Subscriptions As A Lifestyle

 

The subscription economy

It is becoming harder and harder to imagine a world without some kind of subscription.  In the first three months of 2018, it is reported that Spotify had over 70 million paying subscribers, and Netflix had 125 million. This may not be surprising for those of us who have spent a weekend on a Netflix binge or have Spotify linked to your car, but will things like food and beauty subscriptions become ingrained in our lives the same way soon? For some, they already have. 


According to a McKinsey study, the subscription e-commerce market has grown 100% a year over the past 5 years, with the largest retailers seeing overall revenues rise from c.$60M to $2.6B in this time.  It seems that subscriptions are more than just being able to watch a film or listen to your music, and are fast becoming a lifestyle! 

 

 

What is subscription e-commerce?
Subscription e-commerce began with Birchbox in 2010, an American company that offers deliveries of make-up and beauty products. As Birchbox grew, many similar services began to appear in the US, and since then have spread to the UK. According to PipeCandy, as of February 2018, there are close to 7000 subscription box companies in the world, with 70% being in the US.


For users, the subscription model is appealing. Studies show that the median number of subscriptions an active subscriber holds is two, but nearly 35% have three or more, with the top 3 overall worldwide being Amazon subscribe & save, Dollar shave club and Ipsy- a makeup and beauty subscription. These are quite a spread of products, but along with that there are a few different types of subscriptions to consider. There are three broad types: replenishment, curation and access. Replenishment allows for consumers to purchase commodity items such as razors. Curation subscriptions are by far the most popular, and offer new items, and a more personalised experience such as clothes, beauty or food (think of your Graze box), while access subscribers pay a monthly fee to get lower prices or members only perks. 


It can take consumers a while, and a few tries to find exactly what they are looking for with all of the different options out there, but if you did want to make subscriptions your lifestyle and never leave your house, there are a plethora of different types of subscription boxes out there, with more appearing every day it seems.  Products including cheese, tea, wine, gin, make-up, skincare, crafts, artisan coffee…the list goes on. All of these things you can get delivered directly to your front door. 

 

 

Is there still a space for subscription e-commerce?
With such success in the category, offering subscription services has become a viable option, and they have the potential to be big business for a number of brands. 


While some may consider a lot of the brands and products that offer subscriptions to be niche, subscription boxes seem to be able to provide a personalised service, literally a foot in the consumers’ front door that reinforces a connection between the brand and the consumer. It has the ability to treat them as an individual, and that is what they are willing to pay for with the relationship growing every day with every new box.

With all of the success that subscription services have been having, it might seem the market is approaching saturation, however, you would be mistaken. It has been shown that only 53% of consumers know about even one of the top services, therefore, the subscription e-commerce market potentially has more room to grow as more consumers become aware of it. 


For companies that already offer subscription services or subscription boxes, the issue becomes how to keep consumers engaged. It has been found that recommendations trigger subscriptions, but consumers cancel services that do not deliver a particularly superior experience. 


It seems that consumers need to think they’re paying for something extra in the way of a more personalised experience, and the feeling that they are getting good value for money. The advantage of the subscription for the companies, is that they are able to forecast revenue over longer periods of time, using known cancellation rates.  It is up to the company to minimise cancellations by enticing consumers with good on boarding packages to get them involved, and providing great customer service to keep them. Yes, subscribers can cancel at any time, but this promise reduces perceived risk from the consumers’ point of view, and the hope is, that they do not cancel at all (even if it is the knowledge that they can that gets them on board).

 

If companies can get the subscribers, and keep them, then it can be a success story for everybody - personalised products with great customer service for the subscriber, and the ability to forecast ahead and manage revenues for the company.

 

How Impact can help

Here at Impact, we have a history of conducting all types of pricing research, big and small (have a look at our case studies for more detail). We can help establish subscription offers that continue to be sufficiently compelling with each new box, while ensuring the entry price, and on-going price works for both the brand and customer alike.

 

The direct relationship a subscription offers allows brands to have a much more rounded understanding of the consumer and to develop a robust and detailed marketing database that can be used to further tailor customer offers over time. This in itself allows further opportunities that Impact can help with, including: 


a)    Augmenting our research by overlaying your own behavioural data, providing a much more holistic solution to your key issues


b)    Sorting out the digital wheat from the digital chaff, helping you focus on the data that will best inform future decisions and ensure increased value from your customer relationships, e.g. through tiering of the overall offer, allowing you to set aside data that is merely ‘nice to have.’


With so many companies utilising this personal relationship with consumers, is there any product that wouldn’t benefit from a subscription box? 

 

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