A recent study of half a million consumers conducted by Publicis/Sapient and Salesforce found that although 50% of first-time shoppers start with a retailer, only 34% return for their second purchase. Instead, 47% head to marketplaces like Amazon for their repeat shopping. This represents a major challenge for the retail sector.
When you stop to think about it, it’s easy to understand this consumer behavior. If it costs more or takes too much effort to buy from the same retailer again, consumers will wander away to Amazon - for price, or free shipping, or just fewer keystrokes. On top of that, busy consumers often “go without” before they finally find the time to buy again. This can be an inconvenience for the consumer, but it also means that the consumer is buying less of a product than they could, artificially reducing category size.
Subscription services have long been seen as a promising solution to this problem. Not only do they increase retention, but anecdotal evidence has been that subscribers typically spend more with a retailer than non-subscribers. That said, there hasn’t been a great way to measure the effectiveness of subscription services in isolation. Until now.
Measuring the Impact of Subscriptions
To understand the situation better, our data science team conducted a study analyzing customer purchase behavior data to see if a difference can be observed between subscribers and non-subscribers. The study tracked customer cohorts (from the “unengaged spender” to the “super loyal”) across 18 months of behavior, crucially including at least six months before and after they’ve signed up for a subscription program.
While this analytic methodology is constantly being tuned, the initial results were eye-opening:
- Subscribers spend more: Across a sample of clients’ data involving millions of transactions by millions of customers, we found an increase in customer spend in all cases, and for the majority of clients observed, when customers enroll in a subscription, they tend to increase their spend by 60% or more over the 6 months following enrollment.
- Repeat shoppers drive incremental revenue: our findings indicate that subscriptions not only encourage one-time shoppers to become repeat purchasers, but also leads to more frequent purchasing. Even more interesting was the degree of incremental spend we saw by customer cohort. Typically, the less engaged customer had a greater % change in behavior compared to the higher spending customer, but, across the board, we saw a significant increase by all customer groups.
- Loyal customers = more transactions: Whether it is because they no longer drift away to Amazon or because they are repeat buying at a higher frequency, our results would strongly indicate that subscribers come back more often, thereby driving a significant increase in spend. And whether it is reflected by dollars spent or frequency of purchase, our data would also indicate that subscription services are successfully helping retailers build ongoing relationships with today’s convenience-seeking shoppers.
Start Building Long Term Customer Value
Today, consumers have more choices than ever when it comes to where and when they shop. As a result, traditional ways of retaining customers have become obsolete. Brands need to focus on building long-term relationships with customers by offering convenient and personalized shopping experiences that create a recurring revenue stream, while reducing customer acquisition cost (CAC) and boosting long term customer value (LTV).
To learn more about our study, download a copy of the whitepaper “The Power Behind Subscription Services.” Learn more about Ordergroove’s integration for Salesforce Commerce Cloud on Ordergroove.com and AppExchange.
Greg Alvo is the Founder and CEO of Ordergroove, a company that helps brands and omnichannel retailers practice and achieve relationship commerce, shifting consumer interactions from one-and-done transactions to ongoing, highly profitable relationships.
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