Will Hello Fresh keep glowing?

Have you ever been to a UV party? When the UV lights are on, everything is cool and glowing. But the minute the lights are off, the fun ends. A bit like your standard sales business model. You have to put in energy (the light) for every single customer purchase (the glow). Otherwise, that one-off customer is gone, never to be seen again.

But do you remember those glow-in-the-dark stars you had as a kid? They kept on glowing long into the night and were so much more bang for your buck.

GLow in the dark stars

So what if you could take your UV-party business model, and turn it into a glow-in-the-dark stars business model? A model, where the sales keep rolling in? Like Hello Fresh and the subscription model perhaps?

Founded in 2011 by Germans Dominik Richter and Thomas Griesel, Hello Fresh has now expanded to seven countries and operates as a registered company in Australia.  They deliver food boxes weekly (over 1.5 million per week in fact), with everything you need to prepare dinner, from recipes to pre-measured ingredients. Basically, it makes dinner easy, convenient and decision free. It’s perfect for busy people.

The subscription model has a lot in common with those glow-in-the-dark stars and the process called phosphorescence (University chemistry coming in handy again). So how does Hello Fresh make their business model glow?

Exciting the electrons

Do you remember excitedly taking the stars out of the packet and into a dark wardrobe, only to find they didn’t glow? No charge… By putting the stars under the light, you excite their electrons, giving them the energy to jump up an energy level.  Meanwhile, Hello Fresh puts a lot of their energy into marketing and sales, with promotions to invite friends, media publicity, and data analytics. This gets their customers excited about their product and up into the buying state.
Phosphorescence one

Moving to the triplet state

Typically (like at a UV party), excited electrons quickly drop back down to the ground state, emitting no more light. But with glow-in-the-dark materials, these electrons can move across into a state called the triplet state. Here they can’t just drop back down instantaneously, and they stay excited for longer. By customers signing up to a Hello Fresh subscription, they are staying in this buying state for longer.  You can think of the triplet state like the triple+ money state.  The longer customers are subscribed, the more money earned.  All without repeatedly having to put in the energy to get the customers. Having projected customer numbers week on week also makes the uncertain logistics of food distribution much more manageable and efficient for Hello Fresh.

Subscription one.gif

 

The forbidden transition

So what keeps the electrons excited in the triplet state for so long? To move back to the ground state, the electrons have to go through a “forbidden transition”.  Sounds ominous doesn’t it? This movement is much slower, and so the stars continue to glow.  Now Hello Fresh does not lock people in for life (no there’s no sneaky fine print), but in the same way, once a customer is signed up to their box, the “forbidden transition” becomes the subscription cancellation.  For the lazy among us (Hello Fresh’s secret target market), it is harder to cancel that subscription than just to let the food come week on week.

Unfortunately, the subscription model is not all roses (or twinkling stars)

Reaching the triplet state

If getting to the triplet state was easy, everything would glow in the dark. But it doesn’t.  In the same way, it takes a particular kind of business to make the subscription model work.  It has to be something people want week on week.  And getting that commitment is hard.  I know I am drawn in by the offers of $1 food boxes, but the minute you tell me to put in my credit card for a recurring payment, I panic.  So Hello Fresh has to work hard for these first sign ups, more so, than for a one-off purchase.

 Return to the ground state

Just like electrons drop back to the ground state, and the stars stop glowing, customers quit their subscription, leaving the buying state.  These cancellations aren’t just from people like me who exploited the $1 first week deal (#typicalstudent). Even for those genuinely interested, it’s so easy for that one week break to turn into two weeks, then three weeks…  To stop those breaks from ever happening, it’s important that Hello Fresh’s recipes and products are varied, delicious and healthy week on week. When customers are paying a premium, they need to like what they are getting.

Quantum yield

The quantum yield of a material tells us how long it will keep glowing brightly.  Hello Fresh needs a high quantum yield. To be sustainable, they need a strong customer base, as the bigger they are, the cheaper they can get produce, the more efficient their deliveries are, and the more people try each meal box. Meaning more profits.

So just like a glow-in-the-dark material, Hello Fresh’s subscription model keeps revenue rolling in. But the work put in to get and hold onto customers is high, and only time will tell if this investment rewards them with glowing profits.

 

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