In this prescient article from 2012, David Pakman predicts the success of Dollar Shave Club (DSC). This look at DSC’s asymmetric marketing is brilliant, and every subscription box company could learn a little… or a lot, from it.
eCommerce companies can be challenging for venture investors. They tend to require lots of capital and usually have low multiples. There are a few cases where outliers can emerge. In subscription commerce, a few rules have to be met for large companies to be created.
First, the market must be enormously large. Subscription, by its very nature, usually appeals to a subset of any market it aims to serve. Consumers must intend to make a long-term commitment to a brand in order to subscribe and must not tire of of the service. My experience running eMusic taught me the key metrics to look for in subscription models in order for large companies to be built.
Churn rates must be very low. If your average customer leaves after, say, nine months, a large company cannot be built. Your average customer must stay in the service for many years. Think cable, satellite radio, and Netflix. These companies have average monthly churn rates of less than 3%.
In the razor market, brand loyalty is measured on the order of twenty-five years. You generally can acquire a customer for a lifetime. And that is exactly what Dollar Shave Club aims to do.
Read the whole article here for more important insights into what makes a successful world wide subscription brand.