t shop anywhere else.”
As with Prime, the very act of sinking money into a subscription triggers the desire for the consumer to want to “get his money’s worth”.
Subscription for information
The economics of information publishing deteriorated with the rise of the Internet. This eliminated distribution costs and commoditized content to such an extent that consumers began to expect it to be free.
Thus the traditional publishing model was under attack from two sides: information was becoming commoditized, and our appetite for it was becoming more specialized.
Content got so bad that people began realizing that good content was actually worth paying for.
The challenge with making information free is that if you take away the economic incentive to sell it, the quality of the content gets really bad.
Technology has led to access over ownership:
The main concept here is we prefer to access a movie rather than own it in DVD or another form.
The Access Generation: a growing cohort of mobile, technically savvy young people who value access over assets. They prefer to stay nimble and rent a home rather than own one; listen to a song on Spotify rather than buy it from iTunes.
Four factors—the access generation, light-switch reliability, delicious data, and the long tail—have led some of the world’s most successful companies and promising start-ups to shift their business models to a focus on subscriptions.
Subscription Businesses can be used to harness data:
Data has become an asset, and nobody has more customer information than a subscription business. Traditional companies are launching entire subscription offerings just for the data they provide.
Walmart didn’t launch Goodies Co. for the purpose of making a measly $7 a month. The world’s largest retailer wanted to know which snacks resonated enough to make you want to buy the full-size version.
Goodies then rewarded reviewers for their contributions with loyalty points they could earn through rating, writing a review, or uploading a photo. If subscribers earned enough points, they could trade them in to get their next month’s box free.
In many cases, they are adding a subscription business to build recurring revenue, expand their relationships with existing customers, and understand what customers want.
A subscription business gives you a direct relationship with your customers and an ability to track their preferences in real time. It’s why Walmart launched Goodies Co. and how Netflix knows what television series to produce or acquire next.
For $20 a month, Conscious Box offers a monthly selection of hand-picked, natural, GMO-free goods to try. Conscious Box asks subscribers what they think of the products in each box—and rewards them when they respond. Each product review earns 10 points, and 100 points earns the subscriber $1 to use in Conscious Box’s online store.
Subscription as a peace of mind offering:
Now you know you’re going to get a shipment of dog food every two weeks, and the part of your brain that scans the flyers for dog food starts to shut down.
Subscribers knowingly enter into an agreement in which the convenience of uninterrupted automatic service is exchanged for their future loyalty.
Subscribers Buy More:
A subscription business model allows you the opportunity to talk to your customers on a regular basis as they enjoy the benefits of your subscription. This means you get an opportunity to up-sell them on products and services beyond their basic subscription.
At H.Bloom, for every $10 subscribers pay each month, the company picks up an extra $3 in one-shot orders from subscribers who add something to their order for a special occasion.
Buying Subscription Businesses can be Strategic:
Part of Revolution’s appetite for buying smaller subscription-based companies was to gain the customer insights the company possessed.
E.g. – This acquisition bolsters our mission, as we can now provide our customers with an outstanding online resource center for growing and succeeding in business. At the same time, it gives us deep insights into the business challenges our studio customers face every day, which ultimately will enable us to serve them better.
Keeping Subscription costs low as a strategy:
When I interviewed Holland, I asked her why the cost of the subscription was so low. “That’s intentional,” Holland said. “We keep the price low to get as many paying customers as we can. It’s a gazillion times easier to convert a paying customer into an event attendee than it is to convince a nonpaying customer to come to an event.”
“In every single list testing since the 1950s, customers who have bought something similar in the last three months convert a bazillion times better than anyone else.”
The all-you-can-eat library subscription model offers unlimited access to a warehouse of value. Like any library, you’ll never consume all of the information available.
Virtually every combination of sales tactics you can imagine to get people to pay for a subscription, and he has found the winning formula to be a two-step approach: first, get unique visitors to your website to opt in to a relationship with your company by subscribing to an e-mail newsletter (or joining a Facebook fan page, Twitter feed, etc.), then convert opt-ins to paying subscribers through a sales funnel.
Front of Line Model:
When you adopt the front-of-the-line subscription model, you are publicly declaring that all of your customers are not treated equally. That may sound wrong, but prioritizing some customers over others is something most of us do unconsciously every day.
To offer a front-of-the-line subscription, you’ll need to think through how you plan to handle customers who pay for a special service queue.
Competing with the big boys – Amazon:
Just offering a subscription is no longer a differentiating value proposition, and if Amazon (or Target or Walmart) sees you getting traction selling a generic product or service it has access to, you won’t last long as an independent company.
“The guys who are going to be around in ten years are not just hawking other people’s products. The companies that will survive have two things in common: they care deeply about the product, and they are focused on building a brand.”
It needs to be important to customers and make you unique.
Amazon has already locked out the two most obvious ways to differentiate your subscription because Amazon will almost always be cheaper and faster when comparing apples to apples.
Unlike the market leaders who use traditional distribution channels to sell blades with more clinical names, such as Fusion ProGlide and Schick Hydro 5, Dollar Shave Club is building a human brand guys can relate to.
Amazon, Walmart, and Target do product selection and speed of delivery better than most of us. As the big e-tailers offer more of their consumables on subscription, you need to offer the customer another reason to buy from you. The more we believe a product is unique and offers a better experience, the more the provider has the leeway to set his own price.
Today, virtually any product is an Internet search away, but there is no safeguard to ensure you are buying a good-quality product from a reputable supplier.
To make the surprise box model work, you need a large and varied network of manufacturers who are willing to give you a deep discount for a onetime order and who have the capacity to fulfill.
When that happens, we want to outsource scheduling, planning, and time management to our technologies.
The big technology companies are starting to put serious money into helping people de-clutter and de-stress.
Maintenance as a Service:
That’s a lot of lightbulbs to change, which is why Islam and Driesman subscribe to a program called Hassle Free Home Services, a classic simplifier subscription business that, for a fixed monthly fee, will manage the routine tasks that pile up on a home owner’s to-do.
In the case of Hassle Free Home Services, your monthly onsite inspection is supplemented by helpful e-mail summaries, statements, and reminders of work that has been done and work that is planned.
Remembering takes up space on our mental hard drive, which leads to anxiety and a sense of being overwhelmed.
There is enormous value in the “set it and forget it” value proposition. You get the recurring revenue and steady work, and your customer gets the benefit of knowing it’s one less thing to remember to do.
Zipcar Subscription Example:
The focus groups revealed that the main reason interested people didn’t become subscribers was that they were worried about not being able to have access to a Zipcar when they wanted one.
Instead of focusing on the big number of 18,000 to 24,000 members, Griffiths decided to break each city down into smaller zones and build density one zone at a time.
In Boston’s well-to-do Beacon Hill neighborhood, Zipcar provided Volvos and BMWs.5 In the left-leaning area of Cambridge, the fleet was made up mostly of Toyota’s Prius hybrids.
If you’re going to rely on an army of customer advocates to build your network model subscription business, make sure you have a listening mechanism in place so you can quickly react to subscriber dissatisfaction before the word of mouth that helped you build the network starts to act against you.
Caveat to peace of mind subscription model:
Offer the peace-of-mind subscription only to a handful of customers so you can get a sense of how often claims are made.