OFFERING SPECIALIZED DELIVERY OF NICHE OR PERHAPS NECESSARY PRODUCTS DIRECT TO YOUR DOOR, THE SUBSCRIPTION BUSINESS MODEL SATISFIES THE CONSUMER’S NEED TO BE PLEASANTLY SURPRISED. HOWEVER AS THE SECTOR BEGINS TO MATURE, THERE ARE SEVERAL KEY ISSUES BUSINESSES MUST ADDRESS TO KEEP SUBSCRIBERS ON BOARD.
The subscription business model revolves around customers paying a recurring fee to access a product or service. Popularized by magazines and newspapers, subscription services now cover everything from meal kits and foreign candy to shavers and socks, with around 5.7 million active subscriptions in the US.
This convenient structure involves periodic product purchase, either saving the consumer the trouble of remembering to buy something they continuously need (replenishment services) or acting as a surprise gift to themselves in the mail, offering an additional yet affordable luxury (curation services).
Subscription service businesses are provided with an assured stream of revenue for however long a subscriber remains with them, falling under the umbrella of digitally native vertical brands (DNVB). Born online, such brands are not necessarily limited to this space and may later extend to brick-and-mortar stores. However the important distinction between DNVBs and other e-commerce companies is that they manage their own distribution, eliminating any middle-men to get goods to consumers far more efficiently. They can then guarantee complete control over the customer’s journey, with DHL offering the ability for subscribers to track their shipment too. By operating in this way, businesses can cut required venture capital and escalate potential sales.
Capturing nearly 2% of the US e-commerce market, DNVBs are growing almost three times as fast as the average online retailer – at 44% versus 16%. Subscription sites specifically garnered 37 million visits in April 2017, increasing 800% in three years. In addition, the largest of such retailers now generates more than US$2.6bn in sales, up from 2011’s top spot of a mere US$27m.
While growth is now slowing as the industry matures beyond its infancy, the number of services offered industry-wide still rose 40% year on year to March 2018. Such new businesses have threatened key players, with the top ten subscription box sites commanding only 61% of online visits now versus 70% in April 2017. One major success that spiked interest in the subscription sector is Dollar Shave Club, launched in 2011. Here consumers choose an initial razor and then sign up to receive replacement cartridges, as often as they need them. The company went on to sell to Unilever for US$1bn in 2016 at five times its annual revenue, and now stocks and supplies its own additional grooming products.
However the subscription model won’t work for everyone1. From 2010-2017, of the companies launched each year more than 35% have since shut down, with 2016’s class seeing a record 47%. One major problem is customer retention, as the average length of time a consumer remains subscribed to a service is a mere 125 days, though women on average stay slightly longer.
While many businesses entice new users through discount deals and free boxes, hoping they’ll be hooked once they try the service out, this acquisition strategy often fails to follow up with further rewards for customers who stay loyal, leading one third of subscribers to cancel when their three-month trial is over. For meal-kit programs in particular, 60-70% of people leave the service after six months.
However, keeping subscribers inspired to stay is much cheaper than gaining new ones, with a third of revenue typically set aside for new customer acquisition. For this reason, some services such as Glossybox use special schemes to drive retention. Now available in 10 countries, they have partnered with DHL to deliver beauty and cosmetics samples to subscribers anywhere from the US and Canada to Sweden and Norway. They also allow customers to earn ‘Glossycredits’ by sharing feedback on what they receive. Not only does this provide more valuable data but subscribers then feel appreciated, receiving discounts on further boxes and full-sized products in return.
Other beauty services supplement their product subscriptions with online content, such as expert advice on how to use what they’ve received. Sephora’s 'Play!' works alongside their wider app, helping consumers to discover products in the physical stores that they have received in their boxes. Meanwhile Maryland-based Hunt A Killer offers subscribers clues and letters to help them solve a murder mystery from their own home. With DHL as a shipping partner, they grew 15,000% without any major outside investment in their first 18 months, and offer subscribers a supplementary weekly podcast for discussing true crime content, becoming the go-to destination for wannabe detectives.
The major difference between regular e-commerce and subscription services, then, is that the consumer is not a one-off sale but a long-term investment, which can only be maintained by businesses building a relationship with them. They therefore enter the sector of engagement marketing, connecting with consumers continuously and individually to keep them interested2.
Another thing DNVBs are able to take advantage of is the wealth of data they can collect about their consumers, often at the point of initial subscription. This allows for personalization of the service, tailoring boxes to suit individual preferences. Fabletics asks users about their workout and style habits to determine what gym wear they will receive, while Glossybox receives information on the consumer’s skin tone and favored looks3. By spanning multiple countries, the beauty box company also recognizes the importance of adapting their products for each market, employing both a global and local sales team to address differing needs.
However, needs not only refer to the types of products received but the volume. If possible, businesses should consider built-in flexibility to pause orders or customize the amount received, helping to avoid a consumer's products piling up and ultimately canceling their subscription. The ability to postpone orders also helps to overcome the challenge of the ‘surprise’ becoming commonplace.
Consumer psychologist Kit Yarrow discusses how "some brands have a relatively repetitive type of product" but a "psychological requirement" of such services is opening the box and having "a moment of delight." Fewer orders may then actually turn the consumer into a long-term subscriber as the novelty is maintained, especially when coupled with a high level of repeat service4.
While consumers expect excellence in the products they receive, they also want them at their door in a timely, reliable manner. When considering the delivery process, some businesses opt for cubic shipping, whereby they pay for the volume of a box as opposed to its weight. This ensures standardized costs that won’t be affected by the weight of that month’s offering, allowing for consistency in planned expenditure. However, many businesses must prioritize finding a shipping partner that can suit their international reach, with consumers everywhere expecting the same level of high quality service as described by domestic reviewers.
This is one of the reasons why Glossybox chose to partner with DHL to further their international reach. It operates in over 220 countries and territories and therefore offers your business huge potential global expansion, promising door-to-door delivery and the ability for customers to track their shipment, wherever it may be. They can also provide paperless clearance for getting your goods through customs faster, preventing any potential delays which may impact a subscriber’s experience and their likelihood to stay on.
Coupled with the ability to offer time-definite delivery, opening an account with DHL and subscribing to their services means that, contrary to what you’re giving consumers, there’ll be no surprises – just reliable, efficient shipping you’ll certainly want to stick with long term.