EP231 - The Forever Transaction author Robbie Kellman Baxter
Robbie Kellman Baxter (@robbiebax) is the best selling author of “The Forever Transaction” and “The Membership Economy.” She has become a well known subject mater expert on subscription and loyalty programs.
In this broad ranging interview, we discuss well known subscription based brands including Dollar Shave Club, Blue Apron, Stichfix, BirchBox, and Netflix. We also cover issues including subscription fatigue, cancelation friction, and Rundles.
You can find out more about Robbie’s consulting work and her podcast at her website.
Disclosure: links to Amazon are affiliate links.
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Episode 231 of the Jason & Scot show was recorded live on Thursday, July 30st, 2020.
Jason: [0:24] Welcome to the Jason and Scott show this is episode 231 being recorded on Thursday July 30th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo. Scot: [0:38] Hey Jason and welcome back Jason Scott show listeners We are continuing our I’m doing air quotes you can’t see me Summer of awesome guests and we’re really excited to welcome to the show Robbie Kellman Baxter. Robbie has a ton of experience working in the trenches at subscription companies and is leverage those experiences to write two great books that we strongly recommend the first was published in 2015 called the membership economy and then she has a new book that’s hot off the presses came out in March so good timing with covid I guess and that’s called the forever transaction welcome to the Jason Scott show Robbie. Robbie: [1:16] Thanks so much for having me. Jason: [1:18] Robbie we are thrilled to have you on the show is you know it’s a little bit of a tradition on this show we like to get to know a little bit about the guest Scott obviously already mentioned your books but can you give us a little bit of background about how you sort of got in the world of marketing and subscriptions. Robbie: [1:36] Yeah well it I guess it’s you know I’ve been in marketing for most of my career but my Consulting in the subscription while and I was a product manager for about five years after business school and then I got laid off what I was on maternity leave with my second child and I decided during that time that I need to be independent and able to manage my own career and my own income as a consultant and very soon after that I realized that if you want to thrive as a consultant you really need to have an area of expertise so I was trying to figure out what is big enough that it could juicy enough that I could be interested in it for a long time and it would be valuable to people but also narrow enough that I could credibly. Say I was an expert and then my I think it was my fifth client you know the first for clients I was really just trying to pay the mortgage and provide some value but the fifth client was Netflix. And I just fell in love with the business model I’d already fallen in love as a consumer I loved three out at a time which it was back in the day but as a business person I love the recurring revenue and the focus on the long-term with the customer and that’s really where I got interested in you know what I’ve come to call the membership economy. Jason: [2:57] Yeah I understand that investors have one of the recurring business model of Netflix as well. Robbie: [3:03] Yeah everybody loves the recurring Revenue you know that the valuations are you know whatever 5 to 7 x what their transactional episodic counterparts get which is pretty much making every business interested in subscriptions it’s kind of crazy. Jason: [3:22] Yeah yeah I feel like it was already hot pre-pandemic and then if anything the pandemic is only accelerated that conversation I know Scott’s eager to jump in to Netflix but I do want to just say that that seemed like super morally dubious to lay you off while you’re on maternity leave and legally perilous I would imagine but I’m I’m glad it had a such a good outcome though. Robbie: [3:44] So interestingly are you know at the time very disappointingly it’s completely legal if there are other people who are being in a group lay off in a mass layoff if there are other people late being laid off who are not. Pregnant or just coming back from maternity leave and there are also people who are pregnant or on maternity leave who are not laid off then they’re completely good, it’s only if the only people being laid off are the ones with the big bellies. Jason: [4:14] Yeah fair enough it’s crazy because I’ve done some studies and it turns out a hundred percent of people have a mom so it seems weird that we wouldn’t treat. But Scott did you have a Netflix specific question. Scot: [4:29] Yeah give us a time frame on Netflix was this kind of when they were moving from DVD to streaming or were they well into streaming when you’re there. Robbie: [4:37] It was before both of those things it was when the three DVDs out at a time and, other parts I was in the working in the marketing organization under Leslie Kilgore and Jesse tights Becker. But this you know it often other parts of the organization they were thinking about what was going to come next and how could they continue to be relevant and provide you know when I think about what Netflix does it’s you know. Large selection of professionally created content delivered with cost certainty in the most efficient way possible so at that time it was three DVDs out of it the time being the most efficient way possible but they were already looking at what is the next most efficient way possible going to be so streaming and downloading and you know going through consoles versus going through your phone and all of that they were thinking about it but when I was. First working with them this is 2002-2003 they were three DVD out at a time organization. Jason: [5:37] Wow and for our gen Z listeners DVDs were these plastic circles that had a movie on them and you could actually put it in a machine and watch it they were amazing. Robbie: [5:47] And they came in the mail not not email but actual mail in a mailbox very exciting. Scot: [5:53] Yes Samuel do you have any fun Reed Hastings stories you can share with us. Robbie: [5:58] Well you know I didn’t work with with him I mostly worked with Leslie and Jesse but the thing that I remember the most about that company was how. Incredibly focused they on what they did and how not interested they were in all the shiny objects going on around them so you know people would constantly be you know I was in that working with Acquisitions you know so how do we acquire new customers and you know all kinds of crazy stuff would come in over the transom you know hey we want to give away Netflix for free to you know when you buy a puppy or we want to you know like a you know it’s whatever you know anyway everybody wanted to kind of get in on it. And they were so focused on is that the kind of customer that’s going to get value out of Netflix because if not we’re not interested and that’s really what has you know one of the things that’s really stuck with me over time is how how focused they were so narrowly on you know they weren’t they weren’t three gain video games out at a time it wasn’t you know. Getting the most new subscribers it was about finding those people that we’re going to get value and stay for a long time. Scot: [7:05] Break oh yeah so we thought we would try to break this up into kind of two parts the want to talk about a lot of the concepts in the books and then use the second half to really kind of dive into some examples so one of the things I just finished both books and I kind of read them together and even though you wrote them kind of in a 5-year separation there they really kind of hang together really well feels I’m a Star Wars fan so it feels like maybe you’re working on a Trilogy I don’t want to. Hold your feet to the fire on that but so let’s say there’s listeners out there that haven’t read the books how would you say you know that they should approach them and how do they kind of fit together. Robbie: [7:41] Yeah so I think of the membership economy as the Y and the forever transaction as the. So when I wrote the membership economy a lot of people still didn’t think that subscription was relevant to their business and so I wrote the membership economy to save this as a massive transformation that is really powerful and positive for a lot of organizations of all shapes and sizes and you. You know business leader Organization leader entrepreneur should consider it no matter where you are in your business cycle. And here’s why and then five years later I don’t have to explain to anybody the power of recurring Revenue. But what people are saying now is we tried it and it didn’t work or we’re trying it and we’re running into this problem or it used to work and now we’re running into this new challenge or we’re thinking about it but we’re not sure where to start and so the forever transaction breaks down. You know how to launch a new business with a subscription component or a membership mindset how to had a skill that business once you have product Market fit and then how to maintain a leadership position in a kind of steady state mature business that uses subscription or membership. Jason: [9:04] Yeah so I’m struggling because I’m trying to go back in time to 2015 and think about what the climate was like then but in covid it feels like I’ve spent five years in the last three months so I’m my brain is a little muddled but if I have this right like, in 2015 there were a lot of trendy new businesses that had a subscription model as a core component so I’m feeling like the meal kits were really taking off like that might have been. Robbie: [9:34] Meal kits were new Dollar Shave Club was the big one, when I was launching the book and I’m trying to remember if it made it into the book or not but that was a bit you know billion dollar acquisition by Unilever and, a real people were really starting to say wow look at that it can work in consumer products and in packaged goods and. That was you know so it was sorting you know people were starting to think about it but. Most large organizations weren’t use it you know wasn’t a core part of the strategy and there were a lot of businesses that you know weren’t really thinking about it at all yet. Scot: [10:15] And then when you look back on it, our organization still missing something or does pretty much everyone have religion because you know obviously Unilever had to buy Dollar Shave Club to get the sand P&G I think it’s taken several runs at this I don’t know if they’ve got a lot of traction with with things but. Robbie: [10:31] Yeah it’s I mean I think that the problems that are like so right now I think they’ve got religion to the extent that they’re like. Most people would say subscription you know recurring revenue is something we want and we value getting closer going direct to our to our customers is something that we value we want to do this but I think a lot of organizations still think that they can just slap subscription pricing on whatever products and services they already have and call it a subscription and I feel like subscription is a pricing. Tactic it’s not by itself a strategy and I think where organizations are still missing the boat is that they. Don’t understand how it’s going to change not just marketing where you’re like on the pricing and packaging side but the product itself. And the way you sell and support that product and then of course the way you recognize the revenue on the finance side. Scot: [11:31] Yeah yeah it’s a lot it’s easy to say but then like you know how are you going to do if you haven’t had any direct relationship how are you going to do just the pricing just the hitting the credit card every 30 days and all those things that kind of come along with it. Robbie: [11:44] Yeah there’s a lot of tactical stuff you need new systems new processes you also need a different mindset because in product-centric businesses you know everything leads up and culminates in the moment of transaction right you you know awareness trial transaction. And then you go out and get another one or try to lure that person back and in a subscription model that moment of transaction is the starting line not the finish line and so everybody’s role changes it’s easier in a lot of cases to sell a subscription to acquire a new subscriber because often the prices lower and the commitment is lower but it’s easier for them to leave so you have to invest more in engagement and retention if I go buy a car if I buy a Lamborghini and I roll it off the showroom floor after giving them a check for the full amount and I keep the car in first gear and I say this is a terrible car doesn’t go fast at all. That’s my problem not the Lamborghini dealers problem if I’m subscribing to that car and keeping it in first gear. Right and I say this is a terrible car I’m going to cancel my subscription so suddenly the responsibility for engagement and usage and realizing the value goes, to the organization and away from the customer. Scot: [13:04] Seems like most people the way they stopped from you in your subscription is just to hide from you so I don’t know if that’s right. Robbie: [13:12] Hiding the cancel button yes. Scot: [13:14] Yeah call us in the near like six hours later you still are there trying to upsell you. Robbie: [13:20] Call us call us on Tuesday mail us a letter. Jason: [13:25] X effects yeah. Robbie: [13:26] Yeah right send us a fax it’s very I mean I’m I’m very anti hiding the cancel button that’s actually a lot of subscription you know I of course, involved a lot of you know subscription events and description shows and you know groups of CEOs of subscription businesses talking about best practices and often I hear them bragging about how they’ve increased lifetime customer value which of course is the key metric for any subscription they say we’ve we increased it by X percent in effect by hiding the cancel button by changing the user interface for cancellation so that it’s got more putting more friction into cancellation. And to me first of all I feel like although that’s legal and allowed it’s unethical and who wants to be in the business of making money because your customer couldn’t figure out how to get away from you and it also in the long-term I think it really has a negative impact on the brand equity on the trust that that customer has in the way that they talk about that company to their to their Network. Jason: [14:33] Yeah you know it it so it is I mean it’s a challenge because. It’s such a horrible customer experience and there’s all these reasons not to do it and and long-term Equity customer trust is so valuable like there’s a there’s a bunch of rational reasons to argue not to do it. Unfortunately. When there is an evil argument to do it that the customers that want to cancel are the least likely to come back and and so you know do we really care about creating a horrible negative experience for that particular cohort because they’re the. The least important for us to cater to. I will say one thing though it actually is start the the laws are starting to become more dubious so there is now a California law that went into effect last year for digital subscriptions that say and it’s. There’s a lot of nuance but essentially it says if you offer a digital way to subscribe to a service you must offer an equivalent Digital Way. To unsubscribe so you know a common practice is one click subscribe and then you have to call in wait in an on a phone queue for half an hour to cancel and in California that’s now actually illegal. Robbie: [15:41] Yeah and you know I’ve had I’ve had several conversations with the woman who is responsible for suing unethical subscription companies for the FTC Leslie Fair what a good name for you know real house. Jason: [15:55] A great name for a lawyer. Robbie: [15:56] And you know what she she said it’s you know we’re not you know all the questions you know I’ve spoken with her at some at some conferences and you know she gets a lot of questions like, you know what is the minimum font size for the fine print and is it okay to go silver on Gray. With you know the the font being in silver on a background of gray or what shade of grade is allowed or how many gradients of difference is the minimum and, she always says she’s like we’re not going to tell you exactly how to do it. But the goal is to be fair to the customer the customer needs to know what they’re getting into they know what they’re going to need to know what they’re going to be charged and they need to know how they can break off this contract. If they decide they no longer want to be a part of it. And yet organizations continue to be bad actors I think one one really interesting thing that I’ve noticed you know in working with a lot of different companies is that companies that are focused on Legacy or that are focused on the long-term such as family-owned businesses or closely held businesses often take more of a long-term approach than businesses that have leadership being evaluated on you know quarterly deliverables with a much shorter time Horizon the behavior towards their customers is very different. Jason: [17:13] Yeah that makes total sense so, I definitely mirror your experience I could totally see back in 2015 that there was an interesting conversation to be had about should you even have a membership program and what would that look like but but per your experience with that mental a lot of people is let’s just find a way to recurring charge to the credit card and returning ship and not think about the customer experience of membership or the value prop in a different way or all of these different things that people are doing wrong and that’s why it makes perfect sense to me that five years later you’d have to write the how book to sort of correct all those errors is that. Robbie: [17:52] Yeah exactly I mean everybody’s doing it now and they’re they’re bumping into these these problems in one example if you look at Dollar Shave Club which was of course a big deal in 2015. And what Gillette did it kind of in response and you see how if you’re a consumer product I don’t mean to pick on them but you know you look at a consumer product package goods company where there used to shipping things on pallets. Write an optimizing for you know Distribution on trucks to warehouses and then suddenly they’re sending it to Consumers right you know even if they get the package to you the package you know it’s it’s packaged like a delivery to a warehouse It’s not beautiful and fun and in frankly easy to open and also in order to have simple pricing for a consumer which is what is really in my opinion is really critical to a successful subscription you have to have some risk on the side of the company because you know your shipping costs are going to vary depending on where you’re sending it to and what the person actually needs and how frequently they need replenishment is going to change and so they ended up having a very complex solution not being able to handle returns very well. [19:12] Not being able to handle changes in the order very well because they just weren’t set up for it and those are all the elements it’s not just about you know sending the razor’s directly to the person or having a clever ad about subscription it’s about the whole supply chain and the way that the product is supported as well. Jason: [19:32] Yeah and you know what else I’ve found the you alluded to this earlier but the. Your mindset you are a different company when you’re selling that membership than you are when you’re selling the the one-time-use widget like it’s on the analogy I make sometimes is. When you’re selling a big expensive thing you have to decide really whether you’re going to be in the leasing business or the selling business and do one or the other it’s kind of hard to do both and so I think of like there are a lot of coffee companies that launched subscription services in the primary value prop was always will ship you the coffee this the same day we roast it in fact Walmart just rolled that out of all people and I used to always chuckle because you’d go to the website and they both are trying to sell the coffee as a brand and tell you to go buy it from the store where it’s been sitting on the shelf for. Weeks and then like you know 20 pixels lower on the screen there talking about how coffee sucks unless you get it the day it’s roasted and you should subscribe and it just it feels like, need to make one of those value props or the other but like you can’t put those two things side by side because they’re at cross-purposes. Robbie: [20:41] Yeah exactly and it’s so hard for organizations because a lot of them are trying to well either they’re trying to capture both values or they’re trying to transition and it’s a very scary thing when you have a successful business to move to subscription because you risk cannibalization you risk that you know losing the revenue you have from your best customers. Like let’s say that you have like let’s say that you’re a video game company and you have games that you sell for $60 a piece most of your customers by one game you have their 60 bucks though if the only people who go to your hundred dollar a year subscription or the people that are buying two games a year already, you’re going to lose money on that transition but if you keep the you know if you. Keep the two in parallel then you have to make a case that the experience of buying the game outright is no better or worse and subscribing which of course it’s going to be different so one of them is probably going to be better. Like with the coffee example so it is really tricky to make that transition especially if you already like a lot of big companies now if you already are really good at the transactional side and generate real Revenue it’s very hard to kind of navigate that transformation. Jason: [22:00] For sure I do want to get slightly back on track with a book so I did get to also read for every transaction and you there’s three main sections of the book launch scale and weed and I confess I did not read the membership economy when it came out but I’m imagining a lot of the topics in watch feel like they might be updated versions of the the why a little bit versus scaling weed being the how is. Is that true I like did some of the the wise change and did you feel like you needed to update those. Robbie: [22:36] You know. Jason: [22:37] Am I you it’s totally fine to say I’m wrong too by the way. Robbie: [22:40] Yeah well I mean it’s in Chimes I’m sorry sort of thing is it’s an interesting thing I think you know not when I was writing the book I was very worried that I was going to be regurgitating what I’d said in the first book and you know I really wanted it to be different I think that there is there is there’s a couple of chapters devoted to the Y at the beginning because I want the book to stand on its own but pretty quickly you get into I did not get into the nitty-gritty of how do you launch. Your subscription business which is actually for a lot of organizations that’s the hardest part like okay we have this Vision that we’re going to be this ecosystem for for whatever it is you know this is going to be the place where all you know ad agencies gather and share best practices and people manage their careers here and they get training and education and access to products and services and blah blah blah but today what are we going to offer because how do we get there and so that launched section I really had to break it down into what do you do if you’re launching as an entrepreneur where this is your the beginning of your business and what do you do if you actually have a going concern as we just talked about how do you how do you start and not distract the rest of the organization but quickly but also change the culture as that subscription begins to grow. Scot: [24:01] How did one of the cultural things I imagine that’s just we see this in the world of omni-channel is just sales compensation right no sales execs usually paid on the full value of a deal in an upfront and now you’ve got the subscription any best practices of how to get the sales word kind of aligned. Robbie: [24:19] Yeah it’s really hard because some in some cases I mean that especially like on let’s say the B2B side. [24:27] You know it might take a different kind you know a lot of times salesperson is a little bit of a big game hunter right and they go out and they find the woolly mammoth and you know it’s hard to kill and they bring it back to the to the cave and they tell the rest of the village like you guys deal with the carcass I’m going to go out and get another woolly mammoth. And that’s not the subscription model the subscription model is much more of a farming method where the initial acquisition is not that hard. But engaging and expanding the relationship over time is different so I think the first thing that an organization needs to do is to recognize that, it’s a very different model you know and that success is you pointed out is not just based on that moment of transaction but it’s based on the longer term. Result with that account and then to think about you know what does that mean for our existing sales team do we have the right people. And how do we transition them if so to this different model and different metrics because I think salespeople are very driven they’re very practical rational people if you know if you email them in a certain direction and say this is what we want and this is what we’re gonna pay you for that’s what they do but I think in some cases you might even need a different kind of person and you know inside sales especially right now in covid you know a lot of businesses are realizing that they can actually do a lot of their sales without an outside sales team. [25:53] Without everybody actually being you know remote and selling with a lighter touch. Scot: [25:57] It’s a bad time to be a mammoth Hunter. Jason: [26:01] Scot and I are actually old enough that we remember when people used to just bring Willie mammoths back to the cave so those were those were. Scot: [26:08] Those were the days yep the lot of it reminds me of software-as-a-service we’ve had to do the same thing in the software World years, so it’s kind of interesting that the cpg world now all the other things are coming that way so then the second part of the book is scale maybe you know obviously want to whet people’s appetite what are some of the interesting techniques for scaling these models. Robbie: [26:30] Yeah so there’s a bunch of things so there’s the infrastructure component where you have to actually you know in a lot of cases think of different technology to solve these problems you know you’re much more interested in engagement which you know a lot of companies don’t track it all like most cpgs have no idea if I’m using the same toothbrush for a year or a month, how hard I brush how long I brush what kind of brush I need so they have to you often have the technology to do a better job of tracking things differently the Oral-B is a great example of that they have a a nap that links to their their electric toothbrush which I enjoy using, so so that’s kind of a one-party sort of thinking about what kind of technology and what kind of metrics do you need to track and I think the other big thing is changing the culture you’ve alluded to this but I think this is a really big. Challenge in the scaling piece where you say Okay so the way we sell is different the way we support is different it’s kind of a move in those in the SAS world if you know that move from technical support to customer success is a very big change in the way the organization thinks about how they serve their existing customers, and you know changing that culture to be focused on the customers long-term well-being and engagement is you know a pretty big process and something that I go into a lot of detail on in that second part of the book. Jason: [27:56] That’s very clear cool it makes a lot of sense and then the third section of the book lead you talk about a lot of things that feel like they’re very much in Vogue right now like how you keep that weed or ship position as a membership service and so you know how do you deal with things like churn and subscription fatigue can you talk a little bit about some of the key themes and Lead. Robbie: [28:17] Yeah so so the company’s when I when I was writing lead the company’s I was really thinking a lot about our, the news organizations the gems the professional associations these organizations that have been membership oriented for a long time that are actually quite familiar with subscription but they’re finding in many cases like what I hear them saying over and over again is young people aren’t joiners young people aren’t readers young people don’t value loyalty and what I was seeing was not that young people were any different than people have always been but young people are making that decision for where they want to have a forever transaction to solve that long-term problem with fresh eyes and when they looked at the opportunities that they had to solve that problem whether it’s where do I go for my professional development in my Professional Network or where do I get information of what’s going on in the outside world so I can better understand my own world and make better decisions which is kind of the forever promise of news or what is the best way for me to get and stay fit which is kind of the world of gems. [29:34] These young people are these new buyers were looking at you know the gems and the association’s and the newspapers and they’re like well that’s not really the best way given what else is available for me to solve those problems you know I can look at Twitter for my news or and get you know user-generated content that’s much more current And Timely or you know I can get it for free or I can go to CrossFit instead of a traditional gym and have much better community and engagement and so. [30:03] I think at that at that lead phase I think it’s really important for organizations to balance the way they focus on existing members. And the way that they focus on tomorrow’s members and looking at acquisition and usually these older organizations are really good at engagement and retention and they’re not good at acquisition whereas I think in those first two phases you know the risk is often that they’re really good at acquisition and then they have a leaky bucket so that the issues that I see there in that lead phase are around staying relevant so iterating on their offering to stay relevant and to keep that forever promise true the way that Netflix has with you know once it was three DVDs at a time today it’s streaming but the promise is still the same. And the other thing that happens is that we’ve talked about a little bit is that in this phase it’s very tempting to take advantage of the trusted relationships to hit a short turn number. Writes all here organizations saying well we can just throw in a small fee or we can just not improve the product this year because our members are so loyal and they’re not looking at Alternatives so they’re not going to go anywhere even if we don’t give them Great Value this year. And that’ll help us hit our number. And so those are some of the issues that you know by focusing on today’s members and by taking them for granted you often. No neglect tomorrow’s business. Scot: [31:30] Yeah it’s got tricky. Interesting so so that’s super helpful and then if listeners want more than they’ve got to go get the book which we strongly recommend let’s let’s talk about some company examples now that we’ve kind of got the framework in place it wouldn’t be a Jason and Scot show if we didn’t talk about Amazon so you know as you’ve been talking about this I my mind always goes to Prime and I think Jeff Bezos said something like you’d have to be. Almost like irresponsible not to subscribe to Prime they just want to pack so much value into the program how do you view Prime and is it is it kind of the Holy Grail of these things or can you point to something you think they’ve they could have done better or where do you fall on the prime world. Robbie: [32:15] I think they’ve been really they’re a great example of this forever promise and I use them often as an example because you know today the you know they packed so much value into it you know you go there for you know certainly for the free shipping but also for the video content the audio content, and the in all of the other services that they provide but if you remember you know the the forever promise I think of Amazon is to remove all friction from all purchases right that’s kind of you know and I wonder sometimes in Jeff Bezos has world if it’s like you know I just think of a product I need and it a magically appears and I say no no that’s not what I meant and it disappears in a puff of smoke. Jason: [32:58] They actually have a patent on that. Robbie: [33:00] And. Scot: [33:02] Genie. Robbie: [33:03] The the Amazon Genie like Syria but you know the thing that that I think is, is really interesting to remember is that when they started because this gets back to that you know that launched phase when they started all they did was deliver books they made it easier for you to get the book you wanted but you have to actually wait a long time for the book and the shipping was not free so you know they’ve layered in more and more value. Overtime to better deliver on that promise of removing all friction from all buying. And so I think it’s actually a really good example and the other thing that’s interesting about it people often struggle with pricing of subscription and something that’s interesting about Amazon is that most people when I tested them they don’t even know how much they pay exactly. Yeah I think it’s is it 99 or a hundred nine or 89 or a hundred and twenty-nine I don’t really remember and that’s because as you pointed out they’ve packed so much value in that it’s they’ve really made Amazon a habit. For people that it’s the first place they go when they need to buy something. Jason: [34:12] Yeah it’s interesting there so that you may not be familiar with them but there is a a prognosticator in our industry he’s actually an idol of Scots a professor at NYU Scott. Exactly I’m teasing Scott I know you’re listening we’re just we’re just. Robbie: [34:31] Hahaha. Jason: [34:32] Um the Scot is the bane of my existence for several reasons but one is because I have a lot of clients that are um zealous followers of Scott and so one of the themes that Scott like Ruiz picked up on and started hitting hard a couple years ago was this idea that he coined of a Rundle which is a recurring Revenue bundle and so I then have to go to all these retailers and sit in on the Rundle meeting where they’re talking about like what’s our Rundle what’s our sort of recurring Revenue business that we could add on onto our thing like I’m kind of curious. Like do you agree with him and it was that in exciting thing that brought attention to it or is it oversimplifying to sort of just just think of it in terms of the revenue and not really the product in the experience. Robbie: [35:27] Yeah I mean I think that the idea is a good one and it’s a very catchy term you know Rundle I like that but I think I mean a couple things. I think that org a lot of organizations don’t there they over focus on the benefits to themselves. In terms of you know if we do this we get bigger transaction size we get more power we disintermediate all these other third parties we get recurring Revenue. And I don’t hear enough about why a customer would prefer Arundel that’s sort of the first the first issue is you know I think a lot of organizations don’t think about that very hard at all. Why would I rather subscribe to access a bundle of benefits or a bundle of products the other thing that happens a lot. [36:18] Is that you know everybody loves this idea of a subscription box that’s around Discovery versus replenishment and most people I’m get subscription fatigue from Discovery boxes they’re overwhelmed like how many how many new snack bars can I try how many different lipsticks can I own it’s a very very small audience of people that. He’s gonna want new products and exciting new things in a category every single month they often just want to you know kind of refresh and then go back to their habits and so. It’s actually pretty hard to build Arundel that’s not necessarily around around replenishment of a habit that consumers are going to want for more than let’s say you know six or seven months. Jason: [37:10] It’s funny because even my dog MacGyver is exhausted from his BarkBox. Robbie: [37:15] Ah Jason: [37:16] I know you would think of anything that like a dog would be happy to get a treat every month. Robbie: [37:20] Yeah but like and then you have what ends up happening right is and I don’t know if this is your case is that you have this pile of like doggy treats and doggy toys in your like but then the next one came and we haven’t even used up the last one. Jason: [37:32] Yeah. It’s the same thing with those those meal kit ingredients it’s it’s funny because the all of those Services were hugely in Vogue and many of them are still around but the common denominator that they all have is they have a non-recurring. Option right like just order the fix when you want it instead of getting a stitch fix every month or you know birch bark on demand or you know meal kits when you want it like it feels like per your point none of them could survive exclusively by by having the the the periodic shipment I do want to make one thing clear I feel like there could be no argument Scott has Scott Wingo are Scott has much better hair than Scott Galloway I’m just saying. Scot: [38:15] It’s a low bar the I’m a I’m curious to get your opinions in this is kind of in the free Consulting bucket so do with it what you will but I’m neck deep in kind of a digital Services startup and we’ve tried some subscriptions it’s been a little bit of a challenge and I’m wondering have you seen any best practice at practices as it relates to services. Robbie: [38:38] Yeah I mean there’s there’s a few different things one of them is to balance well. So you can have a subscription as a component of your business model or it can be the whole thing. Right so that I think is the first thing that I’ve seen with a lot of businesses so. You know you can say like for example vain the consulting firm has their net promoter is at the net promoter system loyalty Forum which is a subscription. But then there’s also you know they’re big transactions they’re big they’re big events. And a lot of organizations kind of give you a choice a hybrid If It’s All Digital Services and there’s no human component and it’s your primary revenue generator I think things that I would be focused on one is the onboarding of new members so that they adopt the habits that are going to make them stay and that are going to expand the relationship. [39:41] So a lot of you know I feel like there’s a lot of businesses where there’s almost like a failure to launch after they buy the digital service. You know it’s bought they don’t they don’t like they either. Walk into the lobby of the party and they’re like this isn’t very fun and then they leave before they even get into the room where the actual party is happening and you’re like wait you didn’t even see all the value I didn’t even see it because they couldn’t find their way to the value or they go into the room and they don’t feel welcome or they don’t understand how to enjoy it. And so they leave before they’ve ever had the ability to make it into a habit and so I think organizations under. Invest in onboarding both in the marketing around it but also in the product itself I think that’s probably the number one miss like kind of mistake or missed opportunity that I see. Scot: [40:32] Yes so so a good example is I’ll pick one away from me is home cleaning so there’s it’s companies like handy and all these folks and they’ll almost like force you into a subscription and then you can’t really sample and I’ve always felt like that feels weird right because now you’re forcing me into this just to get one house cleaning now and experience your service I have to. I feel like I’m committed and cancel so that doesn’t feel right it almost seems like what you want to do is get people you know. Trying the service and then identify a cohort that you think would be likely to subscribe to and then offer a subscription is that cam what you think would be the best practice. Robbie: [41:12] Yeah well so for the example of Handy you know I think about. You know free trial versus freemium versus nothing for free so a free trial is great if they don’t understand what the value is or they don’t believe it’s as good as you say. And so if you are trying hand in your uncle I don’t know if it’s as good as me cleaning the house myself or as good as a cleaning person or system we have now you want to be able to try it. So that you know if they don’t have the kind of brand that’s trusted or you don’t either you don’t believe it’s as good as they say it is or you don’t really understand what they’re going to do or what it’s going to feel like you need to have an opportunity to get a trial free or or a paid trial but that you know kind of one-on-one opportunity or a money back guarantee or inability to try it once and then cancel. I think that. What is good though about organizations that have discipline as they say look we’re opt let’s just say for this you know I don’t know a lot about handy but that you know people who. Only use this periodically like coming into our house that isn’t cleaned by us every week could be a disaster and much more expensive to clean but we know if we come every week, that we can manage our costs and we also know that the kind of people who take care of their homes should be cleaning their house on a regular Cadence so we don’t really want to be in the business of one-time cleaning. [42:34] So they might say you get one shot one chance to buy it outright and then you go to our subscription and they’re going to be leaving money on the table for sure because there’s all kinds of scenarios where you need a cleaning occasionally but they might say that’s not what we do just like Netflix said, you know we don’t do video game even though they’re exactly the same size as the other discs and we don’t let you buy the discs that’s just not what we do it’s too many different business models. Jason: [43:03] Although in my mind that even the business model issues aside it just does feel like, getting a customer to sign up for a subscription is a higher bar than getting customers to buy something once and so it feels like your marketing has to be different and when you act like I mean the corny analogy I always use is dating like you know asking someone to buy your product as I gassing them to go on a date with you but asking him to subscribe to your product is like asking them to marry you. Robbie: [43:32] Yeah yeah absolutely but it but in other cases you know you want to make the problem go away. Right you know I want my house to always be clean. Jason: [43:43] Yeah no I get it yeah. Robbie: [43:45] So so yeah it is it’s a higher it’s a higher bar and one of the challenges you know when I when I work with an organization and they’re saying our subscription isn’t working, kind of we do a diagnostic to look at where is the problem is the problem that the the friction is too high to get someone to sign up like it’s too much risk to commit to this new way of doing things or is the problem that once they sign up they stay for a little while and they say I’m exhausted from this like with the BarkBox or is the problem that they come in and they’re like the seems great but I don’t know why I’m not getting any value. So all of those you know those are all kind of different different scenarios. Jason: [44:23] Yeah so I’d love to get your opinion on one that’s kind of front and center in our industry right now so obviously we’ve talked a lot about Prime and it seems like an amazing example in retail there’s an even older example I think. Price Club which became Costco started doing memberships in like 1976 and that’s been a phenomenally successful model so in last couple of months there have been a number of articles that say that Walmart is about to launch a. Program and I think Jason Del Rey wrote an article that it was going to be called Walmart plus and it’s I’ve been really interested to follow it as far as I know Walmart hasn’t confirmed any of this and we don’t really know what’s what Walmart is or isn’t going to do but there’s been a lot of media attention to. [45:10] What they might do and whether that’s a good idea or not and it seems like it falls into camps there’s a bunch of people that are like this is ridiculous this is going to be a bad imitation of Prime with fewer products and slower shipping and it’s just going to be a bad look that it’s this this inferior version of prime and then a lot of other, like seemingly equally smart people have John have felt like oh my gosh super-smart for Walmart to engage they’re their most valuable cohort and you know start generating this this recurring revenue and and you know getting becoming more sticky with customers in the same way that. That a Costco are a prime is like do you I know we can’t know because we don’t know what Walmart’s off or really is or how they’re going to execute it yet but do you mean, are both of those potential outcomes does it like are you are you happy to see them seemingly move in this direction. Robbie: [46:03] Yeah I mean what I’ve been waiting for to see front but sort of two things with Walmart one of them is they’ve tried lots of other things to compete against Amazon they’ve offered some different me to Features they’ve offered some some benefits for membership and engagement but they haven’t really embraced first they haven’t really braced it as as core and the other thing is they haven’t really tapped into what makes them different from Amazon their unique strengths which is you know of course they’re physical footprint of being I don’t know what they say like within 10 miles of ninety percent of Americans or. Jason: [46:40] Yeah you have it exactly right. Robbie: [46:42] Yeah so I think I think that you know you know again all of this is kind of rumor and, conjecture but it seems like some of the benefits that they’re offering you know combining the priority slots for curbside pickup to our delivery to your home. And gas right with fuel for your car discounts on fuel those are pretty impressive headliner benefits that by themselves you know a lot of times with these kinds of bundled benefits a lot of times what people do is they do the math in their head, write like a lot of people did with Amazon prime rate like how many how many how much free ship how much should I spend on shipping before Amazon Prime pays for itself, which you know back in the early days is kind of how I think a lot of people thought about it and then Amazon layered and so much value that you’re like well I would never leave now and it’s not just about the shipping I think Walmart. Could be doing that with even just you know the discount on fuel so. I think the you know and you’re starting to see that they’re able to do some things that would be much harder for Amazon to do just because of their their physical footprint. So I’m optimistic this feels like a better a better offering than what they’ve done in the past. Scot: [48:03] Prequel how to one of the things that’s kind of nursing is so you kind of have loyalty and then subscription kind of bundled together how how do you think about the those and how they fit into this this whole framework. Robbie: [48:16] So loyalty programs you know what I always thought of as kind of the gateway to membership and it was a way for very transactional businesses very episodic businesses to smooth out the relationship with their customers to make it easy easier to get them to return and most of them did it I think in a pretty clunky way which was basically giving them, you know paying them for the frequency and depth of their purchases so it almost is you know the traditional loyalty programs like you know mileage or or you know the programs that hospitality industry has or even the old Punch Cards is basically you spend this much with us and we give you something with a real Financial value in return and. That almost feels like a financial transaction rather than really being about loyalty I don’t necessarily feel loyal to United but I’d be stupid not to get the free trips since I travel so much. [49:14] It’s not it’s not really about loyalty or engagement or preference it’s about a real Financial Arrangement whereas I think like the Costco example the price Club example which some people are calling premium loyalty programs now where you pay to be treated better because the assumption is this is a preferred place where you’re going to do a lot of shopping and you want the best possible experience it seems like a lot of organizations are moving away from the points-based loyalty programs and toward these premium loyalty programs where you pay Upfront for a bundle of benefits rather than rather than accruing benefits based on your frequency and depth of purchase. Jason: [49:54] Yeah it seems like give you can make the value proposition and make that sort of Premium loyalty work that it’s a lot more valuable I’m curious. Like if you have a pinion on like for brands that may be our only in a position to make that sort of basic transactional loyalty program work I’m really torn right now because on the one hand. I keep hearing about loyalty fatigue and everyone’s got got you know a hundred loyalty memberships in their in their household and therefore you know none of them affect behavior and and you know there are kind of a dime a dozen but then I keep I’ve been watching the space in like I think this this month Wendy’s rolled out a new points for purchase program and PepsiCo launched a points for for purchase program so I despite the fact we’re all pooh-poohing these like basic frequency programs it seems like brands are still doing them with I’m curious like do you think those are working for those brands or do you think it’s just, just in an experiment or ill-advised. Robbie: [50:58] I don’t I mean I think in many cases it’s it’s a starting point for an organization to begin building a relationship with their customers it’s a way to start you know in a lot of cases it’s just a way to start tracking Behavior at the unit at the individual level and so I understand why they would do it I don’t. You know in terms of driving loyalty you know I’m not I’m not sure that it’s the best. Kind of most sophisticated newest way to drive actual loyalty. You know it in contrast to Wendy’s you know Burger King has a subscription where you get unlimited coffee for five dollars a month. Jason: [51:39] Yeah that’s a new thing huh pant Panera is doing that as well yeah. Robbie: [51:41] Yeah there’s this nine dollars a month because it’s better coffee I guess. Jason: [51:46] Side note they open at like 9:00 a.m. so I’m not subscribing Manny any coffee Solution that’s not delivering coffee like when I wake up. Robbie: [51:54] In the morning. Jason: [51:55] Which I wish I woke up at 9 a.m. but that’s a those days are long gone I’m afraid let me ask you the most personal question of also I have a 77 year old mother last month she bought herself an Apple TV in miraculously installed it and subscribe to Disney Plus exclusively so she could watch Hamilton and I’m super fascinated to find out if she’s going to keep that subscription for years or if she’s canceling it in a month. Robbie: [52:22] Well so I’ve to thought so first of all I also have a 77 year old mom and she has dramatically changed all kinds of behaviors during this covid time and is subscribing to all kinds of new things as a result of this so This is actually a lot of organizations are having a moment right now where consumers are being forced to rethink their habits and find you know new ways of entertainment new ways to interact with their friends new ways to stay fit so it’s very exciting in the world of subscriptions for me from from that perspective in terms of Disney plus and Hamilton what’s really interesting I mean there’s a bunch of interesting things so first of all you know Disney versus Netflix you know they have a much more you know complex ecosystem of offerings and so they don’t necessarily have to make money on the Disney Plus in the same way that Netflix depends on their subscription Revenue the the Hamilton thing you know he’s shutting down the free trial because you know what it tastes like it tastes like princesses and National Geographic you don’t need to you don’t need a free taste it taste like Hamilton. And you know I think they were hoping that you know they did see a huge spike in acquisition specifically to get Hamilton but I’ve also heard a lot of people saying well you know effectively it’s 699 to rent Hamilton for the month which is still a pretty good deal. [53:49] I don’t know if Disney is fine with that but what has been surprising to me is. You know if you watch him within the recommendation that they gave at the end of it then that you know if you like Hamilton maybe you’d enjoy The Sound of Music which was sort of like if you’ve enjoyed watching 3 hours of you know Broadway musical maybe even join other three hours of Broadway musical right on its heels was really surprising to me I expected. Jason: [54:15] Kind of an underwhelming a i personalization experience isn’t it. Robbie: [54:19] Totally I was so surprised and so is lin-manuel Miranda by the way cuz he wrote you know he was like does my dad have the control at Disney. You know it’s sort of crazy and then the other thing is I haven’t gotten a lot of emails or in product engagement from them encouraging me to onboard and explore their offerings in a more sophisticated way which is which makes me think that probably a lot of people that plan to just come in you know the idea of having some kind of a teaser to get people in the door is you know you come for him Elton but you stay for National Geographic or you stay for the princesses and I don’t know if they’ve gotten enough people to make that leap. Jason: [55:01] Yeah yeah I know it’s going to be it’s going to be interesting to watch I’m with you though the it feels like lack of personalization is a huge miss here for example. Is regular listeners will know Scott is the huge Star Wars fan of all time so he’s been a Disney plus member from day one and he has no idea that they have Hamilton right and yet. Scot: [55:22] Not true not true. Jason: [55:25] But I’m just saying like. Robbie: [55:26] Disney hasn’t told. Jason: [55:27] Your lifetime spend on Disney properties I’m gonna guess greatly outweighs your lifetime spend on Broadway properties. Scot: [55:35] Probably here but I like Hamilton absolutely I think it’s fun to go from Hamilton into mantle and I think I think your grandmother should go that path. Jason: [55:43] Yeah I didn’t realize you were going to get all defensive on that you’re very cultural I wasn’t trying to imply you weren’t sorry but yeah but you could imagine I mean there are a lot of Star Wars fans that probably aren’t big Broadway musical fans and yet. They’re getting the exact same marketing experience for Hamilton as anyone else. Scot: [56:02] Yeah it’s tough when you have limited content I know we’re up against time and so part of your your gig is you do a lot of Consulting with companies on these topics maybe leave us with some parting thoughts on common pitfalls you see folks fall into or even on the other side of the coin wins for folks that want to get involved in the subscription economy. Robbie: [56:24] Yeah so I think the one thing that we haven’t really talked about a lot is this idea of I think the best subscription business is start with what I would call a forever promise what is the long-term impact that you’re helping your customer achieve what is the long-term goal that you’re helping them achieve what is the problem you’re helping them to solve that is an ongoing problem and then to optimize the offering around that problem so in your world of car washes for example right. I don’t want a faster car wash I don’t I spoke at the International Car Wash Association last year and you know one of the things that sort of shocked me is how often they talked about you know this brush takes nine minutes versus that brush which takes 10 minutes so you know we’re going to shave 37 seconds off of the experience, when I think what a carwash customer really wants is a clean car, and you know I don’t want to spend 10 minutes there or nine minutes there or 14 minutes there I want to not spend any time there and just have my car be clean. And so. Scot: [57:26] Did you mention spiffy atisha by chance someone told me someone was talking about Smith yet. Robbie: [57:31] This is like 2 years ago now now but I will in the future. Scot: [57:33] Okay okay all right yeah no thanks yeah. Robbie: [57:36] Yeah but it’s a very different model because you’re looking at it you know more aligned with how the customer sees it which is like I would rather never go to the car wash and just have little elves and fairies come and wash my car while I sleep. Scot: [57:50] I’m going to call it right here this the best guests we’ve ever had Jason. Jason: [57:54] Yeah somehow I thought you’d be aligned with that comment. No but I mean even if it is your idea it still makes total sense to me that you you sell the outcome not the service right. Robbie: [58:05] And the on yeah sorry yeah the ongoing outcome Beyond you know because if in a subscription it’s about you know I don’t want have my car be clean and be dirty I want to clean and dirty I want to just I just want to have a clean car like what what do I have to do to just have my car always be clean what do I have to do to always like in the world of you know you talked about Stitch fix or Le todor Rent the Runway what do I have to do to just always look good, professional. That’s that’s the promise I want and the closer those companies can get to you know making me always look and feel my best the more I’m going to be willing to trust them with my credit card. Jason: [58:41] Yeah and one step up on maslov’s hierarchy of needs I just want my wife to be happy and she’s only going to be happy if he has a clean car she’s only going to have a clean car if Scott comes and cleans it every week. Scot: [58:55] Yes with with an espresso. Jason: [58:58] Exactly so basically gets Biffy is selling marital happiness if you really think about it. Scot: [59:03] Yeah we we it’s I often say it’s better than a dozen roses. Jason: [59:08] We’ll listen Robbie this has been fascinating we could talk about this all week and I suspect Scott’s going to want to do that with you after the show but it is happen again we’ve used up all our allotted time as always if there any topics we didn’t get to the listeners are dying to bring up feel free to hit us up on Facebook or Twitter if you enjoy the show we sure would appreciate it if you could jump on iTunes and give us that five star review we’re not even looking for a ongoing Financial subscription commitment just a five star review. Scot: [59:39] Robbie really enjoyed having you on if folks want to follow you online and do you prefer Twitter LinkedIn Snapchat and stuff where where’s your where’s your best spot. Robbie: [59:48] I’m on all those places but I’m probably most active on LinkedIn. Jason: [59:55] Well we will put your your particulars in the show notes and until next time Happy Commercing!