How to succeed with subscriptions

in consumer goods: Lessons from

the Best-in-class companies

Dr. Lidija Polutnik, Professor of Economics, Babson College

Shikha Jain, Partner, Simon-Kucher & Partners

INTRODUCTION
In Spring 2020, the COVID-19 pandemic forced
companies into a world of uncertainty. Managers
faced pressing challenges in supply chains and
shifting demand for their goods and services, as
well as wholesale relocation as U.S. consumers
turned to online channels in record numbers. In
2020, e-commerce represented 21 percent of re-
tail sales, a 44 percent increase over the previous
year.1 This increase in online shopping occurred
in the context of the already existing popularity
of the internet as a shopping platform, and par-
ticularly of increased customer interest in signing
up for subscriptions. Before the pandemic, more
than a third of American consumers planned to
increase the number of subscriptions they used
1
Digital Commerce 360: US ecommerce grows 44.0% in 2020;
Jan 29, 2021.
over the next two years, and new subscription
offerings were popping up everywhere. While
subscriptions have been common for a long time
in digital markets such as news media, mobile
phone service, and the like, the most significant
change in the last few years has been an increase
in using subscriptions to sell consumer goods.
The pandemic exacerbated this trend; and the
need for convenience, safety, and replenishment
made subscriptions truly ubiquitous for consum-
er markets such as hobbies, beauty, childcare,
and pet care.
In pre-COVID times, subscription models pre-
sented a trendy method used by companies to
increase customer attachment to their products.

1
Most importantly, the key benefit of subscriptions
is the promise of a recurring revenue stream,
which makes them popular with investors and
executives. A subscriber base is often thought of
as an asset in which to invest. Recurring revenue
helps companies improve their predictions and
planning for the future, and it reduces the need to
rely on one-off transactions, which become more
volatile as customers switch between product
choices or more easily change their minds.
A key driver of the increasing popularity of sub-
scriptions is the availability of new technologies
which make it easier for companies to connect
with consumers in real time and manage custom-
er relationships over time. As customers continue
to interact, companies gain valuable information.
Using data mining, AI, and the Internet of Things
(IoT), they can customize their offers and deliver
additional value. Subscriptions enable expansion
into new markets, increase the customer base
and loyalty, open new channels, and drive growth
for consumer lifetime value (CLV).
Yet behind the scenes, there are major challeng-
es to making subscriptions work. While a vast ar-
ray of consumer products are sold via monthly
subscriptions, companies are hitting roadblocks
in getting the fundamentals of the business mod-
el right. Cost of delivery, operational complexity,
the need to carry assets on balance sheets (e.g.,
inventory), and managing a variety of distribu-
tion models are some of the challenges faced
by consumer product companies. Companies
are spending significant resources to attract new
customers either by spending on marketing or by
keeping subscription prices low.
Many subscription companies have been ben-
efitting from the increase in demand and lower
customer acquisition costs due to the pandem-
ic. The challenge in the “new normal” will be to
sustain the retention and loyalty of these newly
gained customers and build lifetime revenue
streams. Customers can be surprisingly disloyal,
switching to a different provider on short notice
or as a response to promotions and new offer-
ings. Therefore, metrics of success need to cap-
ture additional information about the cost of cus-
tomer acquisition balanced against managing
loyalty and customer retention. Finally, when and
if relying on partnerships for logistics and supply
chain management, companies will need to ex-
pect more complexity in their processes, which
may impact the cost of managing subscription
accounts.
Businesses lack the integrated information sys-
tems and the collaborative data reporting which
are needed to properly measure the success
of their subscriptions, even in the best of times.
As businesses adjust to the uncertainty of post-
COVID times, the metrics of performance man-
agement systems will be critical for delivering
subscription models that are successful and
financially sustainable. Even when businesses
sell replicable, shareable, scalable items via sub-
scriptions, they will in all likelihood face a differ-
ent, more competitive, post-COVID landscape. In
these new realities, subscriptions can be expect-
ed to become more common and less exclusive,
presenting customers with more choices and re-
sulting in a lower level of loyalty. Complexities and
cost pressures in logistics and supply channels
will add to these challenges. These dislocations
and adjustments make it imperative that consum-
er product companies direct a laser focus on how
they manage all relevant metrics of subscription
model success. The new normal will demand
an integrated approach with a sharp focus on
pricing, product offers, the cost of acquiring and
managing customer relationships, and customer
loyalty over time.
Due to the increasing popularity of subscriptions
in consumer product markets, and due to the old
and new challenges in managing them, the strat-
egy and marketing consulting firm Simon-Kucher
& Partners, together with Babson College, con-
ducted a survey of consumer product companies
to learn about their experiences with subscrip-
tions. This research identifies and reports on best
practices for companies to succeed in this space.
2
THE STUDY
In their exploration of best practices for sub-
scription models, Dr. Lidija Polutnik, Professor of
Economics at Babson College, and Shikha Jain,
Partner at Simon-Kucher & Partners, surveyed
140 decision-makers in consumer goods com-
panies in 2019. The survey consisted of ques-
tions relating to each firm’s subscription model:
its characteristics and current performance, its
strategic role within the overall company, the key
measures of success, and the company’s internal
organization and processes to execute subscrip-
tions. Most survey respondents held the title Di-
rector or above.
The goal of the study was to identify the best
practices in subscriptions in consumer prod-
uct companies, and then compare Best-in-class
companies in our sample to the Rest. The Best-
in-class companies make up 15 percent of our
sample, and they are used as the benchmark
for identifying best practices in consumer goods
subscriptions. We chose four key measures of
success of a subscription model used by compa-
nies: i) future outlook, represented by the average
monthly revenue growth rate; ii) profit, as shown
by the current average profit margin; iii) custom-
er acquisition rates; and iv) churn rates. Reve-
nue growth and profit are the most common key
performance indicators (KPIs) companies use
to measure business performance. In subscrip-
tions, customer acquisition and churn rates are
particularly important. Strong and growing num-
bers of customers over time are the fundamen-
tal requirement for these models to succeed. A
high churn rate, often common in subscriptions,
needs to be balanced with customer acquisition
strategies and the cost of customer acquisition.
These metrics are necessary to establish proper
diagnostics for subscription success, as weak-
ness in one (either churn rate or acquisition cost)
may make the financial results of subscriptions
particularly vulnerable.

Summary of key takeaways

Relationship Management Company Structure KPIs and tracking Automation and Outlook

• Offer a portfolio to meet • Create a separate business • Track customer acquisition • Incorporate systems,
BEST PRACTICES

different levels of customer
needs, behaviors, interest,
and willingness-to-pay
• Provide customers
opportunity to personalize
and customize subscription
plans and track the
customer proactively
• Engage customers through
an omni-channel and
digitally connected
experience
unit for larger companies
pursuing subscriptions
• Build a team of individuals
who are dedicated to
growing the subscription
business
• Automate processes for
customer interaction
costs as a KPI to quantify
long-term success and
growth
• Measure customer
retention and compute
repeat purchase probability
to determine engagement
• Quantify CLV on an
ongoing basis to get a true
sense of profitability and
sustainability of the
business model
information, analytics and
software into processes
and for data-driven
decision-making
• Leverage sophisticated
technologies in order to
proactively manage
customers and
relationships

Source: Simon-Kucher & Partners

3
MEASURING SUCCESS OF
SUBSCRIPTIONS: THE FRONT END
In a transactional economy, new customer acqui- and on generating customer engagement. The
sition and level of sales are common measures necessities that attracted much attention during
of success. We compared the importance of rel- the height of the COVID-19 pandemic ushered in
evant goals in subscriptions across the Best-in- significant opportunities for convenience-driven
class companies vs. the Rest. Our results show models to meet the newly urgent stay-at-home
that both groups put the same level of impor- and safety needs. For example, with restaurants
tance on their set goals. closed during lockdowns, many customers sup-
plemented food shopping with subscriptions to
As expected, for companies in our sample, pre-
meal kits. Over the last year, those companies
dictable recurring revenue is the primary objec-
benefitting from higher demand were able to fill
tive and a key financial benefit of subscriptions.
a variety of customer needs, specifically across
The second most important goal for companies
Convenience and Replenishment models.
in our survey is reduced churn (see Figure 1).
Even though all consumer product companies in
When we further investigate different types of
our sample have the same goals for introducing
consumer product subscription models – Cura-
subscriptions, we find notable differences in how
tion, Access, and Replenishment2. We find, that
the Best-in-class vs. the Rest are executing their
the most important objective for Access and Re-
subscription strategy. The following discussion
plenishment subscriptions is customer acquisi-
explores the biggest differences.
tion. However, for companies focused on Cura-
tion, the emphasis is more on churn reduction
i. Best-in-class companies offer
Curation subscriptions arrive in monthly surprise, gift-like boxes
something for everyone
2

that have a “delight” factor. The objective of curation is to discover

something new and unexpected and connect customers to the
One of our key findings is that the Best-in-class
category in a personal way. An example would be Ipsy or Birch-
Box. Access options provide member-only perks to subscribers. segment their customer base in order to cater
Ease, convenience, and sometimes lower prices play an important
to differing needs, occasions, and willingness to
role. An example would be Costco. Replenishment includes
products such as cleaning supplies, health supplements, and pay. Our data show that the Best typically offer
grooming products. The value of these subscriptions is to provide
more choices than the Rest. The Best achieve
convenience and peace of mind to consumers. An example would
be the Dollar Shave Club. this by ensuring a balance that offers key differ-

Figure 1

4
entiating features that are easily understood by
customers without overwhelming them with too
many choices or making the selection process
too complex.
Typical approaches include a Good / Better /
Best structure with clear new features and ad-
ditions for each subsequent plan, or a Needs-
Based structure allowing customers to identify
the right plan for their use case (there are, how-
ever, many additional variations available). For
example, companies like Dollar Shave Club and
Quip provide customers with easy, simple steps
that allow users to navigate offers and add or
subtract products in their plans as their needs
change. Moreover, since differentiated plans and
price levels appeal to a broader set of needs,
this tactic also drives customer acquisition and
retention. In short, the Best companies use their
plans to stay competitive; and they continuously
update traditional transactional models by build-
ing a portfolio of plans to deepen the relationship
with customers.
ii. Personalization and customization
are differentiators
The subscription economy epitomizes genera-
tional shifts in consumer culture toward younger
customers, keen to trade their loyalty at the click
of a button for hassle-free shopping experienc-
Figure 2
es and a personal touch. The year 2020 forced
customers to change their traditional shopping
habits. It provided opportunities for companies
to personalize and customize their portfolio and
get closer to customers across all generations, as
well as engage with them in a direct way.
The biggest difference we find is that the Best-
in-class companies in our sample are proactive
vs. the Rest who are reactive when it comes to
understanding customer preferences and the in-
formation sources used (see Figure 2). While all
companies collect a certain amount of transac-
tion and billing data (addresses, contact informa-
tion), the Best companies in our survey rely more
often on formal market research surveys that al-
low them to cast a wide net and make key deci-
sions that are representative of the entire market,
including prospective customers, not just existing
customers. A formal customer survey provides
opportunities for the Best companies to be com-
prehensive and structured in their understanding
of preferences. They may use surveys to test new
product ideas or begin to uncover value driv-
ers that customers are not consciously thinking
about unless prompted. In contrast, the Rest use
reviews and feedback collected from their exist-
ing customers. This puts the onus on the custom-
er to provide initiative and inform the company,
and it makes the company vulnerable to missing
more forward-looking information.
5
iii. Relationship management is about
engagement
Rather than a one-time, static, transactional busi-
between the Best and the Rest is the use of an
ness model, subscriptions are built on a continu-
online app that tracks various measures of cus-
ous and fluid relationship with customers. In sub-
tomer engagement (see Figure 3). In addition to
scriptions, customers interact with companies
being user-friendly and dynamic, the key differen-
and are a part of a two-way dialogue. To achieve
tiator is the ability to personalize to an individual
this dialoging capability, companies offering
user’s preferences and needs. On the back-end,
subscriptions need to organize to listen, evalu-
the app needs to deliver necessary information to
ate, refine, and interact with their customers. In
the company to manage logistics and fulfillment in
doing so, they will and learn how to continuous-
a cost-effective and sustainable way. For effective
ly increase the overall CLV. For both sides, total
management of subscription business, real-time
engagement with the customer has never been
data and state-of-the-art technology are essential
more important.
for engaging in a dialogue with customers. The
More than 60 percent of companies in our study, best strategies are found when a broad variety
whether they are among the Best or the Rest, of customer interactions flawlessly supports a
keep in touch with customers via different chan- seamless customer experience (an omni-channel
nels. Companies use a combination of digital ecosystem), as well as back-office operations.
touchpoints through emails, maintaining a com-
Our data suggest that the Best companies in-
pany app, and interacting with customers through
corporate an omni-channel strategy in their cus-
social media accounts. In order to stay ahead of
tomer relationship management. The Rest of the
the competition, their processes need to consist
companies in our sample remain overly focused
of real-time customer feedback mechanisms. Our
on monitoring their website metrics like drop-off
research illustrates that the greatest differentiator

Figure 3

6
point and time on site. On the other hand, we
find that the Best focus on additional methods of
engagement. Some examples involve improving
functionality and the user experience for their
company application, as well as regular collec-
tion of customer feedback through monitoring
social media and online reviews to understand
general sentiment toward their offers.
In summary, our analysis shows that the Best
companies in our sample put the customer “in the
driver’s seat” and thereby create opportunities to
increase customer value of their subscription, en-
hancing attachment and thus retention. Compa-
nies accomplish this by offering plans that their
customers understand easily. Additionally, they
execute personalization and customization in
various ways, such as a convenient and frequent
delivery schedule, a rapid response to a delay
or cancellation request, and the ability to add or
subtract products. In essence, they employ an
omni-channel strategy to manage customer rela-
tionships over time. In order to fulfill these prom-
ises, companies offering subscriptions require
sophisticated back-office infrastructure including
IT, logistics, and supply chain management.
Figure 4
ORGANIZING FOR SUBSCRIPTION
DELIVERY: KEY SUCCESS FACTORS
Next, our study looks at the differences in how
companies organize to deliver subscriptions in
the consumer product space. We hypothesized
that the organizations with more professionaliza-
tion and more specialization in subscription deliv-
ery would be better positioned for success, as in
any other business model.
i. Who owns subscription in an
organization matters
Our analysis shows that the Best-in-class compa-
nies are more likely to organize their subscription
activities as a separate business unit within their
organization (see Figure 4). The dedicated team’s
focus means that the Best companies have the
capabilities to stay connected with evolving cus-
tomer needs, and they are able to make agile
changes to offer value to new and existing cus-
tomers. As a result, they may be better positioned
for integrated relationship management over
time.
7
Figure 5

On the other hand, we find that for the Rest of the ii. Managing customer interactions is
companies, one or multiple employees typically the secret ingredient for relationship
own a broader list of responsibilities for subscrip- management
tion management (see Figure 5). This organizing
Across the entire customer journey, the Best-in-
principle potentially results in companies in this
class companies track, monitor, and involve the
group being less agile and less prepared to cus-
customer with every transaction and every inter-
tomize plans and communicate with customers
action. They achieve this by establishing a broad
as their needs change. The success of subscrip-
array of activities that are not just “contractual” or
tion plans in these companies may depend on a
monetary in nature, such as billing or making a
few individuals vs. a dedicated team and struc-
purchase on the website. “Non-contractual” inter-
ture. Companies in this group are vulnerable to
actions where customers continue to interact with
a potential risk where employees in charge of
the company are just as important for managing
subscriptions quit and the company loses the rel-
customer relationships. For example, the Best
evant knowledge. In such circumstances, it be-
companies in our sample have a higher frequen-
comes more challenging for leadership to re-start
cy of using automated processes for relationship
and maintain subscriptions as part of their prod-
management. They do this by reactivating lapsed
uct/service portfolio. Ultimately, we attribute the
subscribers, cross-selling additional goods or
differences between the Best and the Rest to the
services, and driving increased overall custom-
degree of professionalization and specialization
er engagement more than the Rest (see Figure
of activities necessary to execute subscriptions
6). On the other hand, we find that the Rest rely
effectively.
on less sophisticated methods such as scripted
sales dialogues and may lack any process at all
to engage with their customers.

8
In sum, our findings demonstrate that one of the
main differences between the two groups of com-
panies is in the type of organization/process used
by the Best to communicate with customers. The
Best successfully achieve scale through a one-
to-many approach, as opposed to the Rest who
rely more on a one-to-one interaction approach,
which is more limited, contractual, and potentially
more costly. These different ap¬proaches show
how technology and automation enable the Best
to be deliberate in their customer interaction and
use their systems to structure a model that is
more push than pull.
iii. Understanding acquisition and
customer retention is a key to success
As a result of COVID-19, we are experiencing un-
precedented growth in consumer product sub-
scriptions across all aspects of consumer life.
Companies are vying for consumer commitment
in exchange for the promise of services, prod-
ucts, and experiences which will support their
daily routines and improve their lives. Companies
offering subscriptions are required to make in-
vestments and bear the business risk to acquire
customers and assure their retention. Customers
not only need to make a decision to subscribe,
Figure 6
but more importantly, they need to renew their
commitments. Continuous ability to deliver supe-
rior performance and customer experience helps
companies achieve their goals for acquisition and
retention.
Our study found that the Best companies in our
sample employ more comprehensive measures
of business success in subscription manage-
ment. It is common to offer new customers free
trials and other freebies, as well as flexible cancel-
ation periods. However, these free services not
only add to the cost-per-acquisition (CPA), they
can also produce a misplaced focus on the num-
ber of newly acquired customers as a measure of
success. We find that the Best companies in our
survey are indeed much more focused on track-
ing CPA. On the other hand, the Rest are more
likely to prioritize the net new customer acquisi-
tion rate. The Rest may be using various tactics
to “acquire” new customers with an end result of
higher CPA but also a potential increase in vul-
nerability of their business model due to lower
profitability. The demand shock resulting from
COVID-19 created immediate customer need for
a variety of subscriptions in consumer products.
This increase in demand temporarily lowered
9
CPA for many of these companies and gave them
an opportunity to work on building customer en-
gagement, retention, and ultimately CLV.
However, as the economy adjusts to the new nor-
mal, companies will need to be prepared to face
more intense competition with higher expected
CPA and new challenges in managing retention.
Assuming high customer awareness and under-
standing of the product value, companies that
rely on expensive tactics to acquire or keep cus-
tomers may not have the right product, may not
be targeting the right customers, may set incor-
rect pricing, or may not be sufficiently differentiat-
ed against other offerings on the market. Unless
a company is able to convince new customers
of a subscription’s value upon adoption, the firm
risks damaging their retention. Companies must
keep in mind that a subscription still needs to
offer a superior experience so that at the end of
the month, customers make the decision not to
switch to another product.
Figure 7
In managing financial sustainability for subscrip-
tions, companies must be able to identify accu-
rately and allocate various types of subscription
costs. We find that existing accounting systems
often do not provide adequate ability for compa-
nies to track CPA. For example, costs associated
with activities aimed at customer acquisition are
frequently allocated to the SG&A (selling, gen-
eral, and administrative expenses). In order to
identify properly and allocate CPA, companies
with multiple product lines and revenue streams
can benefit from activity-based costing as house
subscriptions in a separate business. Even when
subscriptions are managed as a separate busi-
ness unit, certain functions like billing may be
centralized, making it difficult to identify true sub-
scription costs per acquisition or per transaction.
In our survey, we were curious to learn about
any additional metrics companies use to track
overarching objectives of predictable recurring
revenue, increasing retention, and acquiring new
customers (see Figure 7). We further wanted to
know how companies in our sample measure the
success of their customer relationships.
10
Overall, we find that Best-in-class and the Rest
companies in our sample track multiple measures
of success of subscription models, and they seem
to understand the variety of measures of financial
success of subscription models. However, there
are interesting differences between the Best and
the Rest in terms of the number of measures of
success, as well as their time orientation. For ex-
ample, significantly more companies in the Rest
track profitability per order relative to the Best,
which we interpret as a transactional and short-
term measure of success. Conversely, relatively
more companies defined as Best-in-class in our
sample track cost per acquisition, CLV, and other
more dynamic, relationship-focused measures of
success.
a. Another key difference across the two groups
of companies is in the use of Customer Reten-
tion metrics. We find that a higher percentage
of companies in the Best-in-class group tracks
repeat purchase probability, a proactive mea-
sure. By tracking this measure through predic-
tive analytics capabilities, the Best are keeping
a pulse on their customer base, needed for suc-
cessful relationship management.
b. While a majority of companies in both groups
track CLV/CPA, the percentage is higher for the
Best-in-class. Continuous customer relationship
management, product customization, adminis-
trative expenses, billing, delivery, and operation-
al complexity necessitate a focus on managing
all aspects of CLV. It is critical for the success of
all subscription companies to track this measure
specifically. We find it troubling that 30 percent of
Best-in-class and 37 percent of the Rest do not
include this measure in their reporting.
c. Finally, the Best-in-class companies stand out
by recognizing the importance of early price op-
timization. A higher percentage of companies in
this group engage in testing and learning from
price response by segment about their target
customers and their willingness-to-pay. Addi-
tionally, a higher percentage of the Best-in-class
seem to understand the importance of price rel-
ative to the value provided at each subscription
stage, from converting trial to acquisition, and
finally to retention. Last, this capability is support-
ed by the finding that the Best offer more plans
than the Rest, and they aim to capture the differ-
ences in value and willingness-to-pay across tar-
get customers.
OUTLOOK FOR SUBSCRIPTION 2.0
BUSINESSES: BREAKTHROUGH
TECHNOLOGIES ARE THE WAY OF
THE FUTURE
In the post-pandemic new normal, it will be nec-
essary for consumer product subscription com-
panies to continue to explore additional methods
for incorporating systems, information, analytics,
and technologies into their processes. During the
pandemic, consumers increased their demand
for subscriptions due to necessity. This demand
shock gave companies an abundance of cus-
tomer data and an opportunity to leverage their
customer relationships. We asked the companies
in our survey to identify which systems/reports
and tools they used to gain relevant customer
and market information and improve the way they
manage their subscriptions. Our analysis found
that companies in our sample use different levels
of sophistication in data-driven decision-making
(see Figure 8). Of the companies responding to
this question, 60 percent report using basic sys-
tems like customer service software and sup-
port ticketing as well as CRM/BI/Database
management, which are standard practice and
a necessary business requirement for any mod-
ern business entity. However, we are surprised to
learn that the remaining 40 percent of companies
either do not report or currently do not use CRM
data management system capabilities in daily op-
erations.
11
Figure 8
In order to gain insight and manage subscrip-
tions, more than half of the companies respond-
ing to this question report using industry market
reports (including the players, typical shares, and
high-level value propositions and differentiations).
In addition, almost half of these companies use
customer segmentation studies and brand eq-
uity trackers/NPS scores, which enable them
to incorporate direct customer feedback regard-
ing their relationship with the product. We define
companies that use these capabilities as more
sophisticated in their subscription and relation-
ship management.
In the new normal, subscription companies will
need to use personalization and optimization
software for their portfolio and prices to retain
customers. We find that 49 percent of companies
responding report using pricing optimization
software and 44 percent use product person-
alization algorithms.
The pandemic catalyzed next generation technol-
ogies; and over time, we expect these to become
the new standard of practice for subscription
management and data management in general.
The most sophisticated current capability for pro-
active relationship management in businesses is
machine learning analytics based on custom-
er data. Our results show that 37 percent of com-
panies responding to this question reported the
use of machine learning (ML) for their subscrip-
tion businesses. Since businesses are still defin-
ing what ML entails, it is challenging to interpret
exactly what companies mean when reporting
the usage of this capability. In general, we can as-
sume that the objectives of machine learning are
real-time customer optimization and connecting
the product offerings to prices charged.
All companies responding have plans to invest
and develop sophisticated capabilities such as
machine learning, even if they report no current
use (Figure 9). Next generation subscription busi-
ness is likely to leverage equally the technologies
fundamental to running their business model and
the more advanced elements of technology and
digitalization such as AI. For example, Winc, the
curated wine delivery company, is laser-focused
on pushing the boundaries for a superior custom-
er experience. In their own words, the company’s
12
“team and engineers have worked together to
design an algorithm that recommends wine for
you – based on what you’ve selected, tasted, and
rated.” The advantage of this model is that it uses
customer-provided data to create a lock-in effect
via continuous relationship and engagement with
the customer.
CONCLUSION
As in any other business, subscription companies
in consumer goods are tasked to deliver the most
convenient, appealing, and differentiated sub-
scription plans while perfecting their operational
capabilities and achieving their financial results.
Successful and sustainable subscriptions rely on
the need for companies to track and understand
a variety of measures of success.
To manage and deliver success via subscriptions,
the Best-in-class companies in our sample offer
plans and features that differentiate their offers
from those of competitors while making sure their
plans are easily understood by customers. They
structure the choice process in a way that does
not overtax a typical customer. The Best-in-class
companies communicate with their customers
using many different types of interactions, all in-
tegrated in the back-office to support a long-term,
fluid relationship. We find that companies do bet-
ter when they operate as a separate business unit
or when the responsibilities for managing sub-
scriptions are clearly defined, aligned, and coor-
dinated. The Best-in-class report using more data
and technology about customer wants and needs,
such as utilizing robust market research to garner
Figure 9
insights, and when needed, to pivot product and
business strategy. Subscription companies must
be able to manage acquisitions while focusing si-
multaneously on long-term retention and overall
CLV. For the success of subscriptions, it is import-
ant to deploy a variety of measures of success.
Our study found that the Best-in-class companies
focus on multiple metrics: CPA, repeat-purchase
probability, price-response by segment, and CLV.
Most importantly, consumer product companies
offering subscriptions think long-term, and they
proactively manage a wide variety of customer
interactions by leveraging multiple data sources
and methodologies. On the cost and operation-
al side of consumer product subscriptions, it is
of critical importance that all relevant costs are
properly measured and visible, including cost per
acquisition as well as current cost of servicing the
account. These costs are complex and significant
in the consumer product subscription space (lo-
gistics, fulfillment, delivery, customization, etc.).
Companies need to be deliberate and focused
in order to manage with an eye on CLV maximi-
zation and ultimately on the financial success of
subscriptions. The new normal will continue to
test the ability of companies to stay ahead of con-
stantly evolving consumer needs. The competi-
tion in consumer goods offered via subscription
is bound to intensify. Complexities and cost pres-
sures in logistics and supply channels will add to
these challenges. Significant opportunities exist
for companies able to work across functions to
deliver customer value in real time, based on the
use of technology, data, and most importantly by
building relationships with customers over time. ■
13
ABOUT THE AUTHORS

Dr. Lidija Polutnik, Professor of Economics

Babson College, Boston

Lidija Polutnik teaches graduate level courses in managerial economics, pricing, and
competitiveness at Babson College in Boston, Massachusetts. She is also an Honorary
Visiting Professor at the School of Business, Economics and Law at the University of
Gothenburg in Sweden.
Her research and consulting have focused mainly on pricing, revenue management, and
strategic cost management. Her work explores the relationship between costs and cus-
tomers’ value and the influence of this relationship on the firm’s financial results and
the sustainability of business models. Dr. Polutnik’s work contributes to both theory and
practice, and her research has been published in a variety of academic journals.
Dr. Polutnik has extensive executive teaching experience. She has led numerous corpo-
rate training programs in the areas of tactical and strategic pricing, and in monetizing
innovation with new revenue models such as subscriptions.
Dr. Polutnik works with nonprofit organizations on the professionalization of their services
with an emphasis on their revenue models and financial sustainability. She serves as a
member of the Board of Directors and as the Treasurer of the Cambridge Center for Adult
Education. She is also a Board member of GU Executive Education AB.
Dr. Polutnik completed undergraduate studies in international business in Slovenia. She
received a Master of Arts (M.A.) in Economics from Ohio University and a Ph.D. in Eco-
nomics from Georgia State University.

Shikha Jain, Partner

Simon-Kucher & Partners, Boston

Shikha Jain is a top-line growth advisor with a client portfolio that spans the B2C world
including fashion/apparel, footwear, beauty, consumer goods & durables, specialty retail,
consumer services, consumer internet, and luxury goods. Shikha works with CXOs to
build effective go-to-market strategies and commercial excellence on all revenue growth
topics.
Advisory areas span consumer segmentation, value proposition, and activation strate-
gies; portfolio architecture; price setting and optimization; promotional effectiveness; dig-
ital journeys; channel expansion; governance; and transformation.
Over the last decade at Simon-Kucher, Shikha has developed a strong acumen in North
America markets, though her experience ranges across Europe, Asia and Latin America.
In addition to helping her clients grow, she also devotes her professional energy to fur-
thering diversity and inclusion in the workplace and studying the role of sustainability to
drive future business growth.
Shikha received her MBA with a concentration in Strategy and Marketing from the Uni-
versity Of Chicago Booth School Of Business. She started her career as at a global in-
vestment bank as an analyst, focusing on M&A and capital markets advisory. She holds
a B.S. in Economics and Mathematics from Smith College.

14
ABOUT SIMON-KUCHER & PARTNERS

Simon-Kucher & Partners, Strategy & Marketing Consultants

Simon-Kucher & Partners is a global consulting firm with more than 1,400 professionals in 40 offices worldwide focus-
ing on TopLine Power®. Founded in 1985, the company has more than 35 years of experience providing strategy,
marketing, and sales consulting and is regarded as the world’s leading pricing advisor.

Global locations Average annual growth rate since 1990

40 offices in 26 countries +17%

Revenue in 2020 Clients’ average increased return on
sales thanks to our projects
€362m +2 to 4% points ROS

Africa DžDž Egypt Cairo Americas DžDž Brazil São Paulo, Canada Toronto, Chile Santiago, Mexico Mexico City,
US Atlanta, Boston, Chicago, Houston, New York, San Francisco, Silicon Valley Asia-Pacific/Middle East DžDž
Australia Sydney, China Beijing, Hong Kong, Shanghai, Japan Tokyo, Singapore Singapore, UAE Dubai
Europe DžDž Austria Vienna, Belgium Brussels, Denmark Copenhagen, France Paris, Germany Bonn, Cologne,
Frankfurt, Hamburg, Munich, Italy Milan, Luxembourg Luxembourg, Netherlands Amsterdam, Norway Oslo, Poland
Warsaw, Spain Barcelona, Madrid, Sweden Stockholm, Switzerland Geneva, Zurich, Turkey Istanbul, UK London

15
Babson College prepares and empowers entrepreneurial leaders who create, grow, and
steward sustainable economic and social value everywhere. We shape the entrepreneurial leaders
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CHARTING A BOLD COURSE FORWARD

Our purpose is to empower learners anywhere to create lasting economic and social value for themselves,
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focused on learner success: One Babson Delivering Entrepreneurial Leadership Anywhere, Impacting
Ecosystems Everywhere.

» Define, innovate, and evolve the field of Entrepreneurial Leadership.

» Our Everywhere Platform delivers online, hybrid, and customized learning pathways to learners anywhere.
» Ecosystem engagement enables us to continuously learn from the edge, and scale our impact globally.
» We operate as One Babson, a community committed to working collaboratively, inclusively, and adaptively.

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since 1994
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Entrepreneurship is core to humanity.

Babson can unleash and amplify this potential to have impact.
How we learn, teach, and operate must evolve.
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WE BELIEVE We are stronger together.

We must break barriers to access and opportunity.
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There is no choice between societal and economic value.

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MBA FOR FOR SALARY POTENTIAL FOR ENTREPRENEURSHIP

# ENTREPRENEURSHIP
# AMONG BUSINESS
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(UNDERGRADUATE SCHOOL)
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The Princeton Review, 2018
Report, since 1994 (UNDERGRADUATE SCHOOL)
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College Scorecard, 2016–2018

babson.edu BabsonCollege @Babson @BabsonCollege 16

We thank the following individuals without whom this paper would not be possible:
Alex Green (Babson College MBA ’19), Vasudha Sarawgi (Babson College MBA ’19),
Joanna Perey (Manager, Simon-Kucher) for their research assistance.
Vincent Duong (Senior Director, Simon-Kucher) and Ricardo Rubi (Partner, Simon-Kucher)
for their contributions.
Genevieve Solomon (Graphic Design Manager, Simon-Kucher) for design and layout.
Rachel Pope (Communications Specialist, Simon-Kucher) for marketing and PR.
Martha Lanning for reviewing the document.
We also thank F.W. Olin Graduate School of Business, Babson College for support of this work.
Lastly, we thank all those who participated in this study. Without their input, the paper would not be possible.
The views expressed, and any errors or omissions, can be attributed solely to the authors.

17