Do they really drive incremental spend?
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. When this happens, all the up-front cost of customer acquisition (CAC) is borne by the retailer while all the long term customer value (LTV) that comes from the second and subsequent purchase behavior is lost.
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.
How do you measure effectiveness?
The difficult question facing retailers is whether those subscription services are worth the cost. After all, many programs include things like free shipping and discounts that can affect the bottom line. And not only that, but how can retailers tell if their subscription customers wouldn’t have spent the same amount anyway–without a subscription or reorder experience?
“The answer lies in analyzing customer purchase behavior data to see if a difference can be observed between subscribers and non-subscribers.”
The answer lies in analyzing customer purchase behavior data to see if a difference can be observed between subscribers and non-subscribers. Ordergroove’s data science team has been able to solve for this problem by tracking 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. Because Ordergroove’s platform integrates subscription experiences into the retailer’s existing checkout and does so for any channel throughout both online and brick and mortar stores, our data science team is uniquely positioned to collect and analyze all the transaction data, subscription-related and not, that we needed for this analysis.
Our results show a strong correlation between subscription sign-ups and incremental spend.
Across the board, 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 Ordergroove clients, we found that when customers enroll in a subscription, they tend to increase their spend by 60% or more over the 6 months following enrollment.
“When customers enroll in a subscription, they tend to increase their spend by 60% or more over the 6 months following enrollment.”
Even more interesting was the degree of incremental spend 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.
And there’s even more upside for retailers who are able to fine-tune their subscription programs–customers on our platform who adopted our best practice recommendations saw a 4x improvement in revenue growth.
The major conclusion — the data supports the anecdotal evidence. Subscription services really do drive more spend per customer, and that’s a major bright spot for brands who are able to take advantage.