DTC subscriptions may seem like one of the first candidates to get cut from the monthly bill as consumers become more cost conscious during the pandemic.
It’s hard to justify having the latest fashions sent directly to your door now that the conference room table is the kitchen table. And do you really need that mushroom-based instant coffee subscription …?
But direct-to-consumer brands that deliver essential goods and services and that focus their marketing efforts on compelling creative and retention have the potential to thrive in an insecure economy.
See: online food delivery, fitness, health and wellness, music, entertainment, digital learning and pet supplies.
Despite belt tightening when it comes to nonessential items, “we may actually see growth in DTC subs for more essential categories or those where available substitutes are impacted,” said Ryan Skinner, a principal analyst at Forrester.
And despite high unemployment, there are also people who haven’t lost their jobs and still make their pre-pandemic salary but without the same pre-pandemic expenses, such as gas, tolls, coffee, pricey lunches and biz casual clothing.
“You end up with a portion of the populace that actually has the wherewithal to buy, because their budgets have shifted away from the day to day,” said Harry Kargman, CEO and founder of mobile ad exchange Kargo.
At the same time, some people are embracing DTC subscriptions during the pandemic specifically as a way to save money.
Although roughly 21% of consumers surveyed over the summer by coupon search engine CouponFollow said they plan to cancel their subscription boxes because of financial struggles related to COVID-19, around 20% started a subscription since March in the name of thriftiness and convenience.
And according to Rakuten Advertising, nearly 60% of shoppers say they’ve tried new brands since the pandemic started.
“Consumers who needed items that their normally trusted brick-and-mortar or online shop could not provide didn’t seem to hesitate in trying alternative brands that could provide the desired product or service when they needed them,” said Ben Speight, EVP and director of client services at marketing agency Lockard & Wechsler Direct. “Not only did DTCs benefit from having a wider range of new customers to draw in, but the negative impact on advertising costs gave them a leg up on the competition.”
The challenge then is appealing to this shopper mentality with creative and messaging that attracts new, and ultimately retentive, customers.
As aficionados of growth and performance marketing, DTC brands have historically practiced heavy discounting in their advertising.
They tend to offer lower prices in exchange for longer commitments to their services, and overall this tactic hasn’t changed much in reaction to any increased or perceived cost consciousness among consumers, said Matt Bayer, head of integrated media sourcing at independent media agency Crossmedia.
What’s changing is a growing focus on long-term as opposed to short-term growth and ROI. Investing in relationship development with potential consumers prior to the actual conversion event leads to better retention and fewer canceled subscriptions. It’s an approach that “will pay dividends as the economy recovers,” Bayer said.
And for brands with a purpose, retention isn’t all that much more challenging during the pandemic than it was before COVID-19, said Ricardo Vice Santos, co-founder of organic smoothie subscription company Kencko.
“If people weren’t fully sold on your product before corona, then corona is an excuse to cut it,” he said. “The marketing we do is about showing our recurring value – recurring billing is just a feature.”
One of the pre-pandemic narratives that has continued to work well in Kencko’s advertising is the tagline, “Breakfast for busy people.”
Although Kencko received a few comments joking about the fact that no one is busy anymore, the message resonates with the target audience because “whoever says they’re not busy clearly doesn’t have kids,” Santos joked.
DTC companies that focus exclusively on their best likely customers and that double down on analysis of their most profitable propositions are the ones that will see success, said Forrester’s Skinner.
“This will have the effect of improving retention, as their most valuable cohorts will feel and experience the redoubled attention to their relationships,” Skinner said. “And any new customers that come aboard become less likely to defect or churn.”
Kencko has seen its business grow month over month since March with no uptick in subscription cancellations.
“Subscriptions are about reducing friction and providing people with a service that adds value to their life on a recurring basis,” Santos said. “You can’t just hope that people will forget to unsubscribe every month.”