Many retail brands have already launched into the newest channel of customer engagement, subscription box services, and those that haven’t are probably evaluating whether it makes sense for their business to help drive revenue and customer loyalty.
With increased demand for personalization and convenience from consumers, subscription box services have been on the rise, with more than 7,000 in the market [source 1]. That includes everything from fast-food chains like Arby’s to direct-to-consumer brands touting shaving supplies or cannabis products [source 2].
Think of anything and then google “subscription box” — yes, there’s a box for that.
So why are some subscription boxes more successful than others, and what should retailers know before getting into a subscription venture?
Here are three factors to consider when evaluating whether a subscription service can deliver long-term success for their business, beyond the initial hype.
Demand for the product segment
According to a February 2018 study by McKinsey, the categories of subscription box services typically fall into three general buckets: replenishment items (e.g., hair products), curated products (e.g., hair products for you), and access to something exclusive (e.g., hair products with your name and design on it) [source 3].
The question to consider, within these buckets, is whether the category is a one-hit wonder or embodies a longstanding or emerging macro trend in the marketplace. Niche services like organic beauty products appeal to a very specific client, but the product category is growing. The success of a company in this portion of retail depends on how much demand can be created for the product and how many new buyers will enter the space.
Subscriptions are often selling the product concept itself — “you need to receive a new pair of leggings every month to be a fitness guru” — and encouraging consumers to purchase something they might not otherwise. Not receiving value for the money is the top reason for cancelling a subscription box (29 percent), according to McKinsey, followed closely by product/experience dissatisfaction (25 percent), and preferring to buy a product when needed (25 percent). The least cited reason for cancelling is to find a better subscription service.
Long-term vitality of subscribers will hinge on attracting and retaining customers based on their values and product alignment. Fads come and go, so the subscription model is only successful if the company creates an enticing experience and builds customer attrition into its business model. People who sign up to receive new fitness gear every month might discover they don’t need a new pair of leggings every month, unless you keep the experience enticing and offer exclusivity, personalization and/or variety. (Custom-designed, sparkly leggings, anyone?)
Personalization and using customer data wisely
From the design on the packaging to handpicked items within the box, personalization is a key tenet to solidifying a lasting bond with customers. Despite data privacy concerns, consumers are willing to provide personal information to brands in order to improve the product or experience.
Nowhere is that more evident than in the subscription service space, where personalization could have been the entire reason for a consumer to sign up (e.g., to receive clothing style selections for their exact measurements). Data is willingly handed over to the delivering company in exchange for curated products to fulfill a need or desire.
In the realm of niche product delivery, end users have to answer questions related to their preferences, regardless of the product. Wine preference, hair type, food spicy level, HVAC filter size, etc. The question is, how are subscription box companies acquiring and leveraging that user data to build loyalty and fuel future business?
Retailers have the power and trust of customer data, and it’s more important than ever to take care of that data and use it to create a personalized offering — without bombarding customers in an intrusive way. Successful retailers are learning how to strike this balance by building a customer journey through all of their marketing and communication channels, including subscription deliveries. They are using data to provide relevant products and experiences for each of their customers.
Retention and turning customers into brand ambassadors
Customer turnover is expensive, as acquiring new customers carries a hefty price tag. The future success of subscription box companies depends on addressing customer retention, as more than one-third of consumers who sign up for a subscription service cancel in less than three months.
If existing customers are happy brand ambassadors, word-of-mouth advertising via social media is one of the most impactful contributors to the success of a business. Niche product categories are often driven by niche bloggers and YouTubers. Positive reviews and buzz signal the potential success of any business, especially in a model where customer loyalty directly affects profitability.
From startups-turned-behemoths like Birchbox to heavy hitters like Amazon.com, subscription boxes are maturing as a business model. It’s a sign of how the e-commerce industry is getting more creative at capturing individual customers through personalized, innovative experiences. Every unboxing of your brand counts. Is it a channel that’s right for your business?
Maureen Powers is President of Direct Marketing, RRD Marketing Solutions. If you’d like to hear more about tapping into a business model that generates recurring revenue, consistently, download a complimentary copy of our latest white paper on subscription marketing.
Editor’s note: This article first appeared on Total Retail (mytotalretail.com), May 24, 2019.