Shaving accessories are not the most innovative or intriguing products in today’s technological world, but somehow, a small startup that sells razor blades through the mail has managed to reach a valuation of a billion dollars within 6 years. When Unilever acquired Dollar Shave Club in July, it was the largest ever acquisition of a venture-backed startup in Los Angeles.
The idea originated in a conversation at a holiday party in 2010. A year later, founder Mike Dubin launched Dollar Shave Club, abbreviated DSC.
In 2012 the company gained attention through a series of funny, offbeat YouTube ads that went viral. The ads were so successful that they gained 12,000 subscribers in only two days, and by the end of 2012, DSC had made over $4 million. Their growth continued to be exponential. In 2013 they made $19 million, then reached $64 million in 2014.
Were a few humorous ads enough to grow a company to a billion dollar value? The ads gained a lot of attention, but the success of the company was also due to several other factors. Read on to gain some insights about how Dollar Shave Club achieved a billion dollar valuation in less than 6 years.
Dollar Shave Club solved an annoying problem
For years razor blade buyers have been subject to an irritating shopping experience. Mainstream brands like Gillette charge little or nothing for razor handles, then overcharge for the blades, to the point where stores keep them in locked cases.
Dollar Shave Club offered consumers a much better value by shipping blades directly to their homes for as little as $1 per month. The convenience and the lower prices led to the company acquiring a 10% market share in the razor blade market in a short time.
By shipping directly to the consumer, there are fewer operating costs, which equates to higher profit margins. This is one reason the company’s value has grown so rapidly.
A unique business model
There are hundreds of razor companies. There are even some that deliver to your door. However, none of them offer prices as low as $1 per month. Not only do customers benefit from significant savings, but their monthly deliveries offer a superior shaving experience that the company describes as “delightful.”
As a member of the club, in addition to receiving great products, you also get to belong to a special community of like-minded people. DSC leverages social media to build a smart, playful and stylish brand.
Customers are also treated to a pleasing and stylishly-presented package every month. The contents are simple and inexpensive, but it manages to give customers a pleasant experience that they look forward to every month.
Growth by word-of-mouth and referral
The delightful experience of receiving and using exceptional products gives customers something to talk about, which leads to word-of-mouth promotion. Founder and CEO Mike Dubin recently stated in a CNBC interview that DSC gains about 50 thousand new members per month by referral.
Due to inexpensive and well-crafted details, the product manages to create buzz and it sells itself. A business model that’s built more on referral-based growth is more efficient and fosters a better experience for the customer.
Customer retention strategy
DSC makes most of their revenue from repeat business, so they place emphasis on increasing customer lifetime value.
Dollar Shave Club’s efforts of social engagement and customer delight improve their customer relationships. By providing better experiences for their customers that lead to more referrals, it lowers the cost of acquiring new customers.
DSC provides more than good products, they also create a community of people who value humor and fun. It’s not just about buying blades, it’s also about being part of a club.
Cross-selling and up-selling
Although customers are drawn to the $1 per month price, DSC is successful at convincing customers to spend more. By offering three levels of quality, many customers naturally choose higher quality and spend more.
In fact, studies have shown that when people are given three price points, they will most often choose the medium price, followed by the most expensive. In this scenario, people tend to choose the cheapest option less often than the mid-priced or expensive options. The result is, although DSC is viewed as a low-cost alternative, customers spend much more than $1 per month.
Dollar Shave Club has enjoyed groundbreaking success for a number of reasons that other businesses can learn from. Their unique approach to viral marketing and brand imaging set them apart from all other competitors in the grooming industry. Also, their ability to foster referral and word-of-mouth promotion helped sustain their exponential growth. By creating a special brand with unique humor and culture, they have enjoyed unprecedented success.