Recurring Savings from a Touch-Free Program Design (that Customers Already Love)
- Jan 22, 2021 3:34 am GMT
This item is part of the Special Issue - 2021-01 - State of the Industry, click here for more
I start my day by listening to a meditation on Headspace, with a strong cup of Kicking Horse coffee from beans Amazon delivers every month. Then I take a spinning class on my Peloton, drink a Daily Harvest smoothie, and brush my teeth with my Quip toothbrush and toothpaste. The dogs get a walk with leashes that came in their Bark Box, then are fed food that arrives magically each month from Chewy.
My UPS driver might disagree with the “magical” part, if his grimacing face on our Ring app as he unloads three 40-pound bags of kibble is any indication. But hey! Free shipping!
I shower and shave with my Dollar Shave Club razor and shaving cream, then get ready for work. In between meetings, I listen to country hits on Apple Music as I power through my to-do list. After work, I watch whatever season of Real Housewives is on YouTube TV, read a book about someone who is simultaneously renovating a cool old home and solving a murder on my Kindle (free with Amazon Prime!), or binge watch Tiger King on Netflix with my family.
Just kidding. That last part was so 2020.
Why do I mention all this in an article about 2021 trends in the utility sector? Well, if you haven’t already jumped ship for other articles about electrification or storage, you may have recognized the common theme here: subscriptions. They’re such an integral part of modern life, I can’t get through a day without using ten of them. And if you add in all the monthly and quarterly subscriptions—the Kiwi Crates for my nephew, the FabFitFun beauty products for my teenage daughter, the Beer Drop IPAs for my husband, the Wine Access rare reds for me—you might begin to wonder (like I did) why the utility industry hasn’t jumped on this pop culture bandwagon yet.
According to a 2018 study from McKinsey & Co., 15 percent of online shoppers have enrolled in one or more subscription programs, so I’m not alone in my desire to automate the mundane. And that was before we started living through a pandemic that’s resulted in my 70-year-old mom (who didn’t even know how to access the internet a year ago) ordering groceries online and binge watching shows on multiple streaming services.
The reality is, subscriptions are not just convenient for customers, they also make good business sense. They’re capable of driving both top- and bottom-line growth by removing barriers and costs to acquiring energy savings. Subscription-based kit programs help attract more customers, provide predictable savings, increase the return on customer acquisition costs, and increase savings from upselling and cross-selling. In 2021, continued digital disruption will require utilities to explore new energy savings models like subscriptions, where long-term customer relationships are the foundation of savings growth.
To be fair, I’ve been trying to make subscriptions a thing in utility-based e-commerce for a while. I was beginning to feel a bit like Gretchen Wieners in Mean Girls trying to make “fetch” happen (hint: they spend the entire movie telling her it’s never going to happen). For a subscription model to work, you typically need to run out of something on a predictable schedule—like my Kicking Horse coffee or my Daily Harvest smoothies. So, the main problem we kept running into with utility-based e-commerce was that most of the products we sell in this industry are designed to not wear out. ENERGY STAR® LED light bulbs can be left on for 25,000 hours straight before they burn out. WaterSense® showerheads will be replaced for free if they die within their 10-year warranty. In terms of a viable subscription model for traditional e-commerce products, the best ideas we could come up with were furnace filters for residential customers or pre-rinse spray valves for small businesses, like restaurants. Not terrible ideas, but not a very long list of potential products, either.
As a result, we began examining other subscription models. We wanted to see if there were models other than the “run out” version that might be a better fit for utility-based program designs. We identified two: (1) offer a service that’s renewed each month—like my Headspace meditations or my Peloton workouts, or (2) develop a theme and send different products on a predictable schedule—like my nephew’s Kiwi Crates or my husband’s Beer Drop.
Our options may be limited in terms of things that wear out, but the idea of service-based subscriptions for things like annual HVAC service or warranty coverage, or putting themed products in a box and shipping them on a predictable schedule might be viable. The former could work as an upgrade in an integrated marketplace module focused on major measures like heating, cooling and water heating, while the latter could work as an upgrade to the myriad kit programs that have been around forever.
E-commerce and kit programs are already customer favorites, and they’re already extremely cost-effective and easy to evaluate. Why not upgrade them with subscriptions to provide an additional boost in predictable, cost-effective savings? In our current pandemic-infused reality, they’re even more valuable as two of the few proven, low-risk, touch-free program designs. In fact, AM Conservation Group saw a greater than 300 percent increase in e-commerce sales in 2020. One opt-in kit program in a very saturated market overachieved savings goals nine months earlier than forecasted. Even as the leading provider of kits and e-commerce fulfillment services in the utility industry, we never see this kind of enthusiasm in a “normal” year.
But as we know, 2020 was nothing close to normal. And 2021 won’t be either. People’s habits have changed, and these current trends aren’t likely to reverse, even when the pandemic has ended.
In last year’s Predictions & Trends article, I wrote about using personalization, technology and interconnectivity in our customer engagement initiatives to better meet customer expectations and improve program participation. Subscription-based kit programs are a practical application of that approach, providing long-term customer engagement, improving customer satisfaction and helping address savings gaps caused by pandemic-related program slowdowns or shutdowns. Are they as exciting as decarbonization? Not really. But they contribute to load reduction efforts from energy efficiency and demand response, which helps reduce the use of carbon-emitting energy-generation sources during peak times. And they’re a highly visible, well-received example of utilities caring about their customers’ energy consumption and its associated impact on the environment—which is something 27 percent of all consumers are very concerned about, according to the Smart Energy Consumer Collaborative’s (SECC) 2020 State of the Consumer Report.
4 Steps to a Successful Subscription-Based Kit Program
An effective subscription offering must facilitate the end-to-end experience—from the initial enrollment all the way through to fulfillment and renewal cycles. These four steps will help ensure your program design will be not just viable, but successful.
- Determine a theme. Just like Bark Box focuses on dog toys and treats, your utility’s subscription kit needs a flexible theme around which to tailor the contents. Maybe your kit subscription will include season-specific or room-specific products. Just remember, a slightly more generic theme will be easier to personalize and scale over time.
- Determine a frequency. Will your subscription be delivered monthly, quarterly, twice a year or annually? Think about the products you’d like to provide, your budget and how to relate the delivery schedule to your overall theme. Also consider how customers will enroll the first time and whether they’ll get their first kit immediately or have to wait until the next regularly scheduled kit goes out.
- Ensure personalization. Not everyone wants a shiny, chrome, egg-shaped showerhead and not everyone needs four LED globe bulbs. Think about how you can allow your customers to personalize the contents of their subscription to some degree and remember that even the feeling of personalization goes a long way (and won’t break the budget or overcomplicate things the way full personalization might). Add-on products or upgraded products are a way to provide more personalization, often at no additional cost to the program (insider secret: people will pay a little extra for that WaterSense rainfall showerhead, which is a win-win). According to McKinsey and Co., 28 percent of consumers said a personalized experience was the most important reason for continuing a subscription, and they expect the personalization to get better over time. So, make sure you’re running analytics and leveraging dynamic content in marketing to ensure expectations are met.
- Don’t forget marketing. With any opt-in kit program, marketing is a requirement. Just because the kit is free (or low-cost), don’t expect it to sell itself. A strong, integrated marketing plan will be necessary, with digital marketing-based nurture campaigns and the content to fuel them, as well as a suite of relevant transactional messaging (e.g., order confirmation, shipping confirmation). Upsells, cross-sells, returns and add-ons should be integrated into each journey. And the end of each customer’s journey should include a feedback loop to continuously improve the program and encourage referrals. After all, a recommendation is the primary reason consumers initiate a new subscription, according to McKinsey and Co. Subscription models deliver a higher return on acquisition costs by increasing the overall customer lifetime value, but upfront investment in marketing is required to make it work.
For leading utilities, the world of “one-and-done” kit programs may be gone forever. And why shouldn’t it be? Instead of a single transaction, you can make a gateway to a lifetime of business built not just on just energy- and water-saving products in kits, but on more complex smart home products, professional services like energy audits or installation of major measures, aftermarket services like warranties or whole-home surge protection, and even usage-based services like different rate programs or demand response.
By providing multiple avenues to deliver value, utilities can build long-term relationships with their customers. In addition to the energy savings, program enrollments and non-regulated revenue potential through integrated program designs that incorporate kit subscriptions, the data generated through these customer journey-based program designs generate valuable customer insights. When used correctly, this information can deepen personalization and therefore increase the value to the customer. It can even be used to develop new products and services, while improving marketing and increasing conversions. Brand loyalty is formed by providing a variety of touchpoints and complementary services accented by exceptional customer service. Subscription kits aren’t just trendy; they’re the proven way to achieve that brand loyalty in 2021. Take inspiration from Bark Box and consider it. I promise the results will be so fetch.
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