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“Dogs Never Stop Needing To Eat”

05/10/2012

Subscription based business models are the “thing” among eCommerce brands these days.

In essence a subscription based business use a series of transactions to drive revenue. Great examples of this model are businesses like Netflix (pre-pricing fiasco) or even the gang at Dollar Shave Club. Revenue is locked and loaded for a period of time.

In the New York Times today there is an article about PetFlow. “Customers who sign up to receive regular deliveries of pet food can determine how much they get and how often it comes through PetFlow’s web site. They can also suspend or change delivery locations when they move or go on vacation. So far, company founder Alex Zhardanovsky said, only about 1.5 percent of his subscription customers drop the service each month — and many do so only because the pet has died.”

In its first month, July 2010, the company shipped about 60 orders; by January of this year, that number had leapt to 27,000. In 2011, PetFlow exceeded $13 million in revenue — with 60 percent of its sales coming on a subscription basis — and it projects revenue will exceed $30 million this year. “I’ve come to appreciate,” Mr. Zhardanovsky said, “that subscription models are, in so many ways, the holy grail of business.”

Other advantages of this model include the ability to maintain lower inventory levels – which can make or break many retail operations.

Perhaps the greatest advantage is developing a relationship with customers. Long-term customer relationships are invaluable to a brand not only because of the consistent revenue stream but also from a marketing perspective. Long-term customers are typically brand advocates or brand ambassadors – spreading the good word or your brand around, wherever they go! For free! As word of mouth always trumps paid advertising, brand advocacy stacks up pretty well against any type of paid advertising.

Subscription business models are not new. What is new are the products one can buy via subscription – razors, shoes, dog food. Subscription models are not for every product. Ideally there’s a naturally occurring need to replenish or there’s a passion for the newest/latest/greatest. Otherwise, if you’re selling tennis racquet of the month club…you’re probably in for a rude surprise.

But for every subscription transaction a customer signs up for, that’s one less trip to the store. I hope retailers are reading this!

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