by James Flynn, senior research analyst – Broadbeam Media
The subscription-box model has taken off in recent years, but has been embraced more by certain verticals/products and certain types of consumers. Here are some key points if your product-based business is considering expanding into a subscription model.
It thrived during the pandemic. The Subscribed Institute put together a Subscription Economy Index to compare subscription-based companies to other types of businesses. In Q2 of 2020, sales at S&P 500 companies fell at an annualized rate of -10%, while subscription-based companies expanded +12%. The reasons can be seen in a January 2021 Ipsos survey asking about the top reasons for trying a product subscription. Respondents noted convenience of delivery (44%), safer way to shop (32%) and free shipping (28%) as the top reasons (question was multi-select).
Categories have emerged. This type of business has grown enough that there are now two primary subcategories (Ipsos). The first is curated boxes, which arrive with a few customized items (Blue Apron, Trunk Club). Replenishment is the second type, which involves replacing common household products (Dollar Shave Club). This second subcategory could be an easier entry into the business, depending on the vertical.
Certain verticals have had faster adoption. According to the same Ipsos survey, personal care/beauty, health/wellness and pet care have the highest consumer penetration. These categories likely performed well due to a combination of consumer priorities during the pandemic and because these faster-moving products can fit the model well.
However, other categories such as home design, electronics/appliances and apparel also made significant gains during the pandemic. Keep in mind that product offerings can be split between one-time transactions and subscription offerings (for example, a Keurig machine purchase and Keurig pod replenishment).
The consumer base is focused — but expanding. As expected, the highest indexing consumer for a subscription box service is 25 to 34 years old, with $150k+ household income and urban-leaning (Resonate). However, the same information shows the subscription box consumer exist in many age groups and at every income level. Also, the above-mentioned consumer likely speaks more to the curated model. Amazon’s Subscribe & Save service is the most popular replenishment service and undoubtedly has reach far beyond the core subscription consumer.
Two Key Benefits — and Challenges
A subscription model can yield many benefits, but two stand out above the rest. For one, predicted revenue streams can significantly reduce cash flow issues and make planning far easier. The second is access to customer data, including such need-to-know information as a verified address. Plus, you can better understand consumer purchasing habits and make assumptions about households based on such aspects as quantity and cadence of ordering.
On the flipside, consumer adoption of a new behavior can always be a challenge. In addition, churn issues can be typical for many subscription businesses. Keeping customers ordering and engaged over an extended period of time is a difficult task.
As far as marketing goes, if switching to this model, the first question should be about customer base. Though the number of subscription-box consumers is expanding, ensure there’s enough overlap between current customers and core subscription consumer layers.
In addition, it’s important to know how incoming subscription-based data would help shape a new marketing plan. Another key point would be reallocating ad spend to keep current customers engaged and retention rate down. These are just a few marketing questions that you’d need to answer if switching to a subscription box model.