How to Reduce Churn and Boost Engagement in D2C Subscriptions Ft Matthew Holman

Welcome to another live session of Inbox Invaders. Today, we are excited to have Matthew Holman with us, the doctor of D2C subscriptions. Matthew is a creator and podcast host who covers a wide range of topics from history to sports, and of course, D2C subscriptions. Matthew, thanks for joining us.

Absolutely, I'm happy to be here.

It's great to have you. Before we dive into our main discussion, I'd love to learn more about your background in the D2C subscription world. It's quite a niche focus in the marketing field.

Absolutely. My journey in marketing began on the SaaS side before moving into shipping technology with a company called eHub here in Utah. Eventually, I transitioned to co-founding QPilot, a subscription software company. Our work at QPilot was heavily centered around retention and driving subscriber growth, which involved delving deep into data analysis to figure out what works and what doesn’t for our customers.

How did your role evolve when working with these subscriptions?

Working with subscriptions, I realized a lot of the value-add centers around retention and enhancing subscriber numbers. At QPilot, we spent considerable time dissecting the efficacy of various strategies for our clients, analyzing vast data points from numerous customers. This hands-on experience with the data and direct interaction with brands helped me recognize my passion for troubleshooting and educating clients about their data more than just producing content like blog posts or webinars. This realization steered me towards a more hands-on approach in problem-solving within the subscription niche, despite its narrow focus.

It seems you've gained a comprehensive view of the industry through your experiences.

Yes, indeed. Working with a variety of tech platforms in the subscription sector, I've accessed extensive data sets that shape how we approach D2C subscription challenges, not just from one side but comprehensively. This broad exposure defines the depth of my experience in the field.

Let’s delve deeper into the D2C subscription model, from acquisition to retention and managing churn. It’s a broad topic; where do you see the biggest challenges?

Discussing D2C subscriptions encompasses a wide range, but fundamentally, it's about managing all stages from acquisition to churn. There’s often a misalignment in the market regarding how these stages are handled. For instance, many under-10,000 subscriber scenarios face churn issues primarily related to acquisition strategies—what was sold, to whom, and why. An example might be a supplement company selling protein powder where the subscription frequency doesn’t align with actual customer usage.

Why do customers churn in D2C, especially at different scales?

Churn often stems from having too much product because the initial subscription setup doesn't match usage patterns—a 30-day supply might be better as 45 or 60 days. As subscriptions scale beyond 10,000, the dynamics change, and you might start seeing thousands of unsubscribes each month. This necessitates a focus on refining customer experience touchpoints like unboxing, usage instructions, community access, and effective communication through order emails and cancellation survey flows.

How should D2C brands approach this to optimize their strategies?

A successful strategy requires placing a significant focus on acquisition. For example, with the protein powder scenario, testing different subscription frequencies and closely observing cohort behaviors can reveal insights like a 60-day frequency retaining 20% better than a 30-day one.

These findings can guide adjustments in the subscription model to balance lower frequency purchases against higher lifetime value (LTV) due to reduced churn. Essentially, the strategy revolves around optimizing acquisition to foster better retention outcomes.

In D2C, focusing on optimizing acquisition strategies based on feedback from retention data is crucial. For instance, if many customers are using protein powder as a meal supplement for weight loss, it's an opportunity to tailor your marketing efforts. Creating more ads and a dedicated landing page focused on weight loss, and offering product bundles that cater to these needs can significantly enhance conversions.

This approach not only addresses the customer's main pain points but also improves retention by demonstrating upfront value.

This is why I emphasize the importance of focusing on acquisition. By refining how you bring customers in and addressing their needs effectively from the start, you can see a stronger impact on retention.

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You're pinpointing some key issues here.

We've observed similar challenges with a supplement brand we recently worked with. They initially set their subscription period too short at two weeks and quickly realized it was ineffective. Adjusting subscription periods can significantly affect the long-term value (LTV) of customers. This often leads to a reactive state where brands feel the need to accelerate usage to increase sales, which can be detrimental. Have you encountered similar situations in your experience?

Why D2C brands must focus on acquisition to get their retention right?

When considering the economics of D2C, let's say you're selling a bag of protein powder for $50, reduced to $40 with a subscription, while facing an $80 customer acquisition cost. If the subscription is monthly, you aim for breakeven by the third order.

However, if you opt for a bimonthly schedule, breakeven extends to four or five months. This setup builds significant pressure to adjust strategies effectively. Often, the necessary adjustments may seem counterintuitive but are crucial for financial sustainability.

D2C subscriptions are often counterintuitive

The paradox of D2C subscriptions lies in the buying experience. Unlike traditional eCommerce, where reducing friction is key, subscription models benefit from added information and engagement. Subscribers typically require more conviction before committing to regular deliveries.

For example, rather than pushing for frequent, smaller purchases to break even faster, consider offering more product less frequently. If you sold three bags of protein powder on a four-month subscription, you might achieve breakeven immediately, leading to higher profitability in the subsequent months.

Altering the purchase frequency and volume can lead to more efficient operations and satisfied customers. Frequent shipments increase logistical costs and customer charges. However, encouraging customers to buy more upfront can reduce these costs and align better with customer purchasing habits.

For instance, buying in bulk on platforms like Amazon often feels more convenient and economical. In the case of a single product like protein powder, consider cross-selling complementary products such as glutamine or other daily supplements to enhance the value and appeal of each shipment.

This strategy requires rethinking typical sales tactics and may seem counterintuitive compared to one-time purchases, but it's effective for building a sustainable subscription model.

On the topic of product adoption and inventory management, we often see two issues: either the subscription period is too short, or customers are not using the product as frequently as anticipated. How do you address these variations in product usage?

Absolutely. The protein powder is an excellent example. Suppose a person consumes one scoop daily; they'll finish a bag in one month. However, a bodybuilder might use two scoops daily, increasing their consumption rate, while someone who only goes to the gym a few times a week might use a scoop every three or four days, extending their use over two months.

Another instance could be a sleep supplement where the recommended dosage is one pill per night. If customers have too much product, it might indicate they are not following the recommended dosage.

To enhance the customer experience, we can adjust the information on the product page. For example, if a typical user consumes two scoops of protein powder daily, they should purchase two bags a month. Similarly, someone who drinks three cups of coffee a day would need three bags a month. Implementing a quiz on the product page can help align the subscription frequency with actual consumption patterns, effectively addressing the issue of too much product.

In cases where customers are not using the product consistently, understanding the reasons behind it is crucial. For sleep supplements, the benefits might take a few days to become apparent. If a customer discontinues use because they don't feel immediate effects, it could lead to excess stock. Here, email marketing and thoughtful unboxing experiences play vital roles in educating customers about the product's benefits and the importance of regular usage.

Upon receiving their order, customers should receive emails reminding them of the product's benefits and encouraging persistence. The unboxing experience should educate them about the product and how to adjust their subscription settings if necessary, enhancing retention by ensuring they use the product as intended.

You've touched on something crucial—capturing data to understand customer behavior and consumption needs. When should DTC brands start gathering this data to better predict and meet customer needs?

Data collection should start immediately upon customer interaction. For instance, using quizzes during the onboarding process can help gather significant information about customer preferences and needs. This approach not only helps in segmenting customers but also in personalizing their experiences from the start.

Quizzes can be a powerful tool for collecting data. They should not just ask basic questions like age or sleep hours but also provide insights into customer behaviors and preferences. This method helps establish the value of the product right from the first interaction.

A practical example is the Turmeric Co., which starts engaging visitors with a simple question about their interest in turmeric benefits as soon as they visit the website. This immediate engagement helps the company gather essential data without needing email capture, allowing them to tailor the content and offers to visitor interests.

Brands often overlook the disconnect between why they think customers are buying and the actual reasons for their purchases. Regular surveys, both pre and post-purchase, can uncover these insights, allowing brands to adjust their marketing strategies effectively and align more closely with customer needs.

***

I totally agree. You've touched on an area of marketing that I find particularly fascinating: empathy mapping and marketing psychology. Discussing pain points effectively really resonates because when you can articulate the gains and outcomes clearly, you capture the customer's interest.

The concept of using quizzes to back up interactions with data and facts is brilliant. This educational approach not only captures data but also builds trust with the customer. It's an excellent strategy.

How do you get your onboarding right in DTC?

For those looking for inspiration on effective onboarding, consider the approach used by apps, particularly those in the mental wellness or productivity sectors. These apps excel at onboarding by not only asking questions but also educating users in the process. For example, a productivity app might highlight that the most productive people are only productive 30% of the time. This kind of insight can profoundly impact user engagement and retention because it addresses the user's concerns directly and effectively. eCommerce quizzes could benefit from incorporating similar strategies.

***

That's right on the money. I've had a similar experience with a home workout app. The onboarding process asked about my available time, whether I had equipment, and how much space I had. The app used my responses to tailor the experience, which was not just helpful but enlightening. It shows how effective it can be when a service understands and utilizes the data about its users to enhance the user experience.

Regarding decreasing churn, what's your take on proactive interventions? How can DTC brands intervene before churn happens?

Understanding the primary reasons for cancellation is crucial. Simplifying the feedback process can help us gather more actionable insights. For example, if the issue is too much product, understanding whether it's because the product isn't used as expected or if the frequency is too high is vital. With this understanding, we can tailor the customer experience more accurately and prevent potential churn by addressing these issues directly.

If the churn is due to perceived lack of value or high cost, it's not always necessary to lower prices. Instead, enhancing the perceived value through better copy, more engaging email communication, or an improved unboxing experience might be more effective. Alternatively, offering a complimentary product as part of the subscription can increase perceived value and customer satisfaction.

Targeting specific points in the customer journey to improve retention, like moving from month 2 to month 3, can be effective. Implementing targeted campaigns, such as discount or gift campaigns, can help, but it’s crucial to first understand the underlying reasons for dissatisfaction. Adjusting the product offering based on these insights can lead to more sustainable improvements in customer retention.

You've raised some excellent points. Asking why customers have too much product could unveil deeper issues that could be proactively addressed to improve retention. Time does fly when you're engaged in such insightful discussions. Before we wrap up, could you share where our listeners can find more about your work?

Certainly! For anyone interested in diving deeper into subscription models and marketing strategies, you can visit my website at thesubscriptiondoc.com or connect with me on LinkedIn and Twitter under Matthew Holman, the subscription doc. We’re constantly exploring new ideas and sharing insights that can help businesses thrive in the subscription economy.

Thank you for joining us today, and thank you to everyone who tuned in. Your engagement helps us all grow and refine our approaches to DTC marketing.

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