Last week an unheard of company (at least by most) had a huge exit. A billion dollar exit, and it was not even a tech company.
Dollar Shave Club (DSC) was acquired by Unilever. DSC has a subscription service for razor blades. The service starts at $ 1 per month per blade. You can customize the frequency and the type of blade
Personally, I started using this service around 2013. I found one of their many quirky videos on Youtube and an interview of the founder in the Wall Street Journal. I had been a Gillette user for years, even upgrading as they increased the number of blades.
Gillette (owned by P&G) had of course invented the blades and
razor pricing model decades ago. (Low handle price, higher blade prices). While Gillette has a huge market presence and leverage, the product itself is nothing to speak of. You can get a decent shave with some effort. But there was little competition. They owned more than half the market. I was tired of paying large amounts of money each month for a rather normal experience.
There had been other subscription services for blade in the early 2010. But none really took off. Enter Dollar Shave Club. Michael Dubin is the founder and created a very catchy video that went on Youtube. That video started getting attention amongst their target audience. Men who want to to care of themselves and are very social savvy. They understood early on that this segment wanted a value product (a decent blade that was at least on par with the leader) that could be conveniently bought (order once online, and get it delivered each month). They marketed heavily on social media, especially on Youtube. Fast forward – they now have over 3 million members and are on track to post $200 million revenue (in 2016). Pretty significant growth, considering they started in 2011.
So what worked in their favor? Once they had figured out the product, the supply chain (the manufacturer is in Korea) and unit economics, they had to get the following key activities right.
- Reaching the target market – The hardest part of marketing is to actually reach your target market without a big customer acquisition cost. They did that effectively with these funny Youtube videos. These videos gained millions of views and that created the leads.
- Convincing them to buy – Once you reach your target, you have to convince them to try. The tag line of $ 1 per blade per month must have converted many. It certainly converted me. A simple math suggested my total cost of blade ownership to be half that of the incumbent. Add to that the overall convenience of ordering online just once. I was empowered.
- Retaining subscribers – So now you have me convinced to try, how do you retain me? Retention is a key metric in a subscription service. Your valuation is highly dependent on this metric. To retain customers they did a couple of things .
- Build a compelling product and packaging – The product is actually a bit better than my old Mach 3. It gives me a better shave. It comes in a nice aesthetic package along with a newsletter.That newsletter is very catchy, and might I say sticky. It has puzzles, trivia and customer testimonials. And some toilet humor, which I assume goes well with the target market.
- Excellent customer service – Twice my handle broke. A simple email, and they promptly sent me a free replacement.
- Create an exclusive community – Each member is made to feel that they are part of an exclusive club of empowered men, who want to feel good about themselves.
Clearly a very successful exit. A great lesson for startups. Identify the right set of activities for your specific market and only focus on those. DSC focused on content marketing with their funny videos and ads, and were able to gain a loyal set of subscribers very fast. Everything else can come later.
Here is a news article about the company’s acquisition in WSJ.