Leveraging Subscription Technology to Empower LTV & AOV Growth

Jun 28, 2021 11:30 AM12:30 PM EST

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Key Discussion Takeaways

2020 saw a huge rise in the number of physical subscriptions. A record-breaking number of subscription stores joined the market, and subscribers grew over 90% year over year. But how do you navigate the world of subscription commerce without getting left behind?

There are many aspects to consider, from building brand loyalty to customer flexibility to identifying your target audience. And what do you do if your product is seasonal-based, or your consumers are constantly growing — like for a children’s clothing company?

Ruoting Sun and George Ishii of ReCharge Payments join Billy Restrepo in this virtual event to discuss the top trends in subscription commerce. They talk about why an initially low AOV can lead to high LTV later, how to build an emotional connection between consumers and your product, and how to avoid merchants’ most common pitfalls.

Here’s a glimpse of what you’ll learn:

 

  • Ruoting Sun and George Ishii discuss the top trends from ReCharge Payment’s 2021 subscription commerce report
  • Why a lower AOV initially can lead to higher LTV later
  • The importance of a simple, focused product line with value that’s easy to communicate to your target audience
  • What drives consumers' brand loyalty?
  • Advice for avoiding merchants’ most common pitfalls
  • Why flexibility matters for long-term LTV customers
  • The change in approach for one-time customers and LTV customers
  • What to do if your product is already a loss leader within a broader industry
  • Is it possible to have a successful subscription program online as a manufacturer when your physical store retailers offer better pricing?
  • How to build an emotional connection between consumers and your product
  • How do you manage subscriptions in sectors where customers have fluctuating activities — like gifts for anniversaries or birthdays?
  • Why the new SMS feature from ReCharge Payments is a game-changer
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Event Partners

Recharge Payments

Recharge is the leading subscription management solution, helping ecommerce merchants of all sizes launch and scale subscription offerings. Today, Recharge powers subscriptions for more than 50 million subscribers across 15,000 merchants, including fast-growing brands such as Verve Coffee, Bokksu, Who Gives A Crap, Keap Candles, and Bumpin Blends.

Connect with Recharge Payments

Guest Speakers

Ruoting Sun

VP of Product Marketing at ReCharge

Ruoting Sun is the Vice President of Product Marketing at ReCharge Payments. ReCharge helps merchants grow by building a brand with purpose and a meaningful community of customers. Previously, Ruoting spent 10 years in cybersecurity building up product marketing organizations and partnership organizations. He was the Head of GTM at Duo Security, Senior Product Marketing Manager at Barracuda, and a Technology M&A at Arbor Advisors.

George Ishii

George Ishii

VP of Product Strategy at ReCharge

George Ishii is the Vice President of Product Strategy at ReCharge Payments, a subscription payment platform designed for merchants. He was a Co-founder of Comparably, BetterWorks, Yammer, and Geni. George was an early UX designer at PayPal and worked as a Software Engineer at Adobe Systems. He is an international guest speaker at various venues across Japan and China and has been a speaker at Giant Red Button UX Conference at SXSW, Growth Hacker Live, SXSW Interactive, UCLA Andersen Business School, and USC Marshall Business School. 

Billy Restrepo

Vice President of Enterprise Partnerships at BWG Connect

BWG Connect provides executive strategy & networking sessions that help brands from any industry with their overall business planning and execution. BWG Connect, in conjunction with BWG Strategy, has built an exclusive network of 125,000+ senior professionals and hosts over 2,000 virtual and in-person networking events on an annual basis.

Event Moderator

Ruoting Sun

VP of Product Marketing at ReCharge

Ruoting Sun is the Vice President of Product Marketing at ReCharge Payments. ReCharge helps merchants grow by building a brand with purpose and a meaningful community of customers. Previously, Ruoting spent 10 years in cybersecurity building up product marketing organizations and partnership organizations. He was the Head of GTM at Duo Security, Senior Product Marketing Manager at Barracuda, and a Technology M&A at Arbor Advisors.

George Ishii

George Ishii

VP of Product Strategy at ReCharge

George Ishii is the Vice President of Product Strategy at ReCharge Payments, a subscription payment platform designed for merchants. He was a Co-founder of Comparably, BetterWorks, Yammer, and Geni. George was an early UX designer at PayPal and worked as a Software Engineer at Adobe Systems. He is an international guest speaker at various venues across Japan and China and has been a speaker at Giant Red Button UX Conference at SXSW, Growth Hacker Live, SXSW Interactive, UCLA Andersen Business School, and USC Marshall Business School. 

Billy Restrepo

Vice President of Enterprise Partnerships at BWG Connect

BWG Connect provides executive strategy & networking sessions that help brands from any industry with their overall business planning and execution. BWG Connect, in conjunction with BWG Strategy, has built an exclusive network of 125,000+ senior professionals and hosts over 2,000 virtual and in-person networking events on an annual basis.

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Discussion Transcription

Billy Restrepo 0:18

Alright, so afternoon, everyone. I'm Billy Restrepo, Vice President here at BWG Connect a community of network knowledge sharing, looking to stay on top of the latest trends and strategies in the digital landscape. So when a topic comes up over and over again, we host an event like this. So our overall goal is bringing peers together share perspectives, insights, best practices and success stories. So before we get started, just a few housekeeping items. So just as we started a couple minutes after the hour, we're gonna record the marijuana cycle ended a few minutes before the 1230 hour, Eastern Standard Time, just so that you can get off to your next meeting on time as well. We also want this to be interactive, educational informational as possible. So please don't hesitate to jump in with any questions, you can chat them to me or if you prefer, you can email them to me at billy@bwgconnect.com. So I'm going to go around the virtual room here and do my best to get as many people involved and network and share different perspectives. So that being said, let's jump into it. So we speak to 30 or 40 brands a week. So no surprise, we kept hearing questions around how to best leverage subscription technology and how it can be utilized to fuel LTV and AOP growth, to ask your friends and partners or other network ReCharge payment if they can jump on the line today and shed some light on the subject. And provide some context and guidance so brands can maximize the way consumers use subscription today and in the future as well. So I'd like to say hello to Ruoting and George from Recharge Payments. How are you guys doing today? They're really happy to have you. So if you can briefly introduce yourselves, and give us a bit of background on yourselves as well. I'll start with you, George.

George Ishii 1:43

Hi, everybody, George Ishii, VP product strategy here at ReCharge payments. I have been in the tech industry for over 20 years, I spent 11 years in Silicon Valley, started my career at PayPal as one of the founding employees went through the IPO and eBay acquisition that was a long, long time ago, early in my career. And after that, sort of got the startup bug and started co founding companies, I co founded four companies of my own. And a couple of them did pretty well. Yammer was acquired by by Microsoft and a couple other ones did fairly well. And then a couple of them died. a slow death. So both sides of the table. Most of its been in payments in consumer and an enterprise. And right now I'm just having a great time at ReCharge, really jumping into product strategy, as well as a variety of different things. Right now I'm heading up our SMS product, which is at the core and at the center of ultimately optimizing LTV, and getting really getting into like what transactional outreach and communication really is, and how we can leverage that channel, especially the SMS channel to build a long term and ongoing relationship with customers. So super excited about that Ruoting.

Ruoting Sun 3:18

Right Hi everyone, Ruoting Sun, I lead the product marketing and partnerships function at ReCharge. Prior to ReCharge, I actually spent 10 years in cybersecurity. So a little bit of a different space, but very similar roles in terms of building a product marketing organizations as well as partnership organizations, which is what I look after here ReCharge on like George, I have not co founded companies on my own to either a slow death or two to six years. But I have been part of early employee at a security company that was acquired by Cisco for two and a half billion back in 2018. And early employee of another company that went IPO in 2013 in the security space, very excited to be joining ReCharge been here for about seven months or so. But the product market fit that I think we've seen in subscriptions, especially as COVID is accelerated a lot of the trends around how we think about buying online. I'm very excited to talk to you guys about this today, we have a lot of interesting data to share. If you think about how much transaction volume and how many new merchants and new subscribers we actually saw in 2019, and 2020, as COVID has accelerated those buying trends, happy to share some of those those stats for you guys today, as you think about how subscriptions fit into your business.

Billy Restrepo 4:35

Awesome. Thanks so much. So everyone, please feel free to jump in with any questions as you can tell, these are genuine experts in their field and have a plethora of knowledge that they can share and are willing to so take advantage of that. So obviously either chat them in or you can email me at Billy at bwg Connect. So we're gonna start off so George, he actually mentioned the SMS product. And I know there was a recent acquisition love to get in that but before that, I saw that you guys publish this efficient commerce report. You know What are the, you know, what are the top trends? What are the what are the taking, you know, takeaways that we can have from that report?

Ruoting Sun 5:08

Yeah, I can go ahead and take that. So just a little bit of context for everyone. The subscription commerce report is an annual report that we put out, that basically collects data from all the transactions that we've done in a given calendar year across all of the merchants and all the subscribers. And we try to basically tease out patterns in e commerce through through that data. So for context, in 2020, we processed over 3 billion in total gmv, across 9000 stores. And those 9000 stores had transactions from about 20 million subscribers worldwide, across 180 different countries. So it's a pretty impressive data set for us to be able to pull data from. And I think there were some really interesting, I would say, tidbits that we saw in 2020, that were significantly different from prior years. So ReCharged been business for about six years. And in 2020, we actually saw the number of new subscribers signing up for some kind of a physical subscription, increased by about 91% in 2020. And we're not seeing and no, I think the first question that people come have that comes to mind is, well, are you guys seeing that level off? Are you guys seeing that drop off now that we're kind of coming out of COVID, and grocery stores are opening back up and, you know, malls, and department stores are opening back up. And the reality is, we're actually not seeing that number drop. To give you guys a little bit of context. Last year in 2020, it took us until right around this time actually took us about the first half of the year, to get to a billion in processing. In 2021. We hit that marker by the end of March. And right now we are looking at about 2 billion in total processing, once we close out this month, so we're on track roughly to double. And if you think about, you know when the lockdowns happened worldwide, really started in March. And so you have a solid kind of quarters worth of growth in q2 to be able to compare year over year, and we're absolutely just seeing the number of subscribers, the ARV, the number of times people are buying roughly double at at our pace, which is pretty impressive when you think about the fact that we're coming out of a year where online buying really got accelerated. So we're definitely not seeing that drop on our side.

Billy Restrepo 7:38

That's amazing. That's amazing. Yeah, now you kind of stole the thunder, I was going to wonder if there was some kind of like leveling off and other things I've kind of opened up physically, but, you know, just by the state third off that I didn't realize I was gonna be

Unknown Speaker 7:47

no, no, no, it's

Billy Restrepo 7:48

fine. It's 100% what I was gonna ask like, so has it leveled off, but it you know, we're seeing this across the network, but it really isn't, you know, e commerce volume. It's just kind of state, you know, high and people, especially the new shoppers that came on board, especially during COVID in the pandemic during the lockdown, have continuously shopped online, and why go back to the store. And, you know, I, you know, I joke on my wife has not stopped shopping online, or nor have we as a family since the pandemic or since we've gone back to the stores. And I feel like we're just shopping more because we're going into stores, but we're still continuing the same amount of volume online.

Ruoting Sun 8:22

So I think I think you know, a big part of that, I think is that I mentioned before the pandemic kind of pulled, pulled over early, some some trends that we were already actually seeing in terms of online buying. So I think that there was a pretty big lag between the physical subscription world and the digital subscription world, right. So if you look at, for example, McKinsey, I believe did a study on this recently, where they kind of broke out households that subscribe to a digital subscription. So I think Netflix, Hulu, Disney plus, primarily streaming media. And then they looked at kind of box only for physical subscriptions. And the share of households that either had a digital subscription and a physical subscription, or only had a digital subscription, made up a little less than half of all US households. And if you look at the number of families that had only a physical subscription, it made up, you know, less than 5% of all US households. And so I think there's always been this tremendous gap between folks comfort levels, with digital subscriptions, primarily streaming media, and, you know, getting your pet food or getting your toothpaste or getting your razors via subscriptions. But I think that, you know, COVID accelerated a lot of those trends. And I do think that a lot of those things are here to stay. Because consumers feel a sense of brand identity and a sense of belonging with a lot of those brands, which I know we'll talk about later in the call but that's a that's a very interesting shift that we've noticed here is a lot of those households that grew up on digital subscriptions for the last three, four or five years are really starting to move over into the physical world.

Billy Restrepo 10:05

Yeah, it's interesting. Yeah, I felt that almost like a sense of comfort to know that I was going to get the right coffee from like this little artists in place in our area, you know, especially during the time that it was very, very locked down, and those stores were actually closed, and you can only do pickup outside, it was just nice to know that he was going to continue to actually have that, you know, kind of little creature Cropper. So I guess, you know, what's, what type of types of question types are seeing the most success?

Ruoting Sun 10:29

Um, yeah, so I think, you know, when we, when we look at the data that we pulled from 2020, and we started, we're starting to look into this in 2021, as well. But I think the verticals that have seen the biggest jump, or the biggest increase in a ob and an LTV, especially in 2020, is no surprise, it tends to be kind of all the things, all the creature comforts, that you used to getting in a physical store or in the mall or somewhere. And those have all kind of been purchased online and then fulfilled directly to the home, right. So food and beverage, we saw had the highest average order value, actually, which is actually a bit surprising, because if you think about food and beverage typically is pretty low dollar items. But I think you see a lot of meal prep a lot of home food delivery. And so the average order value that we actually see in the food and beverage space across all of our merchants that are going to see to the consumer is actually over well over $50, somewhere between 50 to $60. And that number actually dropped in 2020, as opposed to increase. So we saw a lot of other spaces actually increase. That was a number that we actually saw drop, and I have my my hunch on this, and we don't have the data to kind of, you know, prove a strong correlation or causation yet, but my hunch on that is that in 2020, a lot of folks got into the food and beverage game, a lot of consumers started ordering, you know, from doordash, from Uber Eats, etc. And it actually drove the value of the aov down because prior to that most of the subscribers that were in food and beverage tended to buy full meal kits. So think, you know, Blue Apron, things that cost 60 $70 per shipment, right? Nobody was getting a coffee delivered for 10 bucks, or $7, or whatever. And so I think what we saw was we saw the total sheer volume of processing and food and beverage increased pretty significantly. In 2020, we actually saw the Alp drop, whereas if you look at other things like health and wellness, personal care and beauty, those were categories that actually saw the biggest jump in Lv, so we saw 20% growth, in average order values for health and wellness and beauty and personal care in 2020. And that was driven by I think a significant amount of it actually was driven by one time purchases, people adding additional items to their cart, along with their subscription idols. And so, you know, a lot of our merchants have done a really fantastic job of building that connection with their subscribers. Because they own they're able to kind of own that customer relationship directly. And then offering a lot of flexibility to skip a delivery to swap out a product to add a new product. And all of those things we see as is really adding lifetime value for for those customers. So that was a that was another pretty interesting thing that we saw.

George Ishii 13:30

Yeah, I think the only thing I add to that is that I don't have the data around this yet. But we're diving into this right now. But the anecdotally, the other thing that I've seen is that a lot of the merchants are coming in at a lower price point. So their their their initial products are at a lower price point. And I think part of that is a couple of things is that they're more comfortable with looking at LTV rather than a ob, right because at the end of the day LTV is what really matters. And I think like as time goes on, people who are more subject matter experts around subscription commerce will feel more comfortable with a lower initial ARV, because they know that either the the LTV is great because they could have a low price point, but many, many impressions. Or they could start with almost like a loss lead, it's on loss leader but they could start with a low ao v. Knowing that over time, they could increase the Lv by adding one time products by switching to slightly like higher subscriptions. And I think it it also goes with the psychology of the buyer right? Like over time, the longer the customer has a relationship with the brand, the more they trust them. And the more they trust them typically, the more they'll be willing to pay on an ongoing basis on a monthly basis. That makes sense. Yeah.

Billy Restrepo 14:58

One of the one of the new The subscriptions I picked up during the pandemic, ironically, was like an artisan soap. I don't know how it came to me, maybe it was on social media or in a feed that I was perusing, and then all sudden, I now get a recurring monthly bar of soap, which is something that I never think I would have done. But now I just can't seem to use anything but that soap and it's like the one that I'm waiting for, as the bar is going down like upgrade Tim, and it's like, timed perfectly. So I guess what?

George Ishii 15:25

That's a good question. So Billy, let's just use this as an example. Right? So if like, so do you think you'd be more willing to increase your subscription or expand it to different products related to soap, like on your third shipment rather than your first because now you're familiar with the product? You know, it works? Well. You like the packaging, you like the brand? You like their mission? Whatever it might be? Right? Are you do you become more open to spending more per month as time goes on?

Billy Restrepo 15:54

Personally, yeah, so it was kind of like a starter pack. And then it kind of like funneled down to try out the different, you know, flavors slash sense aromas, and, you know, etc, and so forth. And then finally, I pick the one that I want. And all of a sudden, I realized one bar a month isn't enough, I have to buy three of those same bars. So ironically, it was higher ABV initially for myself just personally. And then it lowered down to that one after I figured out exactly what I wanted out of the selection. And now I've increased the volume of that section. So it kind of was a little bit of a squiggly line.

George Ishii 16:24

Yeah. Yeah, anecdotally, it's like it's it's, it's, it's interesting when you talk to various merchants, right? Some, even though they have a subscription product, they actually still believe that it's all about the single purchase the initial purchases, and that's what they're basing their LTV off of, right. So it's a very conservative view, on on projecting LTV, or LTV. And then some are a lot more comfortable, like looking at the data and seeing that, on average, right for their specific customers or for segments of their customers, they're seeing 2.7, you know, charges per customer on average, right. And that allows them maybe to take to take a loss on the first, but then over time, right, and on average, the the the equation looks a lot better in terms of profit in terms of LTV, so makes sense. I

Ruoting Sun 17:21

think another thing to call out here that we've seen some of our most successful merchants that started in 2020, when we talk about this kind of multi product approach to be able to actually grow your LTV, I think the most successful ones start off with a very simple but very focused message and a very focused set of products, it becomes really, really hard to hit awesome product market fit, if you start off with, you know, five lines of different products, right. So if this company has started off, as you know, bar soap, shampoo, conditioner, skincare, like lotion, and everything else, it's really, really hard to actually create that. That relationship and that loyalty with the customer. Well, you know them for as you know them for having awesome smelling soap or natural soap or whatever, whatever it is right. And by the time you get to the third or the fourth shipment, by the time the company gets to being six months or a year in the business is typically one we've seen our most successful merchants start to expand their product line. So I wouldn't be surprised if they had a shampoo offering at something like 40 billion or they had a conditioner offering for you. There you go. Right. So I think it's something that, you know, we've definitely seen amongst the the top DTC merchants that have started in 2019. And in 2014, is that they start off with a very simple, very focused product line that is very easy to communicate the value of and you know, who your target market and your target audiences, and you create the loyalty and to George's point is almost a lost leader, right? You create that loyalty with that customer based on the first product. And then you have a plan over the next 12 1824 months to be able to grow that LTV through secondary and tertiary products. And you're you're effectively just adding more to their subscription part as their relationship extends with you. makes total sense. So we actually

Billy Restrepo 19:19

had a question come in someone who's in the baby Spanish. So I'm actually going to really listen to you because I have a two year old what's your perspective on subscriptions that increase in sizes as our customers slash babies grow? Yeah, I

Ruoting Sun 19:33

think I think that's a really interesting market. So one of our customers is love every and they create kind of baby moccasins for her kids as a as they're born and the sizes kind of grow as as the baby grows, and they have, you know, phenomenal LTV, and if you think about how quickly babies grow out of their clothes, whether it be a pair of moccasins or shirts or whatever, you know There's a lot of repeat orders there. Let's just let's just put it that way, right. There's a lot of repeat orders there. Because the babies grow out of those those clothes so quickly. So I think it's a, it's a really fantastic market. I think that we've seen the vendors, the merchants in that space do really, really well, simply because I think the ones that have done a good job of connecting with the mother and the father in terms of brand loyalty, in terms of what they want for their baby, added on to the fact that there's just kind of a natural growth curve to that LTV makes that one of the hottest spaces that we're tracking right now, so so it's a really good question. And a really good example of a space that we think is very hot.

George Ishii 20:41

Awesome. Yeah, I would add to that, and just underscore a couple things that Ruoting said and agree with it, I think, I think it's important to understand why they are loyal. Right? Because Because, because so a lot of the merchants that I've seen in this space, where they sort of continue to add similar but different products as they move up. So to me, like that's, that's the key right to the ongoing, like relationship with these customers is, well, you typically, you might have products that are the same every every month, forever, like the soap, right, and then you have things that actually grow. And sometimes a products change, right. So like for, for children, for example, as they grow, it might not just be shoes the whole time, it might be different things that that are more age appropriate as they grow up. And for though, I think that's that's a huge opportunity. But I think for those, what you have to understand is why the customer is loyal to you, right? Because if it's loyal to you just because of those very specific product, then it's gonna be a lot harder to continue to sell them different products. But if they are, if they are loyal to you, because they love your brand, because they trust you, because they like the mission behind it, then I think you'll have a lot easier like, like, it's an open lane, right to start selling other things. Right. So I think it's really important to understand, like, are you purely a product driven? Like connection and stickiness? Or do you have like mission driven, right? Or do they or is the trust and loyalty driven, right, and to understand, like, all of those vectors, and to base your plan and and the way that you, you, you market essentially your products and release your products, according to the way that they see your brand and the way that they perceive stickiness to your brand.

Billy Restrepo 22:46

Amazing, amazing. So we've been talking about like best practices. So let's switch gears and let's cover the other angle. What's the most common pitfall some of the merchants can avoid? Or, you know, what are some of the pitfalls that merchants that you work with have seen starting to question, you know, how, what's the advice to avoid those?

Ruoting Sun 23:06

Yeah, I can think of our Sabbath that. So I think the biggest thing that we've seen that merchants kind of assume that if they introduce subscriptions to their business, that it automatically grows LTV, because it kind of locks the customer in right. And the hope there is almost that, you know, you kind of hope that the customer forgets about the subscription, or is too lazy to cancel, and it just keeps going. Whereas I think what we've found is that our best merchants that provide the most amount of flexibility to their customers. See the biggest long term increases in loyalty and LTV, and it's

Billy Restrepo 23:49

talking about the in terms of selection, delaying of delivery, etc, and so forth.

Ruoting Sun 23:54

Yeah, delaying and delivery. I mean, even making it, you know, part of the reason why we started our SMS product line was we had a lot of merchants asked about how can I make it easier for my customers to engage with me at a time and on the terms that they want, right, whether that is to delay a shipment, whether that's to swap a product, whether that's to cancel the subscription, whatever that might be. But what we've actually found is, if you see subscriptions, as a way for locking, it tends to be a very short term view, that doesn't work out very well for you in the long run. Whereas if you see it as a way to provide flexibility for your customers, because at the end of the day, you know, people don't want to log into a website to go and change their preferences because they forget, you know, they forgot the name of the address of the website. They forget their password. They go in they they're managing or they're navigating Customer Portal they've never seen before. And they have to find it usually like it's not mobile optimized. So you got to pull out your 15 inch MacBook to be able to like, do this whole thing and it becomes a whole production. Yes. So the merchants that I think do the best in terms of providing that long term loyalty and being able to extract long term LTV out of their customers are the ones that provide flexibility on their customers terms, whether that is to cancel the product, whether that's to swap out for a new product, whether that's to delay their next shipment, and it might result in temporary drops in LTV. But what you're really betting on is you're betting on the long term LTV of that customer by doing the right thing and time and again, we've seen that our best merchants are the ones that play the long game as opposed to the short game thinking about using subscriptions as a locking mechanism.

George Ishii 25:36

Yeah, I completely agree with that. It's all about the long game. It's sort of like, I'm just like using transactional outreach, as a way to build a long term relationship with your customer. Right. And so we definitely believe in that ReCharge believes in that is that ultimately, like the long game is, is is more profitable for any businesses. However, I would also say though, that ReCharge like our tools allow for both, right? So we do have merchants, right? who still believe that, like we really have like, it's better not to tell them about about their subscriptions, right, because some just don't want to be bothered. And they just want, they just want to set it and forget it, they prefer that, you know, the merchants have heard this from their customers, right. And so if that's, if that's what the mentality and the philosophy of your brand is, we offer, we offer that flexibility in ReCharge, if you want to do that, right. But we are I think we're definitely moving and meaning into, like, what it means to build a long term relationship with our customer, and some of the best practices to do that. And these things are not anecdotal, right? They're backed by data. I mean, I encourage all of you to look at the subscription report that Ruoting was talking about. There's also a report on SMS, it's called the Ultimate Guide to transactional SMS, which dives into some of the data around this long term relationship versus this sort of short game view. And the thing is, is that ReCharge has the flexibility to do both, right. So to me, like a lot of this is comes down to segmentation also, right? Like how like understanding your customers, even the ones that you are going to acquire in the future are the ones that you've already spent money to acquire, right, to understand them, to segment them, and to test different ways to, you know, increase and optimize the LTV of your customer base, right at the end of the day. That's what we all want to do, right? Whether it's investing in a long term relationship with them, or trying to increase that, that that single purchase, and just, you know, maybe assuming that they'll never come back again. I mean, I even talked to one merchant before, who did not want one time subscribers, actually, right. So that what this brand was doing was they were, they were providing a pretty deep discount for the very first order, knowing that most of their customers will actually turn into a long term customer. And it actually, so therefore, it actually costs them more to acquire customers who were not interested in a long term relationship, right, or a subscription, right. And so it's actually more profitable for them to identify those that would not subscribe and not acquire them. Right. So there's all kinds of really interesting things. But my point is that ReCharge offers the flexibility for you, depending on where you are as a merchant, and what your philosophy is.

Ruoting Sun 28:48

So I'll actually jump in on that I'll give the flip side example of that, which is a mistake that I've seen a lot of new to subscription, especially ones that have a thriving one time business already. And they're they're really adding on a subscription business. One of the biggest mistakes that we actually see them make is when they look at the economics of acquiring a subscriber and the LTV of that subscriber. The assumptions that they put into the map, they assume the LTV as the same as a one time customer. And so what they say is like, we're not willing to spend more on CAC for a subscription customer than what we currently have spent as our baseline for a one time business. And the reality is, you know, what we've seen, you know, so we've we've done the subscription commerce report, three years in a row. Now, we've been in business for seven years in a row. So we've seen a lot of data in terms of just the general trend of subscribers, and three or four years ago, I think when we looked at the same numbers, the average subscriber was making about anywhere between three to four orders Before leaving, and now what we're seeing is that number is actually north of five orders. So if you think about, and if you just assume that the AO V is the same, you're talking about a 40% increase or a four, or actually a 60%. Increase on on, on that same subscriber over a three or four year period without you having to do anything. And that's assuming that the EOB is the same, right. And what we've just talked about, you know, what George talks about with SMS and providing flexibility. And what I've talked about, like we just talked about the fact that the Alp is not stayed the same. So really, the lifetime value of a subscriber in the last three or four years has probably grown closer to 100%, year over year. And you can't say the same about the one time customers that you're acquiring. So using, I think, the same math, when you're thinking about cost of customer acquisition, and how much you're willing to spend to acquire a new customer is a very different equation, when you're thinking about subscribers versus when you're thinking about one time customers. So I would just, you know, say keep that in mind, you're thinking about introducing a subscription line to your business is the math doesn't work out the same. And so from a from a financial planning, from a business planning perspective, you should be much more willing to invest the higher cap to acquire a subscriber than you are to acquire a one time customer makes a lot of sense, makes a lot of sense.

George Ishii 31:13

So I get this, I just add one thing, really sorry, I love this topic. You're talking about this a lot. I mean, one of the benefits of customers that have been around ReCharged for for for for many years now is that so we've we've over the past 18 months, maybe two years, I've really been investing in our analytics suite of products. And so one of the benefits is to be able to look at how that number that Ruoting is talking about has changed over time, for your, for your own customers. Right. And and, and I think the reason why we wanted to invest in analytics is because like, we want the merchant to be armed with all of the data in order to make the decisions that they're most comfortable with. Right? And so Ruoting could say this, right? And we could have it in our report, and we can have all this aggregated data. But at the end of the day, when you see how these things are changing with your own customers, you know, even if you have hundreds of 1000s of customers, right? And then you can start segmenting the analytics and looking at cohorts, then I think I think to me, that's, you know, like, we want to empower merchants to make the decisions like this on their own right, we want to empower merchants to feel more comfortable with more or less ad spend, or to change that or to direct that or to advise that whatever, right? And so to us, it's like the analytics and the data and the cohorting. And the segmentation is all about arming merchants to make the decisions about ad spend, well, ad spend, analyze the other dynamics and the dynamics of your business, right. So that like, you could look at the data and you can look at aggregated data. But today, let's look at your data. Right, and you make the decision that you're most comfortable with

Billy Restrepo 32:58

all that great stuff. So a couple of questions came in I think they're a little bit of a hardball. So what subscription do you have? Sorry, let me read this correctly over here. What if your product is already a loss leader with broader industry? And also, is it possible have a successful subscription program online as a manufacturer, when your physical store retailers offer better pricing? Sorry, can you repeat that question? Yeah, so what if your product is already a loss leader within a broader industry? Let's just handle that one first.

Ruoting Sun 33:33

Ah, I mean, I think it depends on I think it depends on how far you want to take your subscription business. Right. If you if your product is already a loss leader, then I'm assuming you have more than one product, if you want to start out with that loss, late loss leader being available via subscriptions, but there's a long term plan to make the other higher margin premium products available via subscriptions as well, then you're making a very conscious decision to say, basically, you know, this is my entry point for my customers into the brand into the company, right. And if that product that is a commodity product, or it's a loss leader already, if you're able to generate customer loyalty by the quality of that product, and I don't know what it is, I mean, I think it's harder to to generate that same sense of loyalty in certain categories and others. But if it already is a loss leader, you already have the the strategy of basically saying, like, I'm going to use this product to open up the customer relationship. And I'm really going to treat this product more as a cost of acquisition than anything, and I'm going to make up my margins elsewhere. So I don't know that subscriptions really are fundamentally different than how that person would treat their normal business. The way that I would think about it really is, all you're doing is basically lowering your cost cost of customer acquisition. Because that customer that buys the first time off of you on average, or Seeing as a customer will buy the fourth and the fifth time off of you as well. And if you're able in that process, so go from the first time they buy off and B to the fifth time they buy off of you to be able to introduce a number of one time products into that to be able to drive up the Alp and to drive up the LTV, but I think it's worth it. But at the end of the day, I don't see that subscriptions fundamentally change how you should think about loss leaders as as a way to pull through additional products to that customer, the same way that they probably already do in their one time business today.

George Ishii 35:29

I don't think it's a whole lot different than how one time how loss leaders work. And they have been working for decades, right? You go to the grocery store, right? And you you buy the gallon of milk for 99 cents. But at the end of the day, it's like what is the the total cart price when they walk out of the store? Right, and you have a lot of people who just go in there and buy the milk, right. And I think that's why we needed to have analytics, right, we needed to understand we needed to articulate to the to the merchant to you, the merchant, you know exactly how many people are based on that loss leader and based on a very specific campaign that came in that you paid for are actually moving. At the end of the day, it's about expanding footprint, right? You have to expand the footprint. And you have to be able to like feel like you could experiment in that space very, very rapidly. And try to figure out and make that equation work, right. Like at the end of the day, we don't have those answers, we create the tools and the analytics and the insight for you to understand and for you to be equipped to make the best decisions based on how you want to run your business. Right? Yeah, I

Ruoting Sun 36:39

think one one thing that I would add to my previous answer is that if you if you take the grocery store and card analogy that you're just giving, what subscriptions basically allows you to do is it guarantees to a higher degree of certainty that there's going to be a third car, a second quarter, third card and a fourth car. So really what you get is you get more opportunities to upsell and cross sell the customer than if they were a one time customer. Right? If they just bought that loss leader item, and never killed, it would be very real harder for you to be able to get them to come back. What subscriptions give you as one some sense of customer data, whether it's an email address, a phone number, a name or something for you to continue to remarket to them, if you put them on some kind of an auto payment plan, then there's, there's guaranteed to be a second transaction or a third transaction, or at least guaranteed to be a second engagement, right, because if they want to cancel their second transaction, that's a log into a portal or they have to email you to cancel their second purchase of that third purchase. And that's a customer touch point. And how you think about using that customer touch point whether it's to try to keep that customer by giving them a discount by giving them a free trial to another product. Those are all kind of, you know, ideas that we've seen folks try before some people don't have a very strong loss leader. And so they see a ton of attrition between the first products when a customer is just trying it and are sorry, the first purchase when a customer is just trying it and the second and third and subsequent purchases. So a lot of times what those merchants have to do is they have to offer free trial workflows, or they have to offer free shipping, or some kind of an incentive to get the customer to try a second product. And maybe the second product will be a better home run hitter than the first one well, but what you are basically looking for is you're looking for another opportunity to engage with a customer that bought one item from you. And what subscriptions does is it basically guarantees that you will have another engagement opportunity, how you choose to use that engagement opportunity is really kind of, you know, needs to be specific to the business.

Billy Restrepo 38:45

Perfect. So we have a couple other questions that came in. Is it possible have a successful subscription program online as a manufacturer when your physical store retailers offer better pricing? I would assume that Yes. Because ease of purchasing and just knowing that you're never gonna run out of it plays a big role, especially in my purchasing habits. But I'd love to hear from you guys.

Ruoting Sun 39:06

Yeah, I think you know, I think it depends on a couple things right? I think one is we constantly go back to this like owning the customer relationship. We've seen a lot of merchants have higher ASP prices than what they sell for at the grocery store. And yet, the the the customer still goes online still buys directly from the merchant because they like the packaging because they like the story that comes with the box. There are tons of reasons why people prefer one item over another that have nothing to do with the economic cost of it. Again, I don't know how that plays out in manufacturing. Admittedly we don't actually have a lot of manufacturing customers. Most of our merchants are tend to be in the consumable space but primarily home consumables. So I think you know, food, groceries, cleaning products etc. But what I've seen in those spaces is like, you know, those merchants, some some of their brands will get carried at a whole foods or they'll be carried in tamale stones or wherever, but they also have a DTC direct to consumer business, where they are actually charging a little bit more, because you're selling much smaller volumes, right, the individual subscribers not able to commit to the same level or the same volume that a wholefoods is able to commit to. And so the prices are a little bit higher. But those customers are buying for something else. It's not just the economic value that they're buying for, they're buying for the relationship, they're buying to be part of a subscription community. And that community, like we've seen, some of our top merchants do this really, really well, where they actually have community sites, where if you're a subscriber, you get to talk about your favorite coffee bean or your favorites, you know, baby moccasin, or your favorite flavor of lollipop, whatever that might be. But they've done a really good job of fostering that community of like minded individuals. And that's something that you don't get when you go into a grocery store, when you go into a parts manufacturer or like an AutoZone, whatever, right? It becomes a very transactional nature. So I think it absolutely is possible, even if the SPS are higher, I think you just have to think about what are the other things that people would value buying direct from a manufacturer as opposed to buying through a retailer?

George Ishii 41:23

Thanks. I mean, the other thing that I would say is that I, you know, I would question like, if you if you truly have a commoditized product that's available everywhere, you know, in your brick and mortar stores on Amazon, you know, at Target when you walk in there, right? Like, I, you know, I would question the power of going direct to consumer with those products, right? Because you're like, you've already identified yourself as a commodity that's available anywhere, right. And so if you've already penetrated those channels, first of all, great good for you, right, you want to ultimately be everywhere. But, you know, I think a lot of the stickiness and a lot of the things that Ruoting is talking about, which is the things outside of the actual product that people are willing to pay a premium for. Those typically happen when brands spend a lot of time understanding how to strike an emotional chord with their customers, right, like, and when I say emotional chord, I'm not saying that, that commodities don't strike, emotional chord. But typically, when I look at a lot of our direct to consumer brands that have been incredibly successful, and have grown meteoric Lee over the in 18 months, something like that, it's when I look at the product. And when I go through the flow myself, I'm like, this is an emotional product, like I feel an attachment beyond what the product gives me. Right? And I feel that sense of I don't know, it's it, I can't even explain what they've done. Right? There's There's power in that psychology, there's power in, in connecting with the emotions, and there's there's power and making, making it feel very personal, rather than rather than commoditize. Well, the only other thing I would add about that is I think the one thing that we haven't talked about this whole time is the cost of shipping. Right? And to me, that's that's a hidden danger, right? Because, And to me, that's one of the reasons why it might cost more to go direct to consumer online than to sell in stores or through other channels, right? Because oftentimes, the shipping cost is the most expensive piece, the largest expense right outside the manufacturing the product itself, right. And so this actually spans a lot of the topics we've been talking about, right? Not only the question that came up, but like, we're talking about how you expand footprint with the subscription, right? If you start with the heaviest largest bulkiest product, and then you start expanding your footprint into smaller products, the shipping is not going to change because you just add it to the same box that you're already paying shipping for. But if you start with dental floss, and then you move into shampoo, that's gonna be harder, right? So it is something to consider when you're thinking about expanding that footprint, when you're thinking about the difference between selling in brick and mortar and going direct to consumer. And I know how you know that, but I just wanted to put it out there.

Ruoting Sun 44:26

I think I do. I think I differ with with George's opinion on the commodity piece a little bit. And, you know, so so this is where we're not going to be good corporate citizens because I suppose being from Russia, you're supposed to have the same opinion all the time, right? What what I would say to that as a counterpoint is, you know, if you look at some of our top performing merchants, they are the definition of like commodity products in my opinion, like one of our top performing merchants is sells pop, like they sell they sell soda, another one of our top performing ones sells coffee beans, another one of our top performing merchants sells pet foods, and litter, litter for a kittens litter box. If you think if you think about like the definition of commodity being that you can go to a supermarket and get today, you can get all those things at a supermarket today. Right. And and I think the the point where George and I do agree is ultimately it's about the emotional connection that you can build with that customer for why they choose one brand over and over. If you think about why you pick Coca Cola over Pepsi, or Pepsi over Coca Cola, it has nothing to do with the cost. Right, because they're both the same, you can pick up a six pack of Coca Cola for the same exact price that you can pick up a six pack of Pepsi. And you're when you're making that decision, it's not an economic decision that you're making. It's an emotional decision that you're making. So I would challenge the fact that you can differentiate on commodity products, I think we've seen a lot of examples where a top providers or top merchants are differentiating on commoditized products. But the way that they're able to do it is that they're able to tug at the heartstrings and create that emotional commitment and that emotional bond with with their end customer. I think the shipping point is a great point, though, that is absolutely a hidden cost that kind of blows a lot of DC equations apart is you know, you sell a $5 item, then you gotta charge 499 for shipping, or they can go to an auto retailer and pick up the same item for $3. Now you're not talking about the difference between $3 or $4. You're talking about the difference between $3 and $10, which is a game changer and deal breaker.

Billy Restrepo 46:39

makes total sense. So I had another question that came in. How do you manage subscriptions and sectors where customers have fluctuating activities, for example, gifting like anniversaries, birthdays, etc. Or home goods for consumers needs differ over time, like home, office, kitchen, etc?

Ruoting Sun 46:58

Yeah, I, I think that that has less to do with the, to me that has less to do with whether or not you're running a subscription business and more to do with the product catalog that you offer your customers we have. So I'll give you a good example. Um, there's a lot of curation boxes out there today, especially in the apparel space, where they will send different curation boxes to people depending on the season, depending on the climate, the temperature, depending on their own personal tastes, whatever that might be. So I think there are certain spaces, which are able to carry a wider catalog of products that are able to kind of, you know, sustain or absorb volatility and consumer preferences better than other ones, I think this actually kind of goes back to maybe commodity versus non commodity, it's a lot easier. Like if you're if you're doing a curation box for women's clothing, there's a lot more optionality and a lot more variability in what you can ship to your customer, even if it's on a subscription model than if you're, you know, shipping auto parts, right. And so I think, to me, that has more to do with the the vertical that you're in, and how wide of a product catalog or product inventory you're able to stomach as opposed to whether you're doing subscriptions, or one time. Now we've seen a lot of curation businesses do really, really well, because they're able to offer that range of variety for their customers. And they just basically send back what they don't what they don't use, right. My wife just signed up for Stitch Fix. And you know, Stitch Fix is this model where they get your measurements, they get your style, they get everything, and then they just start shipping you boxes, and you just return what you don't want you pay for the balance. Right. So I think there are ways to make those things work, I think, but it's more specific to the vertical and how much of a product of a diversified product catalog you're able to own as opposed to whether or not you're thinking about these options. I don't think that that really has much to do with it.

George Ishii 49:05

Yeah, I think there's there is an opportunity and seasonality though, right? So, you know, if you if you do have that, that that product catalog diversity. And you know, you can take advantage of like, one of the things that a lot of our merchants try to do is surprise and delight, right? Like, because what happens is that one of the reasons why people tend to churn out is because they're just, it just gets stale. Right? And they get they get they get tired of the same thing over and over again. You know, with with some product catalogs, there might be so much diversity that you could take advantage of seasonality. And you know, just like when you go into a store, right, like it seems like now like 1/3 of the store is like Christmas stuff or Thanksgiving right? Every season right? You they're they're they're committing more and more shelf space, right to this idea of every time that you come in. It's there's something new here. It's a new experience, right? I mean, that's the we're talking. That's what we just talked about the emotional connection, right? It's like, Yeah, when I, when I come in, and I smell cinnamon, and I see Christmas trees, I definitely have an emotional response. Right. And, and it affects the way that I I spend money and I inspects the way that I pull out my, my wallet, right. And so I think there is opportunity with seasonality, right? If you have that space, and if you design it, around this long term relationship with customers, I mean, obviously, right target when they set up Christmas trees, and cinnamon out there, they are setting that up for their ongoing loyal customers and not setting it out for someone who just comes in, buys one thing and never returns again. Right. So I think there's a lot of parallels, actually, between brick and mortar consumer and subscription commerce. And the more and more I think about it, the more and more like, I want to understand how merchants could actually we could give tools to merchants to create these things, like in a, in a long term, loyal subscription environment. You know, and so i think i think that's super interesting.

Ruoting Sun 51:17

And, Billy, I'm just, I'm just reading the clarification that you sent the question coming from a greeting card company. You know, I think, at the end of the day, to George's point, it's about the story that you tell that connects to the customer, right? So the cyclicality of it is almost kind of a byproduct, whether you're talking about a Christmas card, whether you're talking about a graduation card, whether you're talking about a Father's Day card, but at the end of the day, you know, so my wife is really big into greeting cards. And every time it's someone's birthday, every time someone graduates, every time it's Christmas, we spent an inordinate amount of time at Target or at Hallmark or wherever picking out the perfect greeting card, right. And so, to me, like the value of a subscription is actually time, it's time back in my day, so that I don't have to spend an hour or two hours at Target, picking out just the right greeting card. And maybe, you know, maybe target or maybe Homer wants me there to spend an hour or two in the store. But if I'm thinking about creating a subscription business, right, one of the biggest savers that that offering gives me is actually time, it's not, whether it's a Father's Day card or a Christmas card, it's time back in my day to go and do something else. So that I just don't have to worry about this, like, Father's Day comes June 14, or June 24. A terrible side, I don't even know what Father's Day is apparently,

Unknown Speaker 52:37

you know,

Ruoting Sun 52:37

sometime at the end of May, I should just automatically get a card, right, or sometime in the beginning of May, I should automatically get a Mother's Day card. And I can maybe pick from three or four that are already kind of picked out for me. But what I don't want is I don't want a wall of a million options to pick from and have to go through every single one of them to see if you know it really resonates with me it with me or resonates with the person I'm going to give it to. So I think they're you know, a slight twist in terms of how you think about the value of a subscription, that and what it offers. Oftentimes, it's not about the end product, it's about the the process the customer has to get through to be able to buy that end product. And this subscription actually saves you a lot of time, a lot of resources in that process.

Billy Restrepo 53:25

mazing. So I see we're actually getting really close on time. And I really wanted to touch in on on the SMS product, essentially, since it's kind of like the most impactful thing that I've seen. And it's really interesting. So you know, before we go into that, just wanted to say a quick thank you to everyone who dialed in, and everyone who actually participated threw in some questions. If you're looking for more information on this, as you can tell, these gentlemen are very well versed. And I would 100% encourage that you set up some time with the teams over at ReCharge payments, they come highly recommended from a ton of brands and brands in the network. It's definitely worth setting aside 30 minutes to learn more about them. So with that, I'll go back to you, George and Ruoting. Tell us a little bit about the SMS in the short time that we have. why it's such a game changer, because I really think it's so impactful.

George Ishii 54:09

Yeah, so we added SMS as another annex another channel communication channel for customers. And the SMS product is extremely tuned for transactional outreach. And what we call what we mean by transactional outreach is when something relevant happens related to your subscription, we will send an SMS to your customer. And as your team talked about earlier, basically what it does is it gives them full control over the management of their subscription on a monthly basis. And, and the idea behind it is that we really believe that giving customers that utility and that convenience, in a very frictionless environment will ultimately lead to more loyalty and more importantly, optimizing LTV and increasing LTV. And as a side note, in almost all of our, in most of our merchants, they have seen a lift in LTV a month, the population that are using SMS verses that are not using SMS. And so I don't need to talk about all of it, a lot of it is in our in our long form report, which is called the Ultimate Guide to transactional SMS, we talked about a lot of that stuff that's available free, as is the product to ReCharge customers, we are providing the SMS product for free 100% free. And so you know, one of the reasons why we're doing this is besides everything that we're talking about, about how we want to be subject matter expertise, and we want to create tools to help you as merchants optimize your LTV and SMS was to us one of the lowest hanging fruit in order to do that. And so we wanted to get that running as soon as possible. We're investing in analytics around it. So that like I said before, ultimately, we want the transparency to you, the merchants to understand the dynamics and what's happening for your very specific customers so that you can make decisions and you can make those tunes and modifications to your to your programs and your products. Based on real data from your from your customers. I would just also add one quick thing. Because I know this is probably gonna be one of the questions, what are the most common things that people do via SMS? Right? And so basically, what we're seeing is that we're seeing that most people either want to delay or change the date of their upcoming subscription, right? Or they want to change what they're getting on a monthly basis. Right. And so the root cause of both of those things, right? Are are two of the most, like problematic issues with subscriptions in general, right? Number one is how to know exactly how much to send someone on a monthly basis. Right? It's very, very difficult to know that. Right? Ask these toilet paper companies, right? Have these quizzes, try to figure out how many rolls of toilet paper you need. And like for me, I went through that quiz that said, like 50 rolls a month, I'm like, I don't need 50 a month, how do they get there? Right? Alright, so number one is very, very difficult to do that, right. And so you actually have to handle it from the like, from the front end and the back end, right. So a friend and you have to try to figure out and make an educated guess. But on an ongoing basis, you need to give tools to your individual customers to say that was a little too much, that was a little too little, this is a little too frequent. This is not frequently enough. And that's what our SMS pipe does in a few, like, you could probably do that in like 30 seconds, change that date or change the quantity. Second, the second root cause is that I'm sick of the same thing, right? So like the, the, the, the soda pop, like vendor, right? They have by 15 or 20 different flavors, right? And so in a very, very simple, frictionless way in 30 seconds to be able to say, Okay, I want to try this new flavor, you know, orange creamsicle, that just dropped this, this this past month, I just want to try it. And basically what happened, what basically happens is that you'll tend to see customers move towards a steady state. And that and that might be the best thing possible, right? You're moving towards a steady state of quantity, of frequency and of product skew. Right. And if you could get people, the sooner the sooner you can get your customers to that steady state. That might be the way to unlock your the greatest LTV right because that might be that might be the set set and forget it state that your customers are looking for. So all these things are related to SMS SMS is the vehicle that gets that allows customers to do this in 30 seconds or less.

Billy Restrepo 58:58

Love it. Now it does I'm a big proponent I think cart abandonment a real thing but cart frustration if it's so difficult to change something I might just have spike cancel a subscription. But having that facilitated and simple just through an SMS would probably keep me engaged. completely honest. Yeah, guys, thank you so much. You know, thanks again, Ruoting and George for your time and expertise. And thanks to everyone who dialed in. We're gonna wrap it up. Hope everyone has a wonderful rest of your day and a fantastic week and look forward having you guys on again. This is great. Thanks for having me. Good. Thanks. Thanks, everyone.

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