eCommerce is about convenience. With brick-and-mortar stores, you can’t shop for groceries, in your underwear, at 2am. Not without consequences at least. eCommerce takes away many of the hassles of shopping: the commuting, the store hours, the amount of time it takes to browse, the limited selection, sometimes even the cost.
The subscription business model take shopping to the next level by eliminating one last final hassle: the shopping itself!Subscription services take shopping to the next level by eliminating one last final hassle: the shopping itself! Click To Tweet
Subscription boxes and other such services have been steadily gaining momentum since the early 2010s. Even if they’re not your cup of tea personally, there are plenty of customers out there who disagree — enough to make it a highly lucrative venture, especially now when it’s hitting its stride.
Here we’ll explain why online retailers need to start taking subscription services seriously, not as competition, but as a new, viable branch of their own businesses.
By the Numbers: Subscription eCommerce on the Rise
Before we go any further, let’s clarify what, exactly, subscription eCommerce is. While there’s a wiggle room on the specifics, generally speaking it’s a package of products delivered to the customer at recurring intervals. The most popular type is the subscription box, but the business model also applies to “subscribe and save” offers, and mystery boxes.
A lot of factors are variable, such as how frequently the packages are delivered, how much choice the shopper has in the products (or if they prefer the surprise), and even the types of products, ranging from pet toys to sex toys.
What we’re talking about is the business model of offering such automatic product deliveries on a regular basis. And today, this business model has become quite successful. Senior data analyst Kay Fay reports on a 2016 study from Hitwise Retail 500:
- Subscription box sites have grown nearly 3,000% in just the last three years: visits to subscription box sites went from 722,000 in Jan. 2013 to 21.4 million in Jan. 2016. By comparison, Hitwise Retail 500, an aggregation of the top 500 online retail sites, saw only a 168% increase in visits during that same period.
- Brick-and-mortar behemoths like Starbucks and Sephora are also following the trend by offering their own subscription package deliveries.
- Subscription box services see more social media engagement: in Dec. 2015, subscription box sites received 13.5% of its referred traffic from social media, compared to 8.4% for traditional retailers.
The same study outlined the demographic data for the most popular subscription shoppers:
- 25-44 years old
- Higher-than-average income
Don’t confuse the prevalence of female buyers: subscription services are almost equally viable for male shoppers as well. As Thomas Rankin reports, men seem statistically predisposed to subscription services:
- In general, men shop more than women by 20-30%.
- 83% of men prefer shopping online rather than in-store.
- 48% of young men (18-25) feel overwhelmed by the multitude of choices in eCommerce.
- 60% of young men want recommendations when shopping (compared with only 25% of women).
Given the meteoric rise in interest for subscription box services, combined with the natural online shopping habits of both men and women, it’s clear why subscription eCommerce is getting more attention now than ever before. And not just by shoppers — online retailers are sizing up the model as their next prospective venture.
Why Subscription eCommerce Works
The idea might seem foreign at first — after all, it is a relatively new addition to eCommerce — but when you break the subscription business model open and look at what it’s made of, it makes perfect sense, for both the store and the consumer.
Benefits for the Store
Recurring Revenue without Checkout. Obviously return shoppers are good for business and increase profits, which is why brands fight so hard for customer loyalty. But every time the shopper has to check out, there’s a substantial risk that the sale won’t go through — in fact, the Baymard Institute puts the cart abandonment rate at 68.81%, as of Oct. 2016. The subscription business model reaps all the benefits of return customers, but with greater security so you don’t have to take a chance for every payment.
Predictable Revenue. Another byproduct of a steady recurring revenue is predictability. This allows you to more accurately manage your company’s finances and future investments without too much uncertainty.
Inventory Control. Your inventory demands are also predictable. You have a better idea of how much of what to keep in stock, reducing waste and circumventing running out of stock.
Benefits for the Consumer
Niche Markets. Everyone has their niche, but not every niche is satisfied. Subscription businesses, especially subscription boxes, are capable of targeting specific niche groups in a way more generalized eCommerce stores cannot. Given the cost advantages for stores (see below), subscription brands can afford to specialize in particular tastes. As long as its economically viable, no market is too small.
Relieves the Burden of Choice. Choice can easily fall into the category of “too much of a good thing.” Especially in eCommerce, the amount of decisions can be overwhelming, and weigh down your UX by causing cognitive overload. The subscription business model sidesteps this, not only by making the decisions for their customers, but by making better decisions. Part of the appeal of subscription boxes is that they’re curated by experts, enticing people to sign up so the choice for their best interest is made for them.
Automatic/Convenient. Just as the stores benefit from predictable revenue streams, customers benefit from predictable deliveries. One of the major selling points of the subscription business model is that it’s automated. No forgetting orders, no getting items late. After the initial transaction, the consumer never has to worry about fulfilling that need again. For this reason, subscription services work well with products that need to be regularly reordered.
Savings. Because eCommerce stores save money with subscription services, the savvy ones pass some of those savings onto the customer. This price break adds more incentive to join — often buying a regular subscription delivery turns out cheaper that periodic, individual purchases, plus without the nuisance of having to place an order every time.
Discoverability. As is usually the case, subscription services throw in an unexpected or surprise item, whether as a gift or part of the service. This gives the customer a no-commitment opportunity to try new products they wouldn’t choose on their own, and sometimes that’s even the sole reason they sign up. This benefits the store as well, as it gives them to opportunity to promote new, experimental, or unknown products.
Million-Dollar Subscription Companies
The truth is, the subscription business model can lead to a million-dollar company if done correctly. As proof, here’s the Subscription Commerce Insider’s list of the most profitable subscription-based companies, all worth over one millions dollars:
One of the most successful subscription business models, JustFab combines the bankable fashion industry, the convenience of subscription services, and the allure of personalized professional styling. By becoming a VIP member, customers receive a 30% discount and personalized styling choices, based on the results of their style quiz. Of course, the fee for the membership is billed automatically at the beginning of each month, but shoppers are given 5 days to skip the month if they choose.
Source: Dollar Shave Club
You may know the Dollar Shave Club from their famous viral launch video, which sent the business into orbit shortly after its opening. But content marketing isn’t the only thing they do well: their subscription business model is also exemplary. Not only do they offer a quality product (razor blades) at a cheaper price, they also give customers the first month free as extra incentive. A great model made better, considering that razors are one of those products that need periodic reordering.
The “Amazon” of subscription boxes, Birchbox sets a precedent that other subscription boxes should strive to follow. Every month, they send their customers a box full of beauty product samplers, each personalized to the customer’s special tastes. Subscription choices range from makeup, hair, fragrance, skincare, bath & body, nails, lifestyle accessories, etc., and have options available for men as well (such as beard and shaving products). Playing on motifs of discoverability/sampling, personalization, and a product type that needs regular refilling, Birchbox sets itself as the “gold standard” that other subscription boxes can base their strategy on.
BarkBox thinks outside the box, so-to-speak, breaking away from the safe industries of fashion and beauty with pet supplies — though still a product that needs regular reordering. Every month, dog owners receive a care package full of dog toys and treats, though members all get the same curated box. The company also offers a satisfaction guarantee, with free replacements if the dog doesn’t like an item.
Using JustFab’s model for shoes, Shoedazzle offers discounts and exclusive deals to membership subscribers. One of their hooks is that they offer personalized recommendations, based on a initial styling quiz, for non-subscribers as well, a way of ingratiating themselves to potential joiners.
If we’re talking about products that need regular reordering, at the top of the list is food. Naturebox takes advantage of everyone’s basic need to regular sustenance with a care package of specialized treats. Their selling point is that the snacks are natural, healthy, and devoid of artificial ingredients for the most part. They appeal to the minority niche of vegans and healthy eaters who find it difficult to find non-GMO, gluten-free food.
This is the first article in our new series about the subscription business model, meant as an introduction on the topic. Later, we’ll get into specifics, like how to adapt the model to an existing eCommerce site, budgeting, best practices, launch guidelines, and content marketing. If you have any particular questions, or topics you’d like us to discuss, mention them in the comments now.