The Forever Transaction: How to Build a Subscription Model So Compelling, Your Customers Will Never Want to Leave
Robbie Kellman Baxter
256 pages, McGraw-Hill Education, 2020
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Everyone wants to be the Netflix, Amazon, or LinkedIn of their industry.Its shorthand for saying, we want the kind of forever transactions these organizations have built with the people they serve. After studying and advising hundreds of top subscriptions and membership businesses during the last 20years, Ive come to understand that The Forever Transaction is the holy grail of business.
The concept was seeded by a handful of start-ups based in Silicon Valley, where I live. Over time, it has evolved to include nonprofits, media companies, professional services providers, retailers, and even consumer products and manufacturing.
This last group, manufacturing, faces some unique challenges, both because they sell physical products and because they already have established cultures that are not optimized for subscription pricing, digital community building, and the other elements of todays most engaging businesses.
The story of how Under Armour is transforming from an apparel manufacturer into a full digital lifestyle brandprovides both inspiration and guidance.Its transformation is particularly important because having a more direct, online connection with itsmost engaged members smooths out the bumps during challenging situations. This direct connection strengthens the brand while others are losing their tether to the people they serve. I am sharing Under Armour's story here to help similar organizations working to deepen their ongoing ties with their most loyal and engaged customers.Robbie Kellman Baxter
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Under Armour, primarily known for shirts and shoes, has its roots in technological advances in athletic wear. Its first product was a T-shirt made from the same fabric as compression shorts, a solution that emerged from founder Kevin Planks frustration with cotton T-shirts that bunched up and gathered sweat under his football uniform when he was a student at University of Maryland.
From those sweaty beginnings, Plank built a business that expanded from making a better T-shirt to its current mission: Under Armour makes you better. Since the companys founding in 1996, much of the focus has been on the development of performance gear, specifically on technically innovative apparel and shoes that help athletes perform at their best. But if you treat the mission as a forever promise to customers, youll quickly see that there are many other ways to help people achieve their fitness goals. The digital world opens many possibilities.
Over the past several years, Under Armour has expanded its offerings, blurring the lines between physical and digital products. It now offers its fourth generation of connected footwear. Runners wearing certain Under Armour shoes can access gait coaching through the MapMyRun app, which assesses stride length, cadence of strides per minute, and optimal gaits depending on age, weight, sex, height, and pace. Apps like MapMyRun provide a point of entry for long-term conversations with athletes. This approach creates opportunities for customer relationships beyond selling shirts and shoes through third-party retailers.
This business goes beyond simply increasing engagement; it generates real revenue. In 2018, Under Armours Connected Fitness Division, responsible for web and mobile apps and paid memberships, posted revenues of $120 million, with an operating profit of $4 million, an 18.1 percent improvement over 2017. This digital business needs to succeed on its own, as the company reports the Connected Fitness Division separately. Connected Fitness revenue is a small part of Under Armours 2018 sales of $5.2 billion, but its a key bet for the future of the company.
Customer-centricity is core to the companys strategy. Chief Digital Officer Paul Fipps commented, At Under Armour, we believe you need to approach consumers like a hotel concierge who deeply knows his or her guests. A concierge knows all of your preferences and the context. You have an incredible experience because it is highly personalized and memorable. At Under Armour, this experience means creating products that are relevant to our customers on both a personal and community level.
Under Armour has made strategic acquisitions to fulfill this vision of the customer relationship, buying rather than building this key element of its strategy. Between 2013 and 2015, it acquired several digital fitness brands including MapMyFitness, MyFitnessPal, and Endomondo. This spending spree of more than $700 million connected Under Armour with millions of fitness- and wellness-oriented individuals, and a channel to build awareness and engagement and to learn about customer needs.
So far, Under Armour has allowed the acquired businesses to retain their brands to varying degrees, with subtle influence from the parent brand. This is deliberate, says Michael La Guardia, SVP Digital Product. Acquiring existing brands and aligning them with your existing brand is a delicate balancing act. Under Armours goal in acquiring MyFitnessPal, MapMyFitness, and Endomondo was to bring together the largest fitness community in the world and reach them with Under Armours mission to make you better. Weve been making gradual and subtle changes to the brand positioning of the apps to introduce the Under Armour brand to the community. Tests have shown us that if we move too fast, we risk alienating the existing audience, but if were too subtle, Under Armour never breaks the surface of attention.
In the early years after the acquisitions, Under Armour was pretty hands-off. But under La Guardia, the company reevaluated the strategic synergies that would be realized through better alignment between Under Armour and its digital business. The founders of MyFitnessPal, MapMyFitness, and Endomondo have moved on, but the apps and their digital experiences are now being more actively integrated into the overall business of Under Armour.
As the company evolves into what theyve called a digital health and fitness community, thereve been some challenges. As a company, Under Armour is structured around founder Kevin Planks reminder: Dont forget to sell shirts and shoes. Selling stuff is very different from building engagement and usage digital apps.
Integration posed many challenges. The companies had different structures, business models, compensation plans, and missions. In some cases, their target markets were different. There was overlap but not full alignment across customer bases. For example, weight loss is often a key part of the journey to best performance. Many of MyFitnessPals members prioritize weight loss and management over optimal performance.
The rhythms are different. The cadence of a manufacturing company is seasonal, while software businesses might release new products and features monthly if not daily, a much faster drumbeat. The hiring pools are different, with gaps in compensation. One generates revenue and profits today; the other is part of the strategy of the future. Both businesses have a strong culture of innovation, but they innovate differently. Additionally, the kinds of people who thrive in startups sometimes dont in large, matrixed organizations.
Ultimately, acquisition may seem like a faster way to accelerate digital, direct-to-customer relationships and to build recurring revenue and deeper engagement. However, a huge amount of work is needed to synergistically integrate two organizations with different businesses and cultures. La Guardia suggests that before you jump to acquire the skills and product features you need, reflect on your mission and objectives. Consider the costs of both buy and build in the context of the current competitive environment. Either can work, but neither will be without challenges. Be prepared.
Transformation from an apparel manufacturer to digital lifestyle brand has taken a while. The first acquisition occurred six years ago, and vision work happened earlier. Theres still much to do to complete the process. Under Armours relentless focus on its forever promise, and willingness to change its methods, provides a unique advantage in building forever relationships with the people it serves.
