Robbie Kellman Baxter's Loyalty Masterclass
Explore the world of subscription models and their potential pitfalls. From losing profits from your best customers switching to the subscription model to ensuring that customers are not abusing the service, we discuss how experimentation and testing is needed to find the ideal customer and mitigate these risks. We also look at how retention strategies, market research, and ease of cancellations play a key role in the success of subscription-based businesses. Featuring expert advice on how to match customer goals with added value offerings, set expectations, and price effectively, this episode offers invaluable insights for all business owners. We also take a deep dive into Netflix's customer-centric approach and how their focus on retention is crucial to their success. Tune in to learn how to avoid common pitfalls and create meaningful recurring revenue.
Timestamps
[00:03:24] The Customer Centricity of Netflix
[00:06:31] "The Importance of Easy Subscription Cancellations"
[00:12:15] "LinkedIn: Connecting Across Generations and Industries"
[00:20:50] "Keeping it simple: Avoiding subscription pitfalls"
[00:25:27] "Unlocking the Benefits of Subscriptions - Coffee, Wine, Seltzer"
[00:29:26] Maximizing Retention Rates for Subscription Services
[00:37:00] "Expert Tips for Testing Subscription Models"
[00:40:09] "Small Businesses' Advantage: Knowing Customers for Success"
The Unofficial Shopify Podcast
May 23, 2023
Kurt Elster: Welcome back to The Unofficial Shopify Podcast. I’m your host… Oh, no. I blew it again. Welcome back to The Unofficial Shopify Podcast, your source for eCom recon for Shopify entrepreneurs like yourself. I’m your host, Kurt Elster.
Ezra Firestone Soundboard Clip: Tech Nasty!
Kurt Elster: And today we’ll be talking with Robbie Kellman Baxter, a subscription and membership expert who’s been helping businesses like Netflix, Microsoft, and The Wall Street Journal thrive. Get ready to learn all about forever transactions and how they can revolutionize your business. Robbie, welcome.
Robbie Kellman Baxter: Thanks so much for having me.
Kurt Elster: Oh, I am happy to have you here. You came as a referral. We’ve done an episode about customer lifetime value and Daniel, who was the guest on that episode, was like, “You gotta have Robbie Baxter on to talk about subscriptions and membership.” It wasn’t a suggestion. It was like insistent. And so, yeah, absolutely. Please, can you send me an intro? And here you are.
So, certainly you’ve worked with some impressive businesses there. Netflix, Microsoft, and WSJ. But I’m sure there’s more to it, so tell us a little bit about your background and how you came to be working on subscription and membership models.
Robbie Kellman Baxter: So, when I was a little girl, all I wanted to do was be a subscription consultant.
Kurt Elster: What? No!
Robbie Kellman Baxter: That was a joke. That was my attempt at a joke. I’d been a strategy consultant. I’d been in product management in Silicon Valley. And when I hung out my own shingle, I knew that if I wanted to establish myself credibly as an expert, I needed to find an area of focus and have it be something that I was passionate about and that had a lot of legs, where there’s a lot of room to grow, and so as I consulted, doing sort of traditional, what you’d think of as sort of traditional strategy consulting, I had in the back of my mind, “What is an area that nobody is interested in that I’m interested in?”
And I think my fifth client as an independent consultant was Netflix, and-
Kurt Elster: Wow.
Robbie Kellman Baxter: I know. And this was when, just to sort of set the stage, this was early 2000s. They had just gotten a national footprint. So, as you may recall, they started on the East Coast and the West Coast. Everybody’s small once, right? Everybody’s a startup at some point. And so, they started on the coasts and sort of worked their way inland. Because they were still shipping DVDs to people’s homes and that was hard to do. You had to have a distribution center. You had to be able to commit to that three-day turnaround that they’d promised. And so, until they got a national footprint, they couldn’t really do national advertising, national campaigns. So, that was right around the time that I started working with them, and was working on new acquisition channels, and a little bit of pricing work, and I saw… I was just so impressed with how they were thinking and how different it was. I’d been a consultant. I’d seen a lot of companies. I’d never seen a company this customer centric. They had a lab inside the building. Pretty small startup, right? And they had a little lab where they could do focus groups, and interviews, and people could watch them in the one-sided mirror and all of that.
And they had very clear rules for how to launch a trial for acquisition. This is the kind of retention that we’re looking for, therefore this is the kind of acquisition… You could only have one promotion, right? So, there weren’t a million different… You know, let’s see what 10% off looks like, versus a two-week free trial, versus a three-week free trial. One offer, let’s keep it clean, because we have to understand the metrics. And I just fell in love with the discipline. I fell in love with the spirit of experimentation. I fell in love with the customer centricity. I’ve always been a people person and interested in what makes customers tick.
And I loved that they were focused on retention. Because every company I’d ever worked with, retention was either ignored or relegated to a very junior person. And at Netflix, the retention metric was front and center for every single person in the organization. So, I thought there was something there, and as I was sort of falling in love with them, other companies were noticing what they were up to, especially here in Silicon Valley, and I started getting calls from people who said, “You know, we’re interested in what Netflix is doing and how that might apply to fill in the blank,” to news, to music, to professional services, what have you.
And I just started working on frameworks. You know, what is really going on here? And what’s applicable, so my second client was part of Intuit, the consumer and small business accounting, and I came in guns blazing. We need a two-week free trial. Didn’t work there. And so, I learned there are some things… Not everything that Netflix does works everywhere, but some things that Netflix knows apply everywhere, and so figuring that out was really the beginning of my journey and I’ve never looked back. It’s been 20-plus years.
Kurt Elster: So, what are the things that Netflix is doing that are universal?
Robbie Kellman Baxter: Make it easy to cancel. That’s one. So, any kind of subscription, it shouldn’t be harder to cancel than it is to join. That creates trust and trust is critical to any kind of subscription, membership, premium loyalty program kind of thing. The Amazon Prime kind of approach. The reason people pay is they kind of relax into it and they trust that the organization is gonna take care of them, and they don’t need to think about it or reconsider the decision. If you make it hard to cancel, the person says, “Wow. This is an organization where I need to keep my wits about me if I want to work with them because they’re not looking out for me. If I don’t pay attention I might get taken advantage of.” Making it easy to leave is a signal that you’re trustworthy.
The other thing that I think Netflix is really good at that every company can look at is they keep their model really clean and simple. A lot of organizations are really tempted to have a lot of different trials, a lot of different tiers of offerings, a lot of add-ons, and while in some ways that’s great for letting the customer choose exactly what they want, A, that’s really complicated for the customer. You’re asking them to become an expert on your product assortment and figure out what they need. And B, on the company side, it’s very hard to track the data. The data gets really, really complicated, and you end up needing a whole team of data scientists and academics at the level of Dan McCarthy to help you understand what’s going on. And for the average merchant, that’s a lot.
And if you just keep your model simple, it’s a lot easier to see what’s going on, and it’s a lot easier to make improvements.
Kurt Elster: I love and appreciate simplicity and anyone who can recognize like, “Hey, sometimes you can overcomplicate it.” Especially for a small business. And there’s no advantage to it, right? There is advantage in keeping things simple because they are easier to manage, maintain, communicate… I think that’s a big problem there. Like you mentioned like, “Oh, they’ve got all these…” Companies will have too many free trials. Yeah, that’s confusing, isn’t it? For both the consumer and the marketer trying to figure it out.
You’re the author of two books: The Membership Economy and The Forever Transaction. What is a Forever Transaction?
Robbie Kellman Baxter: A forever transaction is a relationship where the customer decides that they don’t need to look for alternatives to solve a particular ongoing problem or achieve an ongoing goal. So, if I decide I’m going to buy all my professional clothes at Ann Taylor let’s just say, whether or not Ann Taylor has a subscription I’ve established a forever transaction with them. I’ve made the decision that this is where I go. I’m gonna look here first. A lot of people… Amazon Prime, great example, right? People start there. If they can’t find what they’re looking for, then they go somewhere else. But it is… They’re like, “I’ve decided and I’m not gonna reconsider that decision.”
And I think in a membership economy, the moment when that customer makes that decision to have a forever transaction with you, that’s the starting line for investing in that relationship. Not the finish line.
Kurt Elster: So, how do subscriptions fit into the forever transaction?
Robbie Kellman Baxter: When you have a forever transaction with your customer, when they want you to serve them, solve that ongoing problem, help them achieve that ongoing goal, you can just continue to transact with them but know that they’re gonna keep returning, and that’s a lot of the work that Dan does, or you can take the next step and say, “I’m gonna design something that just solves the problem on a fixed price on a monthly basis, or on an annual basis.” So, having a forever transaction kind of gives you permission to use subscription pricing.
Subscription pricing is just a tactic. It’s a tool. The forever transaction is the relationship.
Kurt Elster: Well, all right. The attraction is clear but certainly not all businesses are gonna be right for this. So, do you have a litmus test for good-bad fit for subscriptions and this forever transaction idea for a business?
Robbie Kellman Baxter: Yeah. Do you solve an ongoing problem for your customers? Can you solve an ongoing problem? Can you help them achieve an ongoing goal? If your product honestly is not for an ongoing need, you probably can’t make a good case for offering it as a subscription. If I tried to offer a subscription to one book with nothing else, people are gonna say, “There’s no product-market fit. Why do I need to pay a subscription to access one book? I wanna buy it. It’s small. I’ll put it on my shelf. Done. Check it out from the library. Done.”
So, that’s the first thing, and then I think… You know, more selfishly for the companies, if your customer has no choice, you don’t really need to invest in building a relationship with them because they’ll just do it. So, if you’re the last gas for 100 miles, if you have a patent to the drug that keeps me alive, you don’t need… If you’ll never see me again, you don’t need to invest in subscriptions and figure all of this out. But for most other organizations, if your customers have other choices and your best customers stay a long time, there’s probably room for you to build a subscription.
Kurt Elster: I like the bad example of, “Hey, you can’t sell a subscription for the same book.” And obviously Netflix is where this idea originates. Do you have any other examples of these are ideal versions of this?
Robbie Kellman Baxter: Yeah. LinkedIn, right? You start your career, maybe in high school, maybe in college, and you might… My teenage kids are in college and are on LinkedIn. My 80-year-old father has been retired for five years, is on LinkedIn. They’re not as active as I am, but they’re there. That is a nice, long problem to solve. That is an ongoing goal to thrive in your career, an ongoing problem. How do I stay connected with the people in my field? It’s a great one. And through an interesting side story in another less good example or an interesting example, the people who started LinkedIn, the team that started LinkedIn, prior to starting LinkedIn they started a different company called SocialNet, and it was a dating site.
And that group of people, they’re very focused on the stuff that I teach around long-term relationships, being trustworthy, building a long runway, all of that. But in the world of dating, six months, either you’ve found your person or you’re really disappointed and you’re gonna leave the dating pool, right? So, even if you do a good job, you put yourself out of business in a few months. The duration of that forever transaction is pretty short.
And you know, there’s been a lot of activity recently in high-end dating subscriptions. So, there’s Tinder Vault, and I’m gonna forget the other name, but there’s… Bumble has a new one. These kind of $500 a month-plus dating subscriptions. You think, “Well, part of what people are paying a premium for is get me to the finish line faster.” So, the actual duration of the subscription is shorter, so I have this question of does it make the most sense for that to be a subscription? Or maybe this is a case where a fixed price for the outcome is better. I find you your true love. That’s $3,000.
Kurt Elster: Interesting. Okay, so if I have… I like this dating example. So, like Netflix, what are they solving for? Boredom, right? There’s always that just continuous content that I will always have need for. The content hole must be filled and it’s just… It’s a sinkhole. And so, there the forever transaction makes sense. The dating example is great because it is… There is a finite lifespan on it for most users, right? Many years ago, I got on eHarmony, and then I met my wife, and now I no longer have an eHarmony account. They were successful, so I canceled.
Robbie Kellman Baxter: Right. Right. Exactly. Exactly. Now, if eHarmony wanted to, they could have an extension product and say, “We are going to help you have the best relationship possible.” And that starts with helping you find your true love and then we’re gonna help you get through the complicated and stressful wedding period, or formalization of the relationship. We’re gonna help you with financial issues, and relationship issues, and aging issues. That could be an extension to the subscription because that is a forever problem, right? That could… If they said, ”We’re gonna help you get the most out of your relationship,” but just to help you find your true love, that’s very finite.
Kurt Elster: And so, if you are in one of those situations, the value add that goes both ways is look for… Well, I like the example of like, “Well, you could pay more to shortcut the process.” It’s like, “All right, if I’m gonna pay the subscription, and in theory they know I’m only gonna be there three to six months, I could pay even more, and now they know I’m only gonna be there…” The promise is hey, now you only have to be here one to two months. But I’m significantly up charging.
Robbie Kellman Baxter: Yeah.
Kurt Elster: At least in that Tinder Vault example.
Robbie Kellman Baxter: Yeah. Yeah. Exactly. And here’s another example, though. If you are like a recruiter, right? If you’re gonna recruit the CEO for a company, you don’t really want to do that on subscription because hopefully they only need one for a while. But if you’re recruiting frontline call center people, or you’re recruiting retail workers, and there’s a kind of… That is an ongoing problem. I always… These people don’t stay more than a couple of years. They either up, or out, or they do something else. I need more coming in all the time as we grow. That becomes the good option for subscription. If you’re a merchant, if your products are very occasional and maybe very high priced, that might lend itself less well to a subscription or a membership. But if people are coming to you a lot, you might have an opportunity to say, “What is their ultimate goal? Are they coming to me to look professional? Are they coming to me to solve their do-it-yourself home projects? What is the reason they’re coming and what else do they need?”
Because once you know what the promise is, you can layer in more value and extend the relationship. And that’s where you provide expert advice, shorter lines, discounts because of their commitment to you, access to products before everybody else, access to products that are sold out. If you know that that’s gonna help them achieve their ongoing goals, you suddenly have all of this new room to create a really valuable ongoing offering to justify, as you pointed out, the recurring revenue that everybody wants, that makes your business more valuable, makes it easier to run your business, makes your business more profitable.
Kurt Elster: So, it sounds like if I want to start, if I’m in the position where I say, “All right, I want to add subscription or membership.” I’m going to… Where do I start exploring? I’m hearing go to your customers, talk to your customers, which… Always great advice that most of us don’t do often enough, right? Actually, talk to the people buying from us. And figure out… It seems to start with pain or problem. Why are they here? They’re solving some need and working from that. Walk me through it. Where do I start?
Robbie Kellman Baxter: Ongoing need. Yeah. I would start with ongoing need. So, one place that often is good is to say, you know, for your best customer… Usually, I’ll ask a company or an organization what is the problem you’re trying to solve. What is the biggest unmet opportunity that you have right now? So, some organizations say, “We have these good customers, but they don’t spend very much even though they really like us, so how do you go deeper?” So, what do our best customers come to us for? What’s their ongoing problem? And how can we deliver on that? What would be the next step up, ongoing solution?
Another thing is sometimes companies say, “Our big problem is there’s too big a jumping off point for them to find us, so what if we offer something for free or something at a low price that makes it easier for them to get to know us?” So, that’s a different kind of subscription or a different kind of membership. Or they forget about us, right? How do we make them remember us? Or how do we make it a habit? And starting from there, then what you do is say, “Who are the customers we have right now who would love that?” Make sure they would. And then you say, “What else would they want?” And see if you need to round out your offering.
And then make sure that there’s a big total available market for that group. So, if it’s too narrow, people who live in Iowa who have quadruplets, those cute outfits that you send out every month that are four matching outfits for the same size, that may not work as you want to scale.
Kurt Elster: If we’re on the topic of a merchant trying to figure out will this work for me, where do I begin, when someone is starting with a subscription or membership, where do you see them making mistakes? What are the common pitfalls here?
Robbie Kellman Baxter: The common pitfalls. One of them is they have too many offerings up front. So, we need gold, silver, bronze. We need gold, silver, bronze, and then we also have to have these add-ons, because the add-ons are actually gonna cost… We have variable costs associated with it, so let’s say we send out a physical product, or we’re paying for shipping, therefore shipping costs different things in different places, so let’s have different pricing for it.
So, as an example, I think everybody’s pretty familiar with Dollar Shave Club, right? Very successful. Gillette tried to copy them but one of the things that Gillette did is they wanted to charge people for what they were consuming, and they wanted to charge people for the shipping, and so suddenly you’re getting charged a different amount every month, and you’re getting charged something different than your cousin who lives in a different town, and it became too complicated too fast. And people didn’t see the value because they were trying to do the math in their head. So, that’s the first thing, is keep it really simple when you start.
Second thing that I think they often do is they don’t have a spirit of innovation. So, if it doesn’t work on day one, they’re like, “Subscriptions don’t work for our business.” In fact, subscriptions don’t work for our industry or our country because my first foray into the world of subscriptions was unsuccessful. Instead of being curious and setting up hypotheses up front and saying, “What do I think is gonna happen? What am I afraid could happen? And what will I do if these things happen as the next step?” So, you’re already ready. You storyboard it out even before you start. If not very many people buy it, what do I do? If a lot of people buy it and I realize I underpriced it, what do I do?
I just had this conversation yesterday with a client that’s trying to price their first subscription offering. They have a physical product. And I said, “If you price it low the risk is too many people come and you lose money and you set an expectation that it’s got a lower value.” If you price it too high, fewer people are gonna come and you won’t get good data to even learn what’s going on. So, that… Start in one of those two places depending on your priorities and be prepared to adjust in three months, or two months, or one month. Set expectations.
Kurt Elster: I like this very sane approach and I like going into it initially with that idea of like, “Well, what happens when this goes wrong?” So that it’s not a surprise, so that you’re prepared for it, and you have an answer for it as opposed to, “Well, we tried it once. In its initial instance it was not immediately successful, so we quit.” Drives me crazy when people do that. And not specific to subscriptions. Just kind of like business or life in general, they’re like, “Well, didn’t work. I’m not rich on day one, so let’s pack it in here.” The quintessential example of ideal use case for subscriptions that we see in eCommerce is consumable good. I sell coffee. I sell shampoo, right? I have a subscription to shampoo. I can’t believe it, that I subscribe to shampoo.
Robbie Kellman Baxter: You do.
Kurt Elster: I do. Function of Beauty is the one. Really my wife does it, but I use it because that is some quality shampoo. Look at the size of this quaff. Just outrageous. I was using like dish detergent before and she’s like, “What are you doing?” She was right.
But okay, the quintessential example for this in eCommerce is consumable good, and the one that always comes to mind is coffee, right? You make coffee every day. When you don’t have it, you’re like, “This is now the worst day of my life.” You don’t want it to run out. But that seems like a fairly simple use case, like people could buy this subscription for the coffee, but they’re resistant to it because they understand a subscription is this ongoing expense. It is a harder sell than a one-time purchase.
So, in that just very traditional example, what’s the ideal starting point? Do I sell a bundle? Do I sell at a discount for buying the subscription? I typically see like 15% off kind of thing.
Robbie Kellman Baxter: There are three kinds of models that you might be considering. One of them is, as you said, the consumable model, replenishment model. Second one is a curated box, right? So, in the case of coffee, that might be three different flavors of coffee, a coffee mug, and some sort of interesting grinder, or a book, or something else. And every month you get some cool coffee t-shirt. And then the third model is what Amazon Prime does or Costco does, which is a true membership where you pay a premium up front to get access to a bundle of benefits, which often includes things like discounts, early access, free shipping, things like that on anything that you buy.
Kurt Elster: How about exclusives?
Robbie Kellman Baxter: Exclusives. Yes. Exclusives, early access, limited quantities. Wine merchants, for example, do a lot of that with their membership. You pay up front and then you have the privilege of buying their product or getting access to buy their product at full price because there’s a limited quantity and you want to get that particular vintage, or that particular style.
So, those are the three types. If you’re a coffee vendor, you have a coffee shop, and you have an interesting coffee blend that you have, you want to do subscription, you might start a discount for commitment, right? That’s a very easy place to start. It’s not very defensible. It’s not very protectable. It’s not that differentiated. But it is a good place to start, especially for the people that are like, “Well, I buy coffee anyway.” I buy this coffee anyway. Convenience is another benefit, right? I might pay full price for the coffee for the benefit, like I get a bubly, a seltzer water subscription. They deliver seltzer water to my house every week. It’s really heavy to buy it at the store, so having it delivered, I don’t get a discount. I probably pay a little bit of a premium. But the convenience of always having it, never running out, and never having to pick it up is big for me. It’s worth paying for.
So, you want to start with a simple benefit that you know that you have a segment… There is a segment that comes in every Tuesday, and they buy same thing, and they say, “You know what? You want to join a subscription? We’ll mail it to you, or it’ll be waiting here on the counter, and it’ll automatically bill.” That’s a really good place to start. And then what you want to do is understand that group, and why they do it that way, and how they think about your product. So, is it about making it more and more convenient? Or is it about exposing them to new things? Or is it about connecting them with other people who love coffee? What is it about them that you can get them closer to achieving their goals?
Kurt Elster: How do you find that out? Are we doing email surveys? Getting them on the phone? Some magic ChatGPT data?
Robbie Kellman Baxter: Any way you want. Any way you want. If you are running a coffee shop, you ask them. You ask them with your mouth across the counter and you make notes, right? And you ask them, “Hey, if I buy you a cup of coffee, can I talk to you for 45 minutes?” You do a focus group at the table. Doesn’t have to be fancy. What you do have to do if you’re doing any kind of market research… As you said, you can also send out a survey. You could have the survey be in Google Sheets or something that’s free and easy. Doesn’t have to be expensive or hard.
The important thing is you gotta have your hypotheses up front. You gotta know what you’re trying to learn. What is the question I’m trying to answer? Before you do your research. And then you have to look at the research and say, “What are the answers I came up with? What are the new questions I have?” And then you go back and do it. And I think the other thing that’s really helpful for people who haven’t done market research before is that there are really two kinds of research. Qualitative and quantitative. Qualitative means you’re only gonna talk to a few people but you’re gonna go very deep and you don’t necessarily know what the answer is gonna be. And that’s great for helping you design quantitative research, because if you don’t know what the top three reasons are that people cancel, it’s hard to create that survey.
So, you ask people. What are the reasons? And you start to get their answers and you start to see patterns, then you can take that learning, put it into a survey, quantitative research, and blow it out to 100 or 1,000 people. So, doing both is really important no matter how small you are.
Kurt Elster: With a subscription, we’re not gonna keep everybody forever. But I really have no sense of what good or bad churn, retention, and length of subscription is. None at all. How many people… And it’s such a broad, difficult question. I would imagine the answer is kind of like, “Well, how long is a piece of string?” But what are… Are there any benchmarks? Guidelines? What feels right here?
Robbie Kellman Baxter: Yeah, and you’re right, it really varies because as we saw with the LinkedIn versus the dating site comparison, if your forever promise is I’m gonna help you thrive throughout your career, you should be keeping people for many, many years, right? They shouldn’t want to leave. If you’re helping somebody find true love, that might be a six month or a one year relationship. And they’re probably, hopefully, not gonna come back, right? So, you shouldn’t feel bad that it’s a short duration. If you run a dating site… If somebody from LinkedIn and somebody from Match.com are in the same subscriptions mastermind group and they’re comparing retention rates, they should be different. But the thing that’s important is that even for the dating site, which might have a shorter expected duration, from months one to six, or one to three, your retention should be very, very high. 90-plus percent month over month.
So, that I think is one thing, is you have to understand what is the length of achieving their forever promise? Is it really forever? Or is it five years or six months? And then you also want to set your own benchmarks and focus on improving them. You want to think about the cost to acquire versus the payoff, right? If it’s very cheap to acquire dating subscription customers and they stay for six months, and you have a ratio of lifetime value to cost of acquisition that’s six, so you charge… It costs you $3 to find them and they stay for six months at $3, so that’s $18, that’s a great business. Even though six months might seem short.
But those would be some of the things that I’d be considering about. So, three to one lifetime value to cost of acquisition ratio, minimum. And the other thing that happens a lot is when you think about churn, most of the churn happens in month one, in period one, and that’s for all the reasons you’d expect. Oh, I didn’t mean to be here. This isn’t at all what I thought it was gonna be. Oh, I actually don’t use it at all. Oh, I never meant to sign up. Actually, my intention was to get as much as I could out of it in the one month. I wanted to watch Hamilton and then I’m out of here. There’s nothing else I want to watch, so I never intended to stay.
You want to track that first month really hard. If you can keep them through the first month, there’s a really good chance they’ll be around in the third and the fourth month. So, that would be my focal… People always say, “I don’t know what the lifetime value is because I’m hoping they’re gonna stay for 47 months.” But if they’re leaving after month one, focus there. That onboarding… Onboarding is the most important and underused lever for retention.
Kurt Elster: What does good onboarding look like? What’s the thing that people are getting wrong here?
Robbie Kellman Baxter: Make it easy for them to buy. Reinforce the wisdom of their decision to come to you in the first place. And show them what your best customers do to get the most value that they’re entitled to. So, what most companies do is they either just focus on getting them in and out… So, I have a lot of eCommerce clients that have really, really good SEO, and people kind of parachute in for a certain product and parachute out. And they don’t even know maybe even the name of the company, right? Or what else that company sells. So, you want to make it easy for them to see what else… Say, “It’s great that you’re here because all of our prices are really low,” or, “We have the widest selection,” or, “We have the best support,” or, “We have the best return policy.” And then to show them how other customers are more engaged. You know, this is what our most engaged customers do. This is what you can do. If you sign up for our membership, if you sign up for our subscription, if you show up on Tuesdays when we drop all of our prices. Whatever that is, most organizations don’t have any real thoughtful way of welcoming somebody to their community and giving them… What is it that keeps your best customers? Making sure that your new customers get there as quickly as possible.
Kurt Elster: I suspect the answer to my next question is just no, but is there any risk to… If I’m on a site and I offer both subscriptions and one-time purchases maybe on the same product, maybe on different sets of products in a catalog, is there ever any risk of one cannibalizing the other?
Robbie Kellman Baxter: Yes.
Kurt Elster: Oh, there is. Okay. Let’s hear it.
Robbie Kellman Baxter: Oh, yeah. It’s a huge issue. Okay, so here’s an example. It’s a huge issue and it should not be overlooked. You run a car wash, right? Let’s say the car wash is $20 per car wash and you offer a membership where you can get unlimited car washes for $50, so anybody who gets at least 3 car washes a month is gonna get good value, right? What if the only people who sign up for your car wash are Uber drivers who have to clean their car at the beginning of every shift?
Kurt Elster: Ooh.
Robbie Kellman Baxter: Right? And those people used to come and pay 20 bucks and come every two or three days. Now they come every day and they pay 50 bucks. So, the biggest worry is, to kind of summarize that, is that your best customers, the ones who are paying full price for the shampoo every week, suddenly they’re the… If they’re the only ones that convert to the subscription where there’s a discount, so you lose that profit and you don’t make it up in volume. A lot of companies… That’s why a lot of companies won’t move to subscription, or they’re scared.
And so, you do have to do some experimentation and some testing to figure out A, what are my best customers gonna do and what happens if all of them move to this model? And B, what is the likelihood of someone new to the site who was gonna buy one unit actually upgrading and saying, “You know what? I should actually… I am a person who washes my car once a month. I should be the kind of person who washes their car every week. Instead of paying $20 a month I’m gonna pay $50 a month and I’m gonna come four times a month.” That’s your ideal customer, right? The person who used to pay $20 and now they’re paying $50 and they’re not abusing the service.
So, yeah. It’s a huge issue. It is definitely a potential gotcha and something worth exploring, especially if you’re moving from transactional only at full price to subscription at a discount.
Kurt Elster: Do you ever, when launching a subscription for the first time, do you ever do it as a soft launch where maybe it is segmented to only a small percentage of the total audience?
Robbie Kellman Baxter: Absolutely. Absolutely. And there’s lots of ways you can do this. You can say… You can only send it out, send out the offer to a certain group. You can say, “We’re only gonna let people sign up for the month of June and the subscription is only gonna last for one year and then we’re gonna reevaluate.” And you can set the expectations however you want. Bigger companies will do it geographically, so they’ll pick a more isolated country, New Zealand is physically isolated, or Portugal, where they’re sort of isolated by language, and they’ll launch there and see how it works, and then expand if it’s working. And it’s easier to close it down if it’s not working.
The other thing to do when you’re testing and you’re scared is figure out all the things you’re worried about and then figure out which of them can you learn about without actually launching, without actually building it out, without actually offering it and taking money from someone. So, for example, would they click on the button that says, “Subscription?” You do not need to have a subscription to see if people will click on the button that says subscription, right? You can say, “Thanks so much for clicking. We’ll put you on the list and in the meantime as our thanks, here’s a $10 gift card,” or whatever. But you don’t have to launch your subscription yet, right?
Or you can do it with user testing, or some kind of a research firm, so-
Kurt Elster: That’s really clever.
Robbie Kellman Baxter: I always encourage my clients to really tease out what are all the questions we have. So, for example, the cannibalization question, before you even launch it, you could say, “What’s the worst thing that could happen?” If all of our customers… If the price is like Electronic Arts video games, $60 a box. $100 subscription they’re considering, right? They were considering. They actually launched it. But you know, $100. So, what happens if the only people who subscribe are people who are already buying at least two games a year? How much money do we lose? What if we charged $120? How many people do we lose? What if only this many people signed up? Did we hit our number that we committed to?
And so, you can sort of start to figure these things out and kind of get comfortable with it and say, “Wow, as long as at least 20% of our current best customers don’t sign up for this, and as long as one in five people who buy one game sign up for this, this is a winner.” And then you relax. You’re like, “Those aren’t hard numbers to hit.” But you don’t have to do any market testing. You don’t have to actually go out into the market and have a product. So, I try to get as much of it answered before we hit publish, or play, or let the software engineers actually build out the billing system and all of that. First, figure out if it feels like it’s gonna work.
Kurt Elster: I love that approach. I love your approach in general, which is hey, keep it simple. See if there’s a need by talking to your customers. You can test these things without deploying them. And plan for the worst-case scenario of what if this is so successful it cannibalizes something? And what if this is not successful in the slightest and no one cares? It’s just such a sane and rational approach to it.
Robbie Kellman Baxter: Yeah. Yeah. This stuff is not hard. And I think smaller businesses often have an advantage because you actually… If I say who are your best customers to EA, they’ll say, “Well, it’s a person with this profile, XYZ, and it depends on this, and it depends on that.” If I ask a person that runs a coffee business, they’ll say, “There’s this woman in Nebraska, and her name’s Mary, and she buys everything we sell, and da, da, da.” And you’re like, “Oh, they really know.” And then when you really know your customers, it’s so much easier to design an offering. It’s much easier to get Mary’s attention and say, “Hey, Mary. Can I run something by you,” for your qualitative interview. She can help you put together the survey. It’s just a lot easier. You don’t have to have a fancy research team or complex testing systems. You kind of have an advantage. You can just use your intuition and the relationships you have and try something.
Kurt Elster: I think the other advantage I find that the smaller teams and businesses have is that they can just move faster. They can make decisions faster. They can move faster. The red tape and some of the internal politics just goes away. And that’s-
Robbie Kellman Baxter: Totally true.
Kurt Elster: That’s a relief. So, you must have some resources for folks who want to learn more about subscriptions and memberships. Where should they go?
Robbie Kellman Baxter: I have a lot of stuff. RobbieKellmanBaxter dot com. I have some white papers on launching your subscription business, on scaling your subscription business, on retaining the customers that you have, and on LinkedIn. I post every day. I try to post valuable content every single day on subscription models, retention, engagement, lifetime value, so those are probably the two best places, and then the books. Those are my… I spent a lot of time trying to pull together the very best ideas, the best case studies, what works, how to do it, break it down in those two books, so those are good places, as well.
Kurt Elster: And I’ll link to all of that in the show notes. Tap or swipe up on your show art. Wow. This has been insightful. All right, what’s the future look like here? Are there trends on the horizon? Let’s polish the crystal ball. What do you see coming down the pipe for subscriptions and eCommerce?
Robbie Kellman Baxter: Keeping the customers that you have is the theme of the year. It’s the theme of the year. It’s cheaper. It’s more profitable. It’s more predictable. It’s more manageable. So, really focusing on that and getting your house in order, it’s just wasteful to have customers come in the front door, buy one thing, and never come back. So, I think that the biggest trend that I’m seeing is people are really getting serious about not just acquiring customers, not just what’s my revenue number, but where’s my revenue coming from and how profitable is that revenue? Are these from return visits?
Kurt Elster: Excellent, excellent advice. Robbie Kellman Baxter, thank you so much for your time. I appreciate it. Check it out. RobbieKellmanBaxter dot com. You can get her latest book, The Forever Transaction, as well as The Membership Economy. I gotta grab these. These look good.
Robbie Kellman Baxter: Thanks. Thanks so much for having me. This was really fun.
Kurt Elster: My pleasure.