One notable recent innovation in retail business models is expansion of subscription-based retail. A subscription-based retail business is a company that sends you a package, usually once a month, of items they have personally picked out for you. While there have been subscription-based retailers for decades, including Columbia House and wine clubs, innovative companies are taking the subscription-based retail business to a new level and are experiencing tremendous growth.
A few of the more popular subscription companies are: Ipsy and Birchbox, selling beauty products for women; Blue Apron and Home Chef, delivering a box of ingredients for a complete meal that consumers cook at home; Stitch Fix sells fashion; Graze sells healthy snacks; and Dollar Shave Club sells men’s shaving products. In 2016, Dollar Shave Club was bought by Unilever for $1 billion which points to a high market value of subscription box companies. And companies like Blue Apron, BarkBox, and Fabletics skyrocketed by nearly 3,000% between 2013 and 2016, according to a recent Hitwise study.
There are about 5.7 million subscription box shoppers in the U.S. today according to Hitwise. The most likely subscribers have college degrees, female, household income exceeding $100 thousand, and have children ages 3-5 in the household. But that’s not to say that all or even most subscribers fit these demographics.
Why consumers are turning to subscription-based offerings
- Convenience. Subscribers don’t have to make trips to the store, it saves them time and energy by having their products or services delivered when and where they need them.
- Easy budgeting. Subscriptions often offer the products or services at a flat rate. This enables customers to stay within their budget by predicting and controlling their spending.
- Ability to scale. It allows subscribers to easily scale up or down without worrying about additional paperwork and lengthy processes.
- Develop strong relationships. Subscriptions are expected to include superior customer service, this will help build a strong relationship that leads to customer loyalty.
Why businesses are turning to subscription-based offerings
One of the major reasons why businesses are turning to subscriptions is that retail tastes have changed. It’s not enough anymore just to give consumers what they’re looking for, if they know what they want they can get it online with a click any time. To get a consumer excited, a business has to offer something they’re not anticipating and subscriptions are an ideal means for surprise.
Personalization is key in business. Businesses should not be afraid to ask for information from their consumer to help them deliver a more personal experience. Subscription-based businesses are doing something retailers have struggled to do for a long time — ask consumers what they want, listen to the answer, and act on it. If consumers think they will get a better experience from giving up personal information, they will do it.
Successful subscription boxes are modifying and personalizing their boxes to each individual consumer. This illustrates what Internet retail has been calling mass customization for a long time. If a business can make a subscription box with pleasurable surprises, they will continue to sell through as long as the customer maintains an interest in discovering new products. Once that phase ends, a subscription business needs a non-subscription business plan to give consumers what they want. A perfect example of this is Birchbox, a top subscription-based company with over a million subscribers has experienced a decrease in sales over the last year or so. They opened their first brick and mortar in New York.
According to Adweek, 41 percent of revenue in retail businesses in the U.S. comes from repeat customers. Businesses that have implemented subscription-based model have realized the benefits that come from guaranteed repeat business. It provides a steady and predictable revenue stream. With proper information, businesses can draw up sound investment plans both in growth and hiring great talent, without worrying about profit and loss cycles. Having consistent cash flow and guaranteed revenue could give businesses higher valuation.
Another reason is bundling, an advantage to a business by selling a single priced product that lowers marketing and selling costs. Bundling brings an added value to customers through buying all in the price of one. This allows customers to get more bang for their buck and stay within their budget.
Overall, the winners and losers of this market have not yet been chosen, the subscription-based retail market is wide open right now for anyone with a better idea and better execution to develop their business and become a leader. This market will likely follow the pattern of the flash sale market where a new idea took root, consumers adopted it, valuations exploded, and then the market will become developed and established. At this time, it is a time of volatility we look forward to the continuing innovation of these businesses.
If you would like to learn more, check out these articles:
Subscription Businesses Are Exploding With Growth
The Email Practices Of Subscription Box Retail Companies
Subscription Box Industry: Growth And Fragmentation
Why More Businesses Are Turning To Subscription-Based Offerings