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The subscription business model
From pet toys and meal kits to music and movies – it seems that there is a subscription-based service for just about everything. And it’s easy to see why so many companies have chosen this path.
The subscription model aligns with the ever-growing demand for convenience. Customers aren’t hassled with the purchase decision – whatever it is they need (or want) just shows up. And because the price is set at a fixed rate, the customer always knows what she is getting and how that fits in to her budget.
Subscription businesses also mean recurring sales, so businesses are better able to predict their revenue. This helps businesses manage resources and inventory as well as accommodate their expected growth more efficiently. And as an added bonus, guaranteed revenue is a particularly attractive trait when it comes to potential investors.
Aside from the financial and logistical benefits of a subscription-based business model, there is the intangible value it offers both the customer and the business. After all, it’s not just about getting a product or service to the customer, it’s about developing a relationship with the customer. And if the business is not holding up its part of the bargain, the customer will cut ties. So the business must constantly be pushing to create a better customer experience and to bring more value to the table than anyone else. And this, in turn, creates a sense of trust and security for the customer – turning what could have otherwise been a one-and-done exchange into a real partnership.
Yet, with so many subscription based services vying for a customer’s attention, how does a business stand out? And once a business has that relationship with the customer, how do they maintain it? And is a subscription based model really the right move for every business?
To help answer these questions, we recently sat down with Andy Levitt, CEO and Founder of Purple Carrot – the plant-based meal kit business that was recently in the news for its “Peak Performance” partnership with Tom Brady. We talked about why the subscription model works well for them, how they create an exceptional customer experience, and what’s in store for the future of the company.
Why a subscription model instead of a a pay-as-you-go model? Is it better for business, better for the customer?
When I first launched Purple Carrot in October 2014, we were a pay-as-you-go company, largely because I lacked the confidence that people would subscribe because it was all so new. Each week, the number of customers would climb, and then plummet back to zero, and I would start all over again. As the business continued to evolve, people would start to email us and ask where their weekly box was, as the concept for subscription meal kits took hold and they assumed that we too were a subscription service. We switched over in November 2015, and its been a great concept for us as a business and for the consumer as well. Our business has far more visibility into our upcoming demand, and our customers can rely on us each week to curate incredible plant-based meals.
What’s your strategy for keeping customers happy? How do you ensure your retention rates?
Our meals are 100% plant-based, easy to prepare and expose people to cuisines and flavors that they are likely to not have tried before. Sure, they are hearty and packed with nutrition – but they also just taste delicious, and that’s what keeps customers coming back. Our Head Chef worked for Whole Foods Market for 6 years, and ran a progressive restaurant in Boston for two years, and does a really great job at using seasonal produce to create unique recipes each week that can be made in just 30 minutes or so.
What are the hurdles and challenges of a subscription-based business?
The meal kit industry has evolved from its infancy phase into a category that has piqued the interest of consumers and big brands alike. As a few of the more established players showed early signs of success, there has been a rush of ‘me too’ companies, many of which are going after a similar target audience. With that growth come a lot of aggressive trial offers to entice someone to switch services, and that leads to very promiscuous customer behavior. It underscores the need for companies to create a unique bond with their customers, and help people feel like they are a part of something larger than themselves. As we’ve seen over the past six months, some of these competitive entrants have not been able to make the economics work and have closed down. What has emerged is a core set of leading companies, each satisfying a particular consumer segment – and each working to differentiate to create loyalty among their user base.
How do you set yourself apart with so many subscription models in the market?
We’re the only company in the industry that delivers exclusively plant-based meal kits. Our mission is to empower people who want to consciously and easily integrate plant-based eating into their life — while not completely giving up meat, fish and dairy — or becoming what we call a “Balancetarian.”
Even if only a few times per week, eating plant-based meals has a positive impact on people’s health, the environment and animal welfare.
In what ways does Purple Carrot focus on innovation (outside of the menu)?
We just reduced the size of the box we use to ship ingredients to our customers by 37%. We also switched to a 100% curbside recyclable liner. These two initiatives make a positive contribution to reducing our environmental impact.
What does the future of the Purple Carrot brand look like?
So far, 2017 is off to our fastest start ever with growth rates exceeding our expectations. We also saw an unbelievable response to our recent partnership with New England Patriots Quarterback Tom Brady and his team at TB12 when we launched meal kits aligned with his nutritional philosophy. We’re exploring other partnerships with like-minded brands and celebrities that share our belief in the power of plant-based eating as the category continues to grow.
Since launching the business in October of 2014, we’ve expanded to ship to 70% of the United States from distribution centers in New York and LA – and we plan to ship to about 90% of the continental U.S. before the end of the year. With the growth of the convenience economy, the meal kit industry as a whole has grown to a $1.5 billion business – a number that’s expected to continue to rise. We’re really excited to be a part of that growth.