Dollar Shave Club (DCS) – Viral video launches an overnight business success

Student : Tony Singh
Student Number : 212401746

Viral video hits the mark – Dollar Shave Club

 

Dollar Shave viral video proves a good approach to marketing metrics can drive business results.

The Market

Its surprising to find that the market for razors alone is a “whopping $14 billion worldwide”. Ninety percent of all sales are coming from two manufacturers: Gillette and Schick. As the saying goes success invites competition so it’s not surprising that the good folks at Dollar Shave Club (DSC) would emerge.

Our razors are F$%^ing great!!

By starting with a simple video that went viral the the dollar shave club have had phenomenal growth in 2012. In just 2 days they received 12000 subscribers in 2 days. By the end of 2012 the company had made $4 million, in 2013 they reached $13 million. In 2014 this went to $64 million.Ref.

The Dollar Shave club created a unique value proposition that has definately resonated with men everywhere. They

  • Helped people save time they would have spent buying razors.
  • They save money as the razors are cheaper than what you buy in the store.
  • The customer has a regular supply of sharp blades.

What is CLV?

CLV (Customer Lifetime Value) is an important metric that is often misunderstood many companies. B2C businesses should be aware but very few are.

Challenges arise as to the measure of it due to the many different ways the information can be gathered to influence the figure. Put simply the CLV is the amount of revenue a customer will generate for a business over its product lifetime.

The question should always be asked : how much should a company spend on marketing campaigns? Who are my customer segments? What products should I offer etc? Lead generation is a key marketing focus but a company must ask itself how much is this lead worth and what is the cost of new leads.

customer-lifetime-value

Subscription services

The whole DSC model is to pay for the razors via subscription.Subscription services are a good way to maintain, retain and collect revenue from customers. A product needs to be compelling and valuable to a large consumer base to be effective. Calculating your Customer Lifetime Value (CLV) needs to be paramount in managing your business.

A simple CLV for dollar shave could be calculated as follows:

A standard subscription is $7/mo. So the question is how much should Marketing spend to acquire a new customer? Let’s find out.

CLV = (Average Order Value) x (Number of Repeat Sales) x (Average Retention Time).

CLV = $7 * 12 months * 5 years  = $420

This means that user acquired today would be expected to generate revenue of $420 over the next 5 yrs, OR  $84 per year.  If the Dollar Shave Club is to break-even within a year it can afford to spend up to $84 on marketing/sales to acquire a user. Therefore the Customer Acquisition Cost (CAC) = $180

Knowing the CAC changes the formula to CLV = average revenue from a customer per year * average retention rate – CAC.

The key to understanding the CLV is that the CLV > CAC and that companies should look to recover the CAC in the year.

CLV is a key part of a companies strategy so is not widely published but some other companies assumed CLV based on analyst reports is

  • Apple: iPhone = $700 to $900; Mac = $600 to $650; iPad = $275 to $300 (Bernstein)
  • eCommerce companies: Best in class = $3600; Other companies = $1300 (RJMetrics)
  • Starbucks, supposedly, has CLV of ~25K. Read on for Starbucks CLV analysis.
  • Netflix = $291.25

The Dollar Shave Club uses a number of other metrics to understand the desires of their user base. The Monthly Average Revenue Per User formula which is calculated as follows

Monthly Subscription ARPU = Subscription Revenue / Average Subscribers

This allowed DSC to understand the average subscription revenue generated per user each month. The easiest way to calculate this metric is to take the revenue generated from subscriptions and divide it by the average number of subscribers over that period.

DSC also uses a a churn percentage to understand customer patronage. This is calculated as

Monthly Subscriber Churn Percent = Subscribers lost in month / Base of subscribers at beginning of month

Any subscription-based model should understand monthly subscriber churn. For instance after 36 months, a company with 1 percent monthly churn will retain roughly 70 percent of its customer base. On the flip side, a company with a 6 percent monthly churn will only retain 11percent of its customer base.

Understanding these metrics has helped Dollar Save club growth and adapt their brand and offering to an already engaged market.

The take away

Understanding the CLV and other marketing metrics of your product specific to individual/segmented customers can help marketers target specific product/content. Customer’s happiness equals success for your brand and this in turn translates to more revenue and brand recognition for your company.

Dollar Shave Club have created quite an impression on a traditionally boring market. Simple marketing metrics gives you deep insights into customer engagement.

Reference

  • Rao, P (2016),  CLV: One key metric that every company must measure,  https://pramodrrao.wordpress.com/tag/dollar-shave-club-clv/ [Accessed 30 September 2016]
  • Ray, T, Apple: Bernstein Sees $204B in ‘Customer Lifetime Value’, http://blogs.barrons.com/techtraderdaily/2012/02/06/apple-bernstein-sees-204b-in-customer-lifetime-value/ [Accessed 30 September 2016].
  • Saljoughian, P (2015) Easily Measure The Profitability Of Your Consumer Subscription Business, https://techcrunch.com/2015/10/05/easily-measure-the-profitability-of-your-consumer-subscription-business/ [Accessed 30 September 2016]
  • Weintraub, T , Lifetime Customer Value Case Study: Starbucks [Infographic] [Accessed 30 September 2016]
  • Ziehl, M (2016), 5 Things You Can Learn About Subscriptions from Dollar Shave Club, Available at http://blog.rechargeapps.com/5-things-you-can-learn-about-subscriptions-from-dollar-shave-club/ [Accessed 30 September 2016]

 

 

Pricing for Group Effect

By Tony Singh ID 212401746

The prevalence of online discount coupons sites are becoming very popular in a deal hungry online population. Consumers are scouring the web for better deals on restaurants, hotels and vacations, hair and nail care, and a plethora of other goods and services.

Groupon Main Page

Source : Groupon Australia

Groupon is a market leader in this space offering a compelling interaction between businesses and consumers by presenting goods and services at a discount. Sometimes at very substantial discounts from the normal retail price. It is this platform that allows Groupon to be so successful. Launched in 2008 the site is extremely successful website recently passing in a $6Billion buyout from Google.

The concept of coupons is based on the loss leader principle. The idea is essentially this – consumers take advantage of a significantly discounted one off purchase for a good or service with the tail end benefit being that this same consumer will later pay full price for the good or service at the next visit. Further the site regularly offers enticement for higher valued items in the same discounted offering. The coupons are time boxed and are only available for a short period of time.

Loss leaders are a known pricing strategy and is key for allowing your business to gain new customers and increase return visitors. This is precisely what Groupon seeks to promote to its business subscribers

 

How discount sites work?

Groupon and other online coupon sites offer discounts on goods and services based in your local area. This allows the platform to maintain a degree of personalisation to the experience. The offers are local and relevant. The coupons are not actually distributed until a specific critical mass of people have committed to the purchase. No coupons are a issued if there are not enough people expressing interest or laying down commitments to purchase the coupon.

The concept works on a win-win basis. Groupon have developed a platform that allows businesses to present a deal or coupon to new customers, they get a 50% cut of bringing in that new customer and the business win by bringing their product or service to a new customer. Other sites have tried and are operating in this space but Groupon has grabbed significant market share. As the NY Times describes “It has 175 North America cities and 500 overseas, it is the fastest growing web company in history having attained a value of $1.5 Billion in only 18 months”

 

Why would consumers use them?

NowLater

Discounts work on the principle of urgency. Groupon have made online discounts an artform by limiting the discounts availability to a specific period of time. Time boxing this creates an immediacy that is compelling to a number of potential purchasers. The psychology of the purchase is that If they don’t buy the product now at the discounted price, they’re likely to miss out on saving some money. The anticipation of the consumer missing out is the precise reason the power of Groupon works. According to the Pleasure Principle and the Regulatory Focus Theory people seek pleasure and avoid pain. The author of Yoast asserts that it is this anticipation of missing out on a discount is definitely a pain people will want to avoid.

Of course discounts represents prudency when it comes to purchases. Why wouldn’t you want to save money on consumer goods and services? Consumers are always looking for the best deal when parting with their dollars. However there are some negatives when it comes to this form of service offering

 

Are coupons a good thing?

Psychology today asserts that the american consumer is crazy about coupons. The publication details that 40% to 80% of Americans use coupons regularly. On first review its seems that this is what any prudent or efficient shopper should do but on deeper analysis the following is a key issue for consumers and users of coupons like Groupon.

  • Pricing is ignored when using the coupon. Evidence shows that consumers are often excited by the prospect of getting a deal and focusing on the percentage saving without analysing whether it actually is a saving. Cautions should be made with using coupons and Groupon are experts at creating the gloss and glamour of a good deal.

MainGrouponPage

Source: Groupon Australia

  • Coupon purchases are often done often with things that people do not essentially need. An american consumer report identified that 63% of consumers bought things they don’t need because of a coupon.

From a business perspective this may be ideal as a one off purchase for your goods. But to build a sustainable brand and customer loyalty you need to promote goods and services hat resonate value to the consumer.

Coupon Value Concerns

Groupon says that the system works and works well. It claims that 97 percent of companies that offer deals on the site ask to be featured again. But some questions have been raised as to Groupon’s efficacy for businesses. Some businesses complain that Groupon customers are bargain chasers who quickly move on to the next cheap offer. This has mentioned previously does not build a sustainable offering. In fact, a recent study at Rice University found that 80 percent of customers who buy discount deals from sites like Groupon and LivingSocial are first-time customers, and that only 20 percent of them ever return. Even worse for the bottom line, only 36 percent buy goods or services beyond the value of the Groupon

Interestingly, it was found that one in five people who buy a Groupon or similar discount never redeem the voucher. Instead of losing 50 percent on the deal, the business gets paid for not providing any product or service.

 

Chasing a bargain has never been easier but how sustainable the model is for your business remains to be seen.

References

 

Tesla’s Power Solutions – Power packs pack a punch

By Tony Singh. ID – 212401746

Tesla.. Transforming the world one electron at a time.

What is the Tesla Power Wall?

The Tesla power wall is an innovative new product from the world’s most recognised brand in consumer electric automotive and energy storage. Their latest offering of consumer power storage for households is an exciting move for the company that wants to disrupt the power consumption market with a very simple alternative – Store the power from your solar cells so it can be used when you want.

If Elon Musk (CEO) is successful he would have discovered the Holy Grail of consumer power.

The Powerwall  is a home battery that charges using electricity generated from solar panels, or when utility rates are low. This allows you to use this power in the evening or when necessary. Powerwall enables domestic consumers to fully utilise stored power. This was difficult to achieve some ten years ago as battery technology was in its infancy.

 

Power just got sexy

The look and feel of the Tesla Power Wall is almost that out of science fiction or an Apple iPhone lab. It is slick and smooth showing all the hallmarks of good design.

 

 

 

 

 

 

 

 

The base model is a 7kWh lithium-ion battery storage system that comes with a 10 year warranty. Keeping a slim design focuses the brand as a modern device suitable for the home rather than a bulky looking industrial box.

It is with this design that Tesla believes will appeal to the consumer power market. The science behind the problem is deceptively simple given the advancement in battery technology.

Segmentation

Tesla is pitching the Powerwall solution to the established solar panel market. Tesla have their sites on the Australian market as there has been large scale adoption of solar panels. According to the Energy Supply Association of Australia, we have the highest rate of household solar panel installations in the world.

Current pricing has the units set at $14,000 to $15,000 or $12,000 if you already have solar panels. Depending on energy needs of the average house additional batteries may need to be purchased but the system does scale.

Not all domestic power consumers will find the solution useful this is why Tesla have kept the segmentation very simple. Basically you have two options – Power Pack for business consumers (small scale offices) and Powerwall (domestic households)

Different Types of Powerwall

Source : Tesla Australia

Domestic consumers are the key target market. Tesla plans for Mums and Dads that have already invested in solar panels to allow them to leverage their solar power investment further.

 

Targeting the wealthy?

Do only rich westerners get a look in here? Tesla have identified the big problem of the new century. Affordable power storage for everyday consumption. The solution suits a very specific demographic.

Tesla are targeting middle class Australian homes that can afford the start-up costs in installing the solution. The demographic is cost conscience mums and dads looking to get a return on investing in do it yourself power provision.

Return on Investment (ROI) Calculators are the first to offer detailed advice on how the investment in it can provide a return. With certain groups claiming that a the Powerwall solution can deliver a 6 year payback in Australia.

“In Australia, the price you are paid for the excess solar power your home generates is lower than the price you pay for electricity from the grid,” a statement from Tesla says.

“Given this rate structure, it is more cost effective to consume your solar power than to sell it back to the utility. By storing your home’s surplus power and using it when you would otherwise need to pull from the grid, Powerwall minimises your net spending.”

This is the key benefit of the solution and Tesla are banking the farm on the success of this strategy.

 

Positioning the power wall

Forbes recognises the huge potential of the stored energy market. American Vanadium predicts massive growth in this sector

Given the brand recognition of Tesla products being of high quality coupled with the worlds increasing need to find better alternative power alternatives, the Powerwall is geared for growth.

As far as where the Powerwall sits on the positioning matrix

Matrix

Source : Iacobucci p61

It is clear the product sits on the high end side of the ledger. Distribution is exclusively managed through key third parties or via Tesla’s online presence. There are few options in terms of products on offer but the problem is defined very simply. Musk is masterfully promoting the problem as a solution that will change the world. As he states 

“Tesla is not just an automotive company, it’s an energy innovation company. Tesla Energy is a critical step in this mission to enable zero emission power generation.” He professes a simple dilemma that will resonate with any consumer of power; which is all of us

“We have this handy fusion reactor in the sky, called the Sun,” he said, stressing that solar power is the best way to end the world’s addiction to fossil fuels and head off a disastrous future in which we are overwhelmed by CO2 in the atmosphere.

The opportunity to change the world might be just here…

 

References

 

 

 

 

  • Iacobucci, D 2013, MM4 Marketing Management, 6th Edition, Cengage Learning, Mason USA.