Order Once, Enjoy Forever
Heeju Kim, Dartmouth Business Journal
The newest strategy in marketing is to sell an experience, and the subscription box market has capitalized on this concept with great success. Every month, consumers receive a box in the mail filled with surprise goods curated specifically to their tastes and preferences.
Birchbox, a subscription box service that delivers beauty samples to your door, is an example of this personalized delivery business model. Launched in 2010, Birchbox was based on the “art of giving to yourself.” According to Forbes, Birchbox boasts 800,000 global subscribers and $96 million in annual sales. Since then, the subscription model has grown rapidly and been adopted by a variety of industries, from food (NatureBox) to pets (BarkBox) to personal hygiene (Dollar Shave Club). FastCompany reports that in 2014, the subscription market made $5 billion in revenue and is growing at a rate of 200 percent per year. Although the use of this model is concentrated in the United States, its reach is expanding as more entrepreneurs, corporations and consumers abroad adopt the model.
Several factors drive the success of the subscription model. The primary factor is its multifaceted appeal to the customer, who can engage in self-indulgence by receiving a personalized selection of products. This model relieves consumers of the responsibility of sorting through hundreds of product options and places the onus on the business to select appealing merchandise. Even if the customer is dissatisfied, the relatively low cost of most boxes and the thrill of receiving new products provides enough incentive for most customers to remain subscribed. Customers gain exposure to products and brands that they may never have heard of before without having to take on a significant financial risk.
The subscription model is similarly appealing to brands that are featured in subscription services. Inventory levels are predictable, allowing for smoother operations. For boxes that pull products from other brands, the cost of putting together a box is relatively low, as brands are often willing to provide samples at a lower cost or for free. In some instances, they may even subsidize additional costs in return for exclusivity or additional promotion. Brands see these boxes as important and effective marketing channels – there is less clutter in one box compared to a department or online store, giving the brand and its products greater attention from the consumer.
Because boxes are concentrated in one industry, such as beauty or fashion, a consumer who signed up for a subscription service was likely to purchase such items regardless. The box has the additional advantage of guiding customers to particular products or brands, creating an excellent avenue for brands to foster customer relationships and loyalty. Because of a box’s overall convenience and concision, boxes are an excellent way for brands to reach the complacent customer who generally knows what they want but is unwilling to do the legwork to find new products. Boxes allow brands to reach out to this subcategory of consumers, which would otherwise go largely unaffected by traditional marketing techniques.
The success of a box can be measured through multiple factors. Online buzz is a commonly used indicator of how well a subscription box is received. Discount codes are often included with products, which consumers are inclined to use, allowing companies to track how many boxes translate into purchases, which is an indication of the effectiveness of the company in recognizing its customers’ needs. The better a company can read its consumers, the longer its customer retention rate, which means more revenue. The ability of companies to expand into other markets is another concrete measure of a subscription company’s brand awareness and financial success, such as launching an online or a brick and mortar store. This last aspect is crucial toward a company’s ability to diversify its revenue streams and maintain financial solvency as the market becomes increasingly saturated.
The subscription model has also spawned a number of other industries. Its most prominent impact, perhaps, is on the online community. Social media gurus have gained massive followings by doing unboxings and representing certain box brands and have often been brought on board as ambassadors to help market the boxes themselves. Additionally, software as a service (SAAS) companies have also profited from the boom in subscription services offered. Large companies are not the only ones offering monthly boxes – smaller business owners are also jumping on the bandwagon and taking advantage of all of its advantages. CrateJoy is a medium through which businesses can set up subscription boxes for purchase. As of 2016, CrateJoy has over 8,000 merchants on its platform.
Granted, this industry does not come without its weaknesses and potential pitfalls. For one, the market is becoming increasingly saturated. New and undiscovered industries are quickly capitalized on by subscription box companies. As a result, the field becomes polarized between large businesses that dominate the industry and merge with medium sized companies, and small businesses which operate in niche markets and have stronger customer loyalty. Though there is a huge range of prices of subscription boxes, the general desire of consumers is to maximize value for money and time, and companies are expected to meet this desire. Some subscription companies may find it difficult to differentiate themselves from the rest of the market, particularly if the contents of their boxes are largely dictated by third party brands. Over time, however, these trends may increase the diversity of products available to consumers.
It is unlikely that the subscription box industry will experience significantly slowed growth. The business model has been incredibly successful for the past five years, and there is little to suggest that the model will be damaged in the short run. According to My Subscription Addiction, of the hundreds of services that have been established through its platform since 2012, only eight have gone out of business. A continued influx of new companies is likely, both by established companies and small businesses. This will likely result in a huge number of companies, ensuing in fiercer competition for market shares. For the consumer, however, this means better surprises and better presents, and who can argue with that?