Subscription services enable brands to regularly connect with consumers and businesses in their homes and workplaces
Welcome to the subscription economy. A world where, following a few online clicks, consumers can receive freshly cut flowers and arrangement instructions, small batch beers accompanied by tasting notes, and beauty products that have been tailored to their skin and hair type. Repeat consignments of these parcels are then scheduled to arrive on a weekly or monthly basis or on a regular date of their choosing.
Since deliveries from the likes of Dollar Shave Club, Glossier and Hello Fresh first landed on people’s doormats, the number of subscription box services available have skyrocketed. But remember, they represent just one element of the booming direct-to- consumer (DTC) industry—think of the rise of subscription-based media and online streaming services such as Netflix, as well as the popularity of access subscriptions like Amazon Prime, which offers speedy fulfilment times regardless of the items ordered.
And this boom isn’t confined to the B2C world either. The software as a service (SaaS) model offered by the likes of Adobe, Microsoft and Oracle has seen enterprises around the world embrace cloud subscriptions.
In last year’s Global Marketing report, we identified the ‘life on demand’ trend, saying that brands can’t afford to ignore people’s desire for instant access to an increasingly varied range of products and services.
Signalling a fundamental change in the way brands interact with consumers and businesses, subscription services are perhaps the ultimate expression of that demand. Cutting out third-party retailers, reducing time spent browsing both offline and online, and promising a streamlined supply chain, savvy brands know the way to people’s hearts is via their letterbox and their inbox.
In this chapter, we take a look at how both end users and brands can benefit from this modern form of mail order, as well as ways to make deliveries as desirable as possible.
Thinking Inside the Box
Subscription services tap into consumers’ desire for curation, personalisation and self-gifting. But signing up subscribers is one thing, retaining their loyalty is quite another. In a retail environment that’s saturated with choice, more and more consumers seem happy to let someone else do the choosing. So long as those choices are:
- Thoughtfully curated and packaged
- Convenient to purchase
- Represent great value for money
- Arrive when they want them
- Offer an experience, as well as a product or service
In the US, 15% of online shoppers have signed up for one or more subscriptions to receive products on a recurring basis and there appears to be no limits when it comes to the products and services on offer.
Consumers who value specialism are turning to smaller companies for niche items—for example socks (Funky Socks), dog treats (The Barky Box) and healthy snacks (Graze)—while DTC has democratised purchasing big price-tag items like mattresses (Eve), wine (Winc) and glasses (Cubitts) by enabling customers to forge stronger relationships with designers and producers.
For many, subscription services represent an opportunity to try before they buy—apparel retailers like Frank and Oak sees stylists select clothing for the customer, who gets 20% off each piece of clothing they decide to keep. While many beauty retailers (like GLOSSYBOX and Lookfantastic) send out sample sizes and new-to- market items, and offer discounts on full-size products and voucher codes for their online stores.
Other successful subscription offers have tapped into consumer distrust of big brands and put transparency front and centre. So much so that vitamin brand Rituals have made their packaging, tablets and capsules completely see-through. All ingredients are explained in minute detail via the website, emails and the printed material that accompanies each delivery.
The majority of subscriptions reflect consumer demand for a continued series of personalised, high-quality experiences:
In addition, 28% of access and curation subscribers say having an excellent personalised experience is the most important reason to continue their subscriptions.
When asked why they signed up to subscription boxes, consumers said:
Big Brands Join the Delivery
Bespoke boxes might have become synonymous with startups, but major retailers are increasingly looking at ways to get box clever. Realising the vast potential of subscription data, several big brands have entered the space with their own offer, including Procter & Gamble with Gillette On Demand and Sephora’s PLAY! beauty boxes. However, some failed to make an impact and have already ceased operating— like Starbucks Reserve Roastery subscription service, which delivered coffee from their Seattle HQ to destinations across the US within 48 hours.
Meanwhile, Nike significantly restructured its entire organisation in a direct-to-consumer push that resulted in a 2% loss of its global workforce. The result—Nike Direct—is credited with driving a 13% rise in revenue to $9.8 billion during the fourth quarter of 2018. In the media category, Disney plans to launch an on-demand film streaming service in late 2019.
In addition, a desire to join the DTC revolution has also seen a number of mergers and acquisitions, perhaps most significantly Unilever’s $1 billion purchase of Dollar Shave Club in 2016.
It’s easy to see why subscription boxes are causing such a buzz among businesses, with the promise of:
- driving monthly recurring revenue
- building thousands of brand advocates
- unloading slow-moving inventory
- revealing customer data and insights
It also gives businesses the opportunity to test how their products and services perform online, and for ecommerce brands to move into traditional retail. Birchbox now have a store in New York, and have experimented with physical spaces in the UK and France in a bid to increase brand awareness. It’s clearly having the desired effect—while operating a pop-store on London’s Carnaby Street in 2017, online revenue grew 136%. Online luggage retailer Away now has multiple retail locations with plans to open more, particularly as each store lifts web traffic in its surrounding area by around 40%.
Communication Remains Key
The market is maturing.
With so many options out there, competition between subscription services is just as fierce as it is within ecommerce platforms and on physical shop selves. And while a record 18.5 million individuals visited at least one subscription site in Q1 2018, conversion rates are weak. Only 55% of those who consider a service ultimately subscribe.
Finding the right formula is essential, especially when it comes to attracting millennial shoppers who aren’t afraid to switch brand loyalties. So, what should businesses do to attract new sign-ups and gain long-term commitments?
Be flexible—matching supply to demand is crucial and subscriptions must be tailored to the end user’s needs. This means allowing a consumer to pause the service while they are on holiday or for a business to scale their subscription in line with their growth. For replenishment-based subscriptions, this means offering a lower or higher delivery frequency depending on a consumer’s requirements at any given time.
Always offer value for money— poor product quality, dissatisfaction with the assortment, or a lack of perceived value will test the end user’s loyalty. Added value can come in the form of engaging content, which accompanies the delivery or is accessed via the brand’s website. In addition, encouraging subscribers to share images of their deliveries on social media can make for a more holistic experience and create a sense of community.
Get your marketing right — DTC brands (most often in the consumer-packaged goods, apparel and beauty sectors) usually have smaller budgets to play with and might not have the range of internal resources found at a more established brand. As a result, specialist agencies are primed to be crucial partners when it comes to branding, storytelling and performance marketing on digital channels.
Look to partner with someone who understands the markets where you want to establish a presence, and can support your constantly evolving requirements. For example, Diff helps companies scale on Shopify while agencies such as Derris, YellowHammer and AZIONE maintain a flexible approach to retainers and consultancy fees in response to DTC brands’ changing needs.
To find out more, download our full Global Marketing Report 2019 here.