If you’re a subscription brand looking to succeed in this competitive space, you won’t want to miss a new insightful episode of our Own Your Commerce podcast.
In this conversation hosted by Bold Commerce co-founder Jay Myers, Richard Kestenbaum, partner at investment firm Triangle Capital, brings a wealth of ecommerce knowledge and strategic advice on topics ranging from what makes a healthy subscription business to the importance of leveraging AI technology.
Below, we compiled some key takeaways from the episode to better inform you on the relevant recommendations Kestenbaum shares with the podcast listeners.
Evaluating the criteria for a strong subscription brand
The time is ripe to build a subscription layer into your ecommerce business, says Kestenbaum early in the episode. “Subscriptions are really relevant, much more relevant than we see right now because almost every retailer and brand has a product that's suitable for subscription,” he notes.
But what differentiates a healthy subscription brand from one that’s slipping? Kestenbaum highlights several metrics to consider, such as gross margin. He says subscription brands should ask themselves if they have enough room left after their cost of goods sold to account for what they will need to run the business and still have a decent profit. He continues, “Now, a lot of people will tell you that have low gross margins, saying, ‘When we grow, we'll be able to improve the gross margin.’ Now, that's not real. You can get some improvement from scaling, but you can get two points, three points of gross margin. Maybe you can get five points, but it's very unlikely that you're going to get 10.”
Another figure to analyze is customer acquisition cost, which relates to the cost to get a customer, whether to subscribe to your channel or your product or service, etc. Kestenbaum says subscription brands should ask themselves, “How many months does it take until you reach breakeven? We find that subscriptions that break even, that is to say they have a contribution to profit after gross margin and customer acquisition after two months, are very strong profit makers with great potential. Three months is normal. Four months is a little too long.”
Why brands shouldn’t ignore the power of AI
Kestenbaum has been looking at the value-add of AI for decades, and has recognized its draw to both customers and businesses. Retailers, whether online or offline, would be wise to leverage AI’s robust technology in order to streamline processes and ensure their stores are running efficiently.
He views AI’s advantages in two areas: First, on a more consumer-facing level, AI tools can help brands fully understand their visitors. When brands implement AI tech, that innovation can “help the consumer to discover things that they wouldn't otherwise find that they will like. Most people have had the experience of going into a store, finding something they didn't expect buying it and being really happy with it. When it's something they wear, for example, that people say, ‘wow, that really looks nice.’ And you say, ‘yeah, I discovered it.’ And you want to have that experience all the time [with AI].”
He mentions how AI’s appeal also lies in ways the consumer doesn’t see but brings immense value to the business. He uses the example of a box of merchandise lying at the far end of a store basement, never being unloaded. AI with insight and data and cameras can see that the box is still on the floor in the back of the shop, he says, and the machine-learning algorithms can craft instructions that say, “Hey manager, tell somebody to go in the back and unload the box.”
Adding AI tech to business models is accelerating at a rapid pace. A McKinsey paper found that 57 percent of business leaders reported AI adoption in 2021, up from 45 percent in 2020.
As much as Kestenbaum stresses how AI can level up a subscription brand, he says there’s still a key area of the ecommerce experience that requires careful diligence: the checkout.
What makes checkout so seamless?
When asked how he views a successful ecommerce checkout experience, Kestenbaum quickly replies, “It should be invisible. If I don't have to do anything to check out, that's the greatest checkout there could be… I've made the decision, I'm ready to give my money. The harder you make it, the less likely they're going to be to check out.”
A frictionless checkout process can go a long way in cementing that vital customer-brand bond. “It shows you care about your consumer and you want them to feel that you do care about their convenience,” Kestenbaum adds. “Convenience is such an important value for consumers.”
Want more actionable strategies you can bring to your subscription brand? Then check out the entire episode of this must-listen Own Your Commerce podcast!
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