A Wharton professor of marketing tells Privcap why he believes subscription commerce companies, like Dollar Shave Club, are the future of retailing, meaning tough times for legacy players that don’t adapt.
Here’s a transcript of the interview with Professor Fader.
Subscription Commerce is “Win-Win-Win”
With Prof. Peter Fader of Wharton School
David Snow, Privcap:
We’re joined today by Pete Fader of the Wharton School of the University of Pennsylvania. Dr. Fader, thanks for being here today.
Peter Fader, The Wharton School of the University of Pennsylvania:
It’s wonderful to be here with you, David.
Snow: Dr. Fader, I’d love to get your view on subscription commerce and how influential you think this is going to be in the consumer and retail space.
Fader: Subscription commerce is here to stay and you ain’t seen nothing yet. I think the basic roots of subscription commerce, like so many things I talk about and I point companies toward, goes back to direct marketing. And, if you think about the good old days—the book-of-the-month club and programs like that—it was very crude by today’s standards, but the basic elements of it weren’t really that different from what we’re seeing today with the beer-of-the-month club or all these different kinds of services that are out there.
They are a true “win-win-win.” If you think about it, it’s a good thing for every party involved. It’s good for the consumers because they will be gently reminded to buy things that they really should be buying more often but, for whatever reason, they’re just not thinking about it. So, they’re better off. It’s better for the companies because not only do they get this recurring revenue, but they can learn more about the consumers’ tastes because they’ll have more interactions. They can curate a bit better for the consumer. It’s also better for investors, because the data you get out of subscriptions is richer. It’s more predictable and more actionable than just the occasional, discretionary, random purchases that take place. It’s a shame that subscription commerce took so long to take off. There’s a lot of industries that resisted because that’s just not the way we do things.
Snow: But there are going to be some losers in the growth of subscription commerce. Some of the legacy players that have been benefiting from selling in a less efficient way are going to have their lunch slowly eaten as subscription commerce grows, correct?
Fader: There’s no question about it and that’s why we’re seeing a lot of the big, old players buying companies that have subscription capabilities. It just makes sense. They need to learn how to adapt to that world and there’s no reason why they can’t. It’s great to see big, old-school retailers that are moving. They’re maybe taking little baby steps with just a loyalty program. Let’s at least start to be able to track the customers.
I really believe that it’s not a matter of are we going to be a subscription player or not? Everyone’s going to have to be—or at least in many different businesses. Then, the question is, can we integrate it formally within our operations or is it just going to be a separate part of the business? Obviously, the more it can be fully integrated, the better. We could get a more holistic view of the customer and get better data on it. But, again, it’s a very promising future and we’re going to look back. We’re going to be telling our kids, or our kids are going to tell their kids, about the quaint days before everything could be bought on subscription. Our grandkids aren’t even going to believe it.
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And here’s a link to the audio of this conversation.