More than 63 million U.S. households own a dog, according to an American Pet Products Association survey from 2019, a number that has increased within the last year, as adoption rates rose by 15 percent in 2020. Many consumers, hunkering down and working remotely, have sought companionship during the pandemic by welcoming new furry friends into their homes, and animal shelters have struggled to keep up with the demand.
The U.S. pet industry is not surprisingly booming, with the online pet market almost quadrupling since 2013 to reach a worth of $99 billion. Online shopping has surged within the past year as consumers avoided unnecessary exposure in public spaces and sought convenient ways to buy new products and services. Subscription boxes provide consumers with the surprise and delight of trying new items from the comfort of home, and pet boxes have entered the market to offer toys, treats and gear.
Canine toy company KONG Co., which sells toys in more than 80 countries, is one such pet brand that joined the subscription bandwagon two years ago with its KONG Box. Monthly subscription plans start at about $40 per box and include treats, training toys, tips and recipes. Classic KONG balls are durable rubber chew toys with holes through which pet owners can insert kibble for enrichment. The idea for the company, founded by Joseph Markham in 1970, came when his dog Fritz chewed on a rubber part while Markham was repairing the suspension on his Volkswagen Bus.
“We really wanted to make this fun and get these toys into customers’ hands on a regular basis,” president Dan Probst of KONG Box told PYMNTS in a recent interview. “It’s fun having items that maybe you wouldn’t normally buy or didn’t even know existed conveniently show up. We have built this business where it is more than a subscription and more like a membership that you join and get lots of benefits.”
Customer Retention
KONG Box had a shaky start. One of the promotions the company tried to entice customers with was to offer their first box for $1 if they enrolled in a subscription. A blogger encouraged dog lovers to sign up with a prepaid Visa card and then cancel to receive their dollar boxes.
“It was a major blunder that cost us just under $1.8 million,” Probst said. “We’re continuing to learn.”
KONG Box has learned its lesson and no longer provides introductory offers. Doing so has helped the business move away from “fly-by-night customers” and into the right direction, Probst said.
As with many subscription services, customer turnover, or churn, is one of the metrics Probst has kept a close eye on. Plan cancellations are just one data point he analyzes. The other, which he calls passive or inactive churn, happens when a customer’s credit card fails.
“These customers didn’t actively go in and cancel their subscriptions, but by default, they are now in this weird state where they have not canceled, but they’re not active,” he said. “We have to really understand our numbers and delineate between who is an active paying customer and who is inactive.”
KONG Box has adopted a solution to this from a payment provider that kicks in when customers update their card information on other platforms. It then updates, the card details on KONG Box’s network, and as a result, 600 credit cards are updated monthly. The provider works with card networks and automatically attempts to update saved card details whenever a customer receives a new card to replace an expired card or one that is reported lost or stolen. The other way to combat churn, Probst said, is to allow customers to pause their subscriptions.
“They could pause indefinitely, which we don’t want them to do,” he said. “But customers must contact customer service, and we will implement a three-month pause.”
Answering Customers’ Calls
KONG Box is integrated with Shopify, the Canadian-based eCommerce platform for online stores. The network is seamless, but Probst said there are some limitations. If a customer orders a subscription but wants to add an extra item, it creates a challenge, for example.
“It becomes tricky — a customer can’t just add something into the box,” he said. “Some competitors or other providers do allow for those kinds of customizations. We’re trying to do some workarounds, where a small item can be added but won’t disrupt the volume metric of the box. That’s one of the struggles that we have: We can’t upsell to add to the box.”
KONG Box has established a separate Shopify site for individual purchases to help meet the demand for specific items. This appears to be working: Probst said the company is profitable this year and expects to make back all the money lost through the original promotion by the close of 2021.
“Obviously you can’t turn around an ocean freighter quite as easy as a speedboat,” he said. “But we’re definitely course-correcting.”
The subscription services sector has not only survived but also thrived amid the pandemic as consumers more often prefer to receive goods conveniently at their doorsteps. Subscription companies that partner with seamless payment networks and work to maintain retention from different angles will be able to keep the ball rolling.