A subscription box is a package of retail products sent directly to a customer on a reoccurring basis. Subscription boxes are a marketing strategy and a method of product distribution. Subscription boxes are used by subscription based ecommerce businesses, referred to as "subcom" for short, which follow a subscription business model. They target a wide range of customers and cater to a variety of specific needs and interests. The subscription box industry is nascent, so there exists minimal data. It is estimated that there are 400 to 600 different kinds of subscription boxes in the United States alone and more overseas. Subscriptions vary in both cost and frequency, making them more accessible to a greater range of customers with different socioeconomic backgrounds. Subscription boxes tend to range from $10 to $100. The use of subscription boxes are rising in popularity among both consumers and businesses. Subscription commerce is suitable for a wide range of markets. Large scale retailers like Walmart, Amazon.com, CVS Pharmacy, Freshpair, and Lancôme use subscription commerce. Small scale, local groups also utilize subscription boxes. Products are limited only to what can be shipped and downloaded. Despite this, some products, such as smaller and lighter products, are better suited for subscription boxes than others.
History of subscription boxes
Various subscription commerce companies are growing rapidly. Since launching in 2011, Quarterly.co has doubled in size every six months. NatureBox, which launched in 2012, grows by 50-100 percent every month and BarkBox's subscribers grew from 1,500 to 55,000 between 2012 and 2013. According to Forbes, Birchbox, which is arguably the most recognizable service and valued at a reported $485 million in April, 2014, led the subscription box trend with its 2010 launch. Birchbox's model of providing customers with samples of personal care products in order to up-sell customers into buying the standard sizes of the sample products they enjoyed has proven to be a successful marketing tool. Birchbox has reached nearly 400,000 monthly subscribers and has inspired many other companies to start utilizing subscription boxes.
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Types of subscription boxes
Subscription commerce falls into two categories: discovery commerce and convenience commerce. Both categories are meant to foster brand loyalty and increase sales. The difference between them is necessity. Discovery commerce is for customers who are looking to try something new. Discovery commerce allows customers to enjoy discovering a new product by experiencing surprise and delight. Convenience commerce caters to customers who want a specific product regularly and enjoy having them delivered. Convenience commerce is a more effective way to maximize customer lifetime value, purchase frequency, and annual spending.
Customers
The Subscription market has seen rapid growth over the last few years. New companies are building successful businesses selling all manner of products and subscriptions. There is no single market encompassing all subscription commerce, because a lot of products are targeted to different demographics. With the vast range of products that can potentially be delivered by subscription, there is no obvious limit to the size of the subscription commerce industry/
Demographics
Online store visitors
- 92% customers who have not made a purchase
- 4% return customers who have made one previous purchase
- 4% repeat customers who have made more than one previous purchase
Source of revenue
- 59% new customers
- 11% return customers
- 30% repeat customers
E-commerce and men
E-Commerce is popular among clothing retailers, and clothing retailers are creating new ways to reach their customers. Studies project online sales of clothing and accessories will continue to grow at a rate faster than even the electronics with sales reaching $73 billion by 2016. Shopping malls and outlet stores are designed to target women, while many men often avoid these shopping centers. The growing presence of internet and mobile technologies in fashion e-commerce allow men to have a new medium to purchase goods. Surveys show that 83% of men prefer to shop online and generally shop more than women by 20-30%. Numerous companies are offering subscription services to make shopping more of an efficient experience for men. Subscription commerce is popular with men, because it adds convenience and guidance. Many guys readily admit that they need help looking good, and many online shopping services and subscriptions are adapting to this by providing more guidance. This trend of popularity of e-commerce among men is predicted to continue to grow. Technology innovations will aid in growing the market. Mobile transactions account for 5 to 10% of all retail transactions and most online commerce is increasing at a rate of up to 185%. Men aged 18-34 use their phones and apps 24-30% of the time to purchase services online.
Benefits for customers
Customers often receive discounts on products by buying them through subscription boxes. Many subscription boxes are offered in tiered levels of value as well as frequency of delivery. This allows subscription boxes to be affordable to a wider range of customers. Subscription boxes often have products in them that are of greater value than the subscription allowing customers to save money on products they already know they enjoy as well as try new products without having to risk spending as much on a product they may not enjoy.Choices are minimized for customers which prevents them from becoming paralyzed and makes decisions simpler to make. Because subscriptions are automated after activation, continuing to receive the product and maintain the subscription takes minimal effort for the customer. Customers are more satisfied when the purchasing process requires less work.
Discovery
Subscription boxes can be a fun experience for customers. Customers enjoy the surprise of discovering what is inside, and they discover products they not have known about or tried otherwise. This allows customers to try products and brands risk free. The increased exposure to new products helps customers discover optimal products for their preferences and needs. While only some subscription boxes have return options, there exist places such as blogs to exchange the unwanted items.
Convenience
Convenience subscription boxes provide customers with products they are already familiar with, automatically, and conveniently through reoccurring payment processing. This allows customers the ability to increase their amount of free time, because customers no longer need to take the time to travel to a physical store to make their purchases. Instead, customers place their initial order online, the products are delivered directly to them, and they do not need to repeat the ordering process, because products are delivered for the duration of the subscription they have agreed to.
Disadvantages for customers
Customers often do not like every item in every subscription box they receive, but this may help to increase excitement when they receive items they love and still enjoy discovering new items. This can become problematic when customers experience vendor lock-in. When a customer subscribes to a monthly service for a set time period, the customer is locked into their subscription until the time period has elapsed. Some subscription box companies make it a hassle to cancel a subscription. Companies may do this by not allowing a customer to cancel the subscription online and instead require the customer to cancel the subscription over the phone. Some companies charge early termination fees. This hassle can benefit subscription box providers, because for some customers, the hassle can be enough to keep them subscribed. Since subscriptions are often frustrating to cancel and sometimes require a minimal subscription period, subscription boxes are not suitable for single box purchases. Despite this, some customers still make purchase single boxes.
Privacy
Customer privacy is a major concern for customers using ecommerce and online subscription based companies. Brands such as Amazon.com and IKEA have inadvertently exposed customer information and/or have suffered from security breaches on their websites. Many consumers are reluctant to make purchases on the internet out of fear that their personal information will be misused or compromised. People have suffered identity theft, lost jobs, blocked careers, bankruptcy, and loss of earnings because private information was inappropriately released. There are currently no federal laws in the United States requiring websites to disclose how the information they gather about visitors is used. Online businesses are also largely free to use data obtained on their websites without oversight by the consumer.
Businesses
Benefits for businesses
Tim Ray, founder of Carnivore Club, explained part of the incentive to start a monthly subscription box company, "The obvious attraction of recurring revenue after coming from the world of flash sales was a big reason for pursuing the model. From a business perspective, [a monthly subscription box is] the most efficient, flexible and easy to operate business model in e-commerce." Subscription boxes allow businesses less risky marketing opportunities, require simple operations and provide opportunities to up-sell and cross-sell. A wider range of customers can be targeted by offering subscription boxes at a variety of price points. This is done by offering varying levels of service such as package size and delivery frequency. Point of sale is online. Subscription box companies rely on social marketing, digital marketing and word-of-mouth. Viral reviews on social media are one of the most successful ways subscription boxes are advertised. Many successful subscription box companies have left it to their subscribers to take the lead on brand evangelizing. Businesses are freed up to target new customers and operations are streamlined. Costs for the subscription box companies tend to be low for products, because sample products are often largely subsidized by manufacturers. Some manufacturers pay for category exclusivity and distribution of the boxes. Businesses also can detour customers from canceling services prematurely by using vendor lock-in. This can make the process difficult for customers to cancel the subscription or impose a fee for terminating the subscription prematurely.
Product diversity helps consumers build a knowledge of different brands that exist in the market. When a consumer finds a product they prefer, he or she will often purchase this product again and develop brand loyalty. This is good for the company that manufactures the preferred product and can be good for the subscription box company as well. By connecting customers with products they enjoy, customers are likely to positively review the subscription box company and the product they enjoy. They are also likely to continue their subscription and may even subscribe to a convenience subscription for the discovered product. Businesses can track when customers convert from subscription box sampling to full size purchases through specially coded coupons or offers placed in the subscription box that customers can use for purchasing regular size items in stores or direct from the manufacturer.
Low risk marketing
Many traditional marketing approaches require businesses to risk spending money on a product customers may not like, or burden the customer with the task of taking on time-consuming research products. In contrast to traditional marketing, that struggles with customers who are most often not motivated to take action to purchase the product, using sampling allows minimal effort and motivation on the part of the customer. Buyers are easily identified and thus more easily targeted. It is easy to determine the customer's value, because the subscription services show how much a buyer is willing to spend every month as well as how long they will be a customer. Minimal sales efforts are needed to do additional marketing as well as collect recurring revenue with minimal sales efforts. There are more opportunities to develop customer relationships. Improved customer relationships allow businesses to communicate more directly with customers. This allows businesses to more easily identify customers' interests and desires, so they can develop new products with less risk. Companies are able to do this by requiring new users to create a profile survey to determine their personal styles or tastes. Most companies utilize this requirement and the depth of the questionnaires vary greatly. This allows businesses to create more specialized packages for customers which leads to greater customer satisfaction and loyalty. Businesses can capitalize on anticipation. Customers enjoy products more when they have a waiting period to anticipate the product. The excitement of getting chosen specifically for them helps maintain membership. Subscription boxes offer good publicity for vendors whose products are featured in the boxes. Subscription boxes offer good exposure for new companies as well as existing companies introducing new products to the market. New up and coming products that are introduced to customers through subscription boxes allow customers to feel like they are insiders and thus can stimulate greater excitement for new products.
Simple operations
Subscriptions allow business owners to serve customers both simply and in a better way while tripling lifetime value and amortize acquisition costs over multiple purchases. Demand trends are generally known and inventory management is not a significant issue. Revenue and costs, such as shipping, are more predictable which allows greater control and predictability of cash flow which allows businesses to make more optimal decisions. Business owners can be in regular contact with loyal customers and benefit from predictability. By better serving top customers businesses grow goodwill and benefit from word of mouth. Businesses gain the ability to market additional products by up-selling and cross-selling through built-in, recurring opportunities. Subscriptions allow customers to receive the products they desire automatically and conveniently through recurring payment processing. In the United States, 41% of revenue comes from returning and repeat customers who represent 8% of all visitors.
Challenges for businesses
Customers are often afraid of contracts. This fear can be alleviated by allowing customers to sign up for a set number of months and pay upfront. This will prevent customers from experiencing unwanted credit card charges. Subscription boxes are gaining popularity among businesses creating more competition. Businesses must maintain the value of their subscription boxes in order to retain customers by keeping them excited and satisfied. The longer businesses can keep their customers, the harder it is at maintaining value. Businesses have to keep finding new products to put in their boxes, repeat items risk losing customers. Its hard for businesses to attract one time shoppers. A subscription commerce is hard to sell to one time shoppers. Buyers looking to purchase what you are selling only once, will be immediately put off by the need to subscribe. Naturally, some people might subscribe for a month to get what they want and unsubscribe after they receive their purchase. However, the whole operation is tedious enough to go through for people who are accustomed to making a quick one-time purchase.
Industries affected
Retail
Morgan Stanley expects the e-commerce opportunity "Retail Sales Disruption" to get even bigger in the next few years, and says global e-commerce sales could top $1 trillion by 2016. Five factors that will contribute to the growth in the subscription e-commerce industry and disruption of retail industry include:
- No constraint of shelf space- subscription companies ship their products to their customers straight from manufacturer saving shelf space.
- Online offers accelerated and scheduled delivery. Monthly subscriptions send product and services on a regular scheduled basis every month.
- Merchants can easily initiate global distribution.
- Online benefits from sales marketing efficiency.
- Consumers like to buy products at the lowest price possible which is usually found online.
The grocery industry
The grocery industry, annually grossing $600 billion, is by far the largest retail category in the United States. It has been the least disrupted by e-commerce but shopping habits are changing, and niche online grocery services that compete on convenience and selection are gaining traction. New start-up companies that focus on concierge shopping and subscription prepared meals are innovating on the online grocery model and offering services. These companies offer a shopping experience that is greatly differentiated and is far less limiting than traditional supermarket shopping.
The Fashion Industry
The fashion industry, annually grossing $225 billion in the United States, has been picking up steam in the subscription box industry. New start-up companies that focus on personal styling and shopping convenience have been popping up monthly. These fashion industry subscription boxes offer convenience and value with boxes that advertise values higher than subscription fees. Inevitably Chic is a jewelry and accessory subscription box company that charges a monthly subscription fee of $25 for 3 items and say that each box has a retail value of at least $65. Dapper Box, similarly, offers 4-5 items valued at up to $96 for a monthly subscription fee of $29 per month.
Snack food industry
Nature box an online subscription service for healthy snack food that using direct sales, analytics and iterative development to get its products to market and subscribers faster. its projected to ship over 1 million boxes this year and will raise over $8.5 million. They are using the popularity of the monthly subscription boxes to build its reputation and grow its brand. The health food industry in starting to recognize the importance of the new e-commerce model, which could make Naturebox even more valuable in the future. fifty two percent of U.S. consumers are already buying directly online from brands they trust. Naturebox is bringing innovation to the health snack industry by their monthly subscription service which is disrupting the snack industry overall.
The make-up industry
Beauty items have traditionally not sold well online because customers want to "touch, try and feel" the items they're going to purchase. With the monthly subscription box business model, customers may pay a small fee to have access to product samples to discover new products that they may be interested in. This business model has disrupted the way beauty companies may market their products. For example, as of March 2014, 450 companies partner with Birchbox, a company dedicated to help customers discover beauty products, to get their samples into the hands of potential customers. As of April 2014, Birchbox had 800,000 monthly subscribers. Birchbox then sells the full size item on their website, accounting for about 30% of total revenue.
Environmental effects
Monthly subscriptions send packages every month to their subscribers. These packages range in a wide variety of sizes and shapes and contain numerous contents. Critics of subscription boxes have examined the environmental impact of subscription boxes. Shipping goods over long distances require energy, however the energy used to send subscription boxes is not always more than purchasing products locally. One example of this can be seen with streaming video versus hard copy DVDs. Videos and downloads can be part of monthly subscription boxes. While Netflix is a monthly subscription but not a monthly subscription box, it serves as a good example for the contrast. Netflix streams movies that requires 78% of the energy needed to ship a DVD, but streaming the video accumulates a carbon footprint that is roughly 100% higher than the hard copy DVD and the impact of shipping it. The carbon footprint comes from the intensive energy use from the data centers that are in control of streaming the videos into peoples homes. Along with streaming, contents in subscription boxes may not always appeal to the subscriber. This leads to a waste of product, and transportation costs. This affects the environment in the form of energy needs to get product to the customer, the natural resources to make the product, and the disposal costs to get rid of the product. Especially because some of the products that are sent can be purchased.
Other factors supporting subscription boxes
When the economy in a slow recovery after a significant downturn, recession, or depression, consumers are either unwilling or unable to afford big-ticket purchases or risk spending money to purchase a full size product they are not confident they enjoy.These products can range from homes to makeup. A few effects that have contributed to the rise of the subscription economy include:
- The bursting of the Housing bubble and the attendant rise in personal bankruptcies.
- Lower disposable incomes as wage growth in America remains elusive.
- The introduction of new apps and websites over the past few years have increased renting and sharing opportunities.
The future of subscription boxes
Suspected growth
Virginia Lee, senior research analyst with market intelligence firm Euromonitor International anticipates subscription boxes to continue to grow in popularity but at a slower rate. Lee anticipates more industries will begin using subscription boxes as the popularity continues. The Subscription service model is only a few years old, but has grown like wildfire. Every year thousands of new subscription start-ups companies appear. Research firms estimated in 2011 that by 2015, more than 40% of media and digital-products companies around the world would use subscription services. its grown so fast that larger companies like Walmart and Amazon are investing and coming up their own version of a subscription box. With larger companies getting into the industry, it is anticipated that the subscription box industry to continue to grow.
Suspected decline
An analyst from Fortune.com has a bleak outlook for monthly subscription boxes. He says, "The costs of packaging and shipping can be high and are hardly offset by the enticing low fees for subscription. It may be tough for send-a-box services to innovate so frequently that they avoid an expiration date.
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