I. Backgrounds
The purchasing behavior of e-cigarette users has a higher repurchase potential, but there will still be losses due to brand competition, price changes and other reasons. In order to improve the conversion rate from ordinary users to loyal users, it is necessary to develop a reasonable mechanism to bind consumers to the brand’s e-commerce purchasing channels.
II. Start from Current Customer Insights
Find the key metrics:
1. Retention rate of a new user in e-commerce channel
If there are 1000 first-time users in the M0. 500 of these users repurchased in the M1, the retention rate in M1 would be 50%.
Using the data of the past year, the number of new users and the number of repurchasing users in each month are accumulated to obtain the retention rate matrix and table.
*Schematic diagram, data does not represent the real situation
2. Repurchase time gap
Calculate the time difference of each repurchase user get a general idea of the order frequency.
In this case, the repurchase time gap is 30 days.
3. Monthly consumption/ Basket size
Find the basket size of E-liquids from those repurchase orders. Get the idea of how much packs of E-liquids the loyalty users would like to purchase.
III. Deep Dive
Generate assumptions of how much GMV and margin would increase with the Subscription model.
1. Competitors
Run through the competitors’ Subscription Program. Capture the products, offers and thresholds.
Eg. Brand A offers 3 tiers of discount.
5-9 packs 27% off, $10.21/pack
10-14 packs 30% off, $9.8/pack
15+packs 33% off $9.38/pack
30-day interval, free device replacement every 6 months
2. Inhouse value chain
Calculate internal costs including website development, logistics and warehousing, payment gateways, and cost of goods.
Find the final cost of the products and calculate the margin with proposed price.
3. Assumptions
Key assumptions including:
a. How many users will join the Subscription:
Monthly users (1000) = unsubscribed new users(100) + unsubscribed repurchase users(500) + subscribed new users(80) + subscribed repurchase users(320)
b. How long will these subscribed users stay:
Based on the knowledge of retention rate, set a reasonable churn rate for each month.
3. Business Forecast
Given these key assumptions, calculate the total revenue of Subscription and comparision.
The gap between blue line and yellow line stands for the increases of revenue from Subscription Program.
The green bar shows the estimated revenue from Subscription Program.
The grey bar shows the revenue from the normal orders.
IV. Decision Making
Conclude the business forecast in the program proposal and ask for discussion with stakeholders.
1. Boundaries
Balance the opinions from each sales channel. Make the maximum digital growth without hurting other stakeholders’ benefits.
2. Risks
Evaluate risks that may occur in the project, such as malicious orders, inventory management, development difficulty.
3. Decisions
Finally, decisions are made on key mechanisms, including price gradient, new users’ rights, and entry thresholds.