We recently had the opportunity to interact with Gaurav Tandon, Senior Director of Product, Carousell. He shared some of the strategies Zomato used to build and scale their subscription feature Zomato Gold. This post summarises key learnings from the insightful meetup that can be applied to other B2C subscription products.
The Rise of the Planet of.. Subscriptions
Long gone are the days when subscriptions were limited to magazines or cable. Today we have subscriptions for TV, food, clothes – you name it, they’ve got it.
Global retailer Costco can, perhaps, be touted as the game changer in the subscription business. They built an annual membership model through which members could purchase goods that were much cheaper than Costco’s competitors’ products.
But it was the Dollar Shave Club’s popularity explosion that drove a lot of startups to move towards subscription models.
Organisations use several strategies to retain customer loyalty. Subscriptions and reward schemes are the most popular of all. So why are organisations choosing subscriptions over rewards?
Rewards versus Subscription
Loyalty programs leverage the exclusivity psychology to get users onboard. Two of the most popular ones:
- Rewards – There’s no entry fee in this. Users grow through tiers which unlock features. For example, Jet Airways’ Frequent Flyer Miles could be redeemed for several privileges. In the rewards program, users have to spend more to earn more. It could be a money losing scheme and is usually the first thing to be axed by the finance department in times of crisis.
- Subscription – There’s a membership fee involved, it has members-only features and is usually a business vertical in itself since it’s a standalone revenue product that offers high margins.
Apart from the downside to reward schemes, subscription models are more preferred today for two main reasons:
- Predictable revenues– The focus is on recurring revenue instead of customer sales targets. This rationale stems from the success of a lot of B2B products like Adobe, when they moved to cloud infrastructure.
- Understanding consumers better– This is the underlying rationale for a lot of D2C products.
Zomato analysed a challenge at hand and realised the long term value of a subscription model for their business.
Zomato Gold – An idea is born
In countries like America and Singapore, the dine out frequency is quite high. In contrast, Indians dine out 2-3 times a month, on average. Zomato attacked this challenge using a subscription model with a 4-pronged approach to increase the multiply frequency at scale.
1. Eliminating consumption barriers
They used WHO’s QAAA framework for healthcare and adapted it to the restaurant industry to identify why people dined out less. They concluded that people didn’t find enough good quality (Q) restaurants that were affordable (A) or had a good assortment of cuisines (A) or were accessible (A) within their localities.
Zomato then narrowed down on quality restaurants that were affordable to ensure enough supply in every zone and got them onboard.
It made sense for restaurants to partner with Zomato since it lowered their customer acquisition costs (CAC) and was a way for them to get more traction and recognition.
2. Keep it simple, silly
Zomato kept their value proposition very simple, without any terms and conditions. It made more sense to have 2+2 on drinks instead of 1+1 because people always like to have more than 1 drink when they do.
3. Network effects
Throughout the product’s lifetime, Zomato deployed different strategies to get more users to join the program. Flash sales created scarcity and also ensured not too many members got onboard for restaurants to handle. They then moved to an invite-only model and subsequently to power packs.
4. ROI to users
For any subscription model to be successful, the user must get returns on investment within 3 to 4 transactions. Zomato calculated this using dine out frequency and average order value data to come up with a pricing model that was a win-win for both parties.
The dine out frequency of members who joined the program became 2X. It led to 35% increase in restaurant bill volumes and Zomato had 1.4M Gold members in a short span of time.
Zomato’s 4-pronged approach is a good framework for B2C subscription products. There are a few other things that must be kept in mind.
Building a good subscription model for B2C
Great subscription products are frequency multipliers for the overall business. Two vastly different approaches are considered while converting products into services- users pay per use or pay for unlimited use.
The second approach amplifies consumption and is more suitable for B2C.
Another thing to keep in mind is identifying the best way to measure consumption, for your B2C. Some examples:
- Medium charges after 5 articles a month. The subscription would have been hard to justify if the content wasn’t original. This method could also be detrimental to the growth of such a product.
- Spotify doesn’t put a limit on consumption. Their subscription introduces premium features that unlock the self induced barriers on the app.
- Netflix thinks of consumption very differently. They didn’t want an ad based model so they could provide better user experience. They are a pay-only service, with upgrades for better convenience like multiple screen sharing and HD quality.
That said and done, we’re living in difficult times today which could spell doom for a lot of businesses. Gaurav gave some parting advice for re-thinking subscription products in these times.
Subscription products in times of crisis
In unprecedented crises like the one we are facing today, businesses need to adapt their subscription services to survive. Some approaches:
- Sachet approach – Customers will be cash conservative and won’t make big bets. How can you break down your offering for a cash-strapped user base?
- Extending membership to customers – For subscriptions that cannot be utilised for whatsoever reason, consider putting it on hold or extending it when the crisis is over.
- Free samples/ trial packs – This could be a good time to acquire customers by giving trial packs of your service. This time period is more about customer acquisition than monetisation and this strategy might reduce your long term CAC.