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Why Subscription-Based Services Are the Future of Retail

Why Subscription-Based Services Are the Future of Retail

Subscription services are immensely popular. The subscription-based service industry is extremely fragmented, so it can be hard to get a real glimpse into how much it’s grown. As of early 2016, there were roughly 2,000 subscription box services in the U.S. alone, and between 2013 and 2016, the number of visits to subscription box sites grew by 3,000% to more than 24 million visits. That isn’t counting other subscription formats, such as software-as-a-service (e.g., Salesforce, Netflix) which have seen massive growth, or platform-as-a-service (e.g., Uber), but it does include major brands you might not expect to have subscription boxes, including Walmart, Starbucks, and Adidas. Even Google searches for “subscription box” have seen growth.

This post will take a look at why these services are successful, as well as provide a quick overview about how to turn your product into a subscription-based service.

Why Subscription-Based Services Are Successful

The timing is right for subscription-based services to rise to the top. Millennials are currently the largest generation, and they provide a hefty spending power. It’s important to remember that this generation has high disposable income (a third higher than previous generations), but low wealth. That makes them increasingly interested in products that allow them to spread their costs out over time, or which enable them to stop and start services as needed.

A brilliant example of this is Dollar Shave Club. The company was founded in 2011, but by 2016, it was worth an astounding $615 million. How? By thinking outside the box — Dollar Shave Club breaks away from stereotypically painful pricing, focuses heavily on customer service and quality, and isn’t afraid to have a sense of humor that appealed to the average American man. A brand that has followed a similar model for different audiences is Ipsy (a cosmetics box offering luxury and high-end travel sizes and samples) which boasts 1.5 million subscribers and more than $100 million in funding. Ipsy added a sense of community with its giveaways, regular tips on how to use the products people actually receive each month, and heavy focus on beauty influencers. Each brand made something otherwise prohibitively expensive into something regularly accessible and improved the consumer experience at the same time.

How Brands Can Leverage Subscription Services

The truth is, nearly any product or service can become a subscription-based service if you put a few simple processes in place and take a new approach to your marketing. It’s especially powerful for any products that are used regularly, whether it’s books, health and beauty supplies, clothes, and even foods. (While meal-kit boxes are a major leader in food subscriptions, companies like Graze.com and Club W are immensely popular, providing snacks and wine, respectively.) Subscription services are a prime place for new tactics and upstart concepts, so services and platforms aren’t off the table either.

However, the differentiation seen in these kinds of services can make it harder to be noticed. It won’t be enough to simply have a great idea; you’re going to have to work twice as hard to market it. Keep in mind these four insights:

  • Differentiation is necessary, and uniqueness is powerful. It’s important to remember that you may not want to focus on mere samples now; industry leaders point out that shoppers are more educated than ever, and instead of banking on helping them decide what to buy, consider feeding their passions and interests.
  • Convenience is a must, and that makes it important to emphasize how competitive your company can be in the time and way shoppers receive their subscription. The logistics and supply chain you have in place right now may not coincide with the needs of a subscription service, so be sure they’re streamlined and totally optimized.
  • Coupled with convenience is simplicity — your product and your service need to be as easy to understand as possible, and easy to sign up for, to pause, and to cancel. Simple conveniences like this breed loyalty and trust.
  • Personalization is the name of the game. Some buyers prefer surprise, but they don’t want a surprise they don’t like, either. Your advertising needs to be just as personalized if you want the subscription to stick.

Don’t make the mistake of believing only startups and small businesses can or should take a look at the subscription service model. The truth is, scale can become a serious problem, and bigger businesses have the positioning to handle that. This is where established brands like Sephora, Adidas, and Target can pick up the slack. These brands each leveraged their own brand of subscription box, but other big businesses know when it’s time to buy up the right fit. For example, Unilever purchased Dollar Shave Club last year for $1 billion to bolster competition against Proctor & Gamble’s Gillette, which also released its new online, on-demand service that’s much cheaper than the blades you see in stores.

It can be both easy and worthwhile to turn your product into a subscription-based service, especially if you leverage the tips we’ve included above to approach it from the right perspective. Presenting a subscription-based service to your shoppers should feel like a seamless expression of offering the best, new way to meet their needs. It’s a matter of providing improved value and a luxury experience while at the same time being affordable, and as a message, that inspires both loyalty and retention.