Welcome! Over the next few weeks, I’ll be discussing a range of topics inspired by Zuora’s recent Customer Day, which was essentially a day-long masterclass in how to launch, optimize and scale a subscription business of any kind. In addition to presenting our new product roadmap and “Journey to Usership” framework, we gathered sharp insights from companies like New Relic, The Telegraph, CarGurus, Aura, and GoPro. And best of all, since it was a virtual event, everything is on-demand. This week I’m sharing some best practices from iRobot on launching a hardware-based subscription service.
In 1925, Henry Ford introduced a concept that was both revolutionary and tragic: the 90-Day Warranty. His offer was famously abrupt: “90 days on material; 30 days on labour. No guarantee whatsoever on fan belts, glass, bulbs, wiring, transmission bands, hose connections, commutator shells, rollers, spark plugs or gaskets.” On a Model T, that didn’t leave much else to haggle over, but it was a start.
There were similar ideas in the market at the time, of course, but like so many things, Henry Ford standardized and popularized it. Here’s why the 90-day warranty was revolutionary: it formally paired the concepts of services and products. Gone were the days of caveat emptor, or buyer beware. Consumers who purchased expensive assets (cars, appliances, etc) could now expect some kind of continuing support relationship with manufacturers of those assets.
Here’s why it was tragic: It wound up defining the relationship between products and services for the next century! It wasn’t until just recently that the Subscription Economy started turning the concept on its head. Today instead of purchasing an asset with some associated services, consumers are preferring to purchase a service with some associated assets.
In other words, products should support services, not the other way around. Lots of hardware manufacturers are still catching up to this idea, of course, but many are leading the way.
During our recent Customer Day event, Zuora’s Head of Global Customer Advocacy Chris Wittman had a chance to chat with Barry Schliesmann, VP of Product Services at iRobot, on the topic of “How to Launch a Hardware/Software Subscription.” The talk is available on-demand and is worth watching in its entirety, but I thought I’d offer my own Tien’s Notes version.
As a relatively new entrant into pure hardware subscriptions, iRobot falls into the “Launch” stage of our Journey to Usership framework. Here the priorities are creating an initial go-to-market strategy, gaining market traction, building your basic subscriber experience and dialing in your business operations. But of course, one primary question animates this entire stage, particularly for hardware companies: Where the heck do I start?
As mentioned, extended warranty plans aren’t a new concept. Nor are rental agreements. You could simply divide the cost of your product over a given period of time and offer that “as a service,” but that’s not really the point, is it? How do you create a true subscription plan that prioritizes services and outcomes over assets and add-ons?
Fortunately, Barry gave us some great take-aways on this topic:
First, start with a hypothesis.
You already have a great team of engineers, and you probably have some good ideas as to which aspects of your business would lend themselves to membership or service offerings. What’s going to keep your customers engaged with your brand for years to come? Start with your own ideas, then do some qualitative or quantitative research on your own.
As someone with a service background (he helped launch JetBlue’s first in-flight wifi program), Barry asked himself a set of familiar set of questions before helping to roll out the iRobot select membership: “What is the problem that we’re solving? The job that needs to be done? What are the pain points that we’re addressing?”
The program’s tagline, which you can read on their website, offers a simple and compelling value proposition: “Introducing a membership that takes the hassle out of cleaning. Your membership includes the powerful Roomba® i7+ and we will take care of everything you need to keep your robot running at peak performance and keep a cleaner home.”
Keep in mind that this is a very different mindset than simply extrapolating potential service possibilities from a given set of product capabilities. Your product can be a starting point, but ultimately it’s going to have to evolve to fit the service you want to launch and the subscriber experience you want to create, not the other way around.
Second, start small.
If the goal is to make less work for yourself, then we all know the scenario that entails the most work: throwing a ton of cash and small army into a fundamentally flawed offering that fails to capture the market. In other words, going the Quibi route. And that applies to infrastructure as well. Don’t wait to build out some massively optimal tech stack before you start going out and finding customers.
As Barry notes, “Getting something up that allows you to provide the service and learn from your customers as fast as possible is really important. And for us, that meant having a tech stack that was separate from our main direct business so that we wouldn’t be disruptive to it, and perhaps so that it wouldn’t be disruptive to us.”
That might involve a few kludgey fixes and messy manual processes, but that’s okay. You can handle those when you only have a few hundred subscribers (when you get into the thousands, then it’s another story).
Third, use those new assumptions and tools to test your pricing.
Pricing insecurity is inherent to a subscription launch. You can’t take advantage of metrics like CLV and CAC, because you don’t have any customers yet. You’re just going to have to test, recalibrate, and test again.
Based on their own A/B testing, iRobot ultimately decided to roll out their new iRobot Select service with two pricing plans: a two-year contract with no activation fee and $29 a month, and a no-commitment monthly plan with a $99 activation fee and $29 a month. They found that optionality was important to their customer base. As is typical of a subscription launch, note that both of those pricing plans prioritize getting folks in the door first and foremost: the up-sells and enhancements can come later.
Fourth, make sure to bring people along.
You need organizational buy-in for any major initiative, particularly one that’s going to have some profound effects on how the organization ultimately re-orients itself. Most of my book is about how recurring revenue models change businesses. And shifting to services can be particularly difficult for companies that are organized around specific product lines, cost-plus revenue models and traditional retail seasons.
As Barry notes, “It’s important to have everybody involved, but it’s a challenge of course, especially if you are a business that has lumpy revenue from Black Friday or Prime Day or Mother’s Day, whatever it might be. The shift to smooth monthly recurring revenue isn’t an easy one for everyone to understand. And so you need to be cognizant of that and help bring them along.”
Today iRobot’s subscription program is off and running, thanks to the work they put in around testing hypotheses, developing KPIs, staying nimble, and getting organizational buy-in. (Fortunately, the latter part wasn’t difficult thanks to their visionary CEO Colin Angle, who I was lucky enough to speak with last June.) Again, I urge you to listen to the entire discussion!
Download the Journey to Usership framework.