Subscription Commerce Has Evolved and As a Result Come Out on Top
By: Yisela Alvarez Trentini
Tags: Startup, Engagement, Ecommerce, Subscription Boxes

The subscription ecommerce market is growing fast. In 2019, there were about 3,170 subscription box programs, and about 25% of all shoppers received a subscription box regularly. With a large part of the global population in lockdown, many of these companies have experienced a further steady (and in some cases increased) growth during the last months.

Subscription boxes first became popular around 2010, thanks to beauty services like Birchbox and grooming supplier Harry’s. Over the past years, the market has exploded, creating hallmark success stories like Unilever’s $1 billion purchase of Dollar Shave Club in 2016. Last year, the total subscription ecommerce industry was estimated at $10 billion.

The subscription model offers benefits for all parties involved. Customers enjoy the convenience of auto-renewing high-value offers, and companies can scale with confidence because they can anticipate their revenue as the relationship with users deepen.

The industry is built to scale, and the COVID-19 pandemic has given companies a unique opportunity to innovate. The model is here to stay, although the most successful cases will depend on the ability to offer continued value to subscribers.

The Subscription Model

In 2018, over a hundred and fifty million square feet of retail storage space was closed, as consumer preferences shifted toward online shopping and brand royalty began a relative descent into obscurity. This prompted companies to reconsider their approaches and embrace ecommerce in order to reel in repeat customers.

The revenue for subscription companies is generated by users making monthly or yearly payments — and receiving monthly products that can only be used or accessed for a limited amount of time. This can include services in video streaming like Netflix, Disney or Amazon, meals and cooking ingredients like Blue Apron or Hello Fresh, and grooming products like Dollar Shave Club or Personalized Beauty Discovery.

Today, there are thousands of subscription boxes to choose from. The large majority of these initiatives also make at least some of their sales overseas. Determining the price of a subscription box is key. In 2019, most boxes were between $15 and $30. The Opulent Box, providing luxury jewelry for $25,000 a month, would clearly be an exception.

Keeping customers engaged in subscription models is vital. The proportion of users who decide to cancel, or “churn,” is one of the market’s biggest challenges. Slight changes in churn rates can have larger effects on recurring revenue, especially when lifetime users leave, and companies have to reacquire a customer.

Social media subscription models have done particularly well. In 2019, The Walt Disney Company acquired 21st Century Fox (which includes Fox film and TV studios, as well as the FX networks, National Geographic, and India TV star giant India) for $71 billion. The investment paid off. Last month, Disney+ reached 60.5 million global subscribers, surpassing its five-year streaming goal in just eight months. Hulu now has 35.5 million subscribers to its on-demand service, while ESPN+ has tripled its level from last year, reaching 8.5 million users. These numbers pale in comparison to Netflix and Amazon Prime, with 183 million (25 million added over the pandemic) and 150 million subscribers each, respectively.

Social media subscriptions have become so popular that other companies are also exploring the model. Twitter’s 2020 Q2 was the best in its entire history — growing 34% compared to the previous year. The platform is now apparently considering a subscription model that would involve charging users to use certain services.

The Future of the Subscription Market

The subscription box model is constantly reinventing itself. In addition to the now more familiar recipe and health and wellness products, there are now several sites offering books, craft kits, wine, board games, ramen, and much more.

Many see in subscription-based retail the future of shopping, particularly after the COVID-19 pandemic. Major retailers like Nike, Nespresso, Majestic Wine, and Selfridges now offer subscription boxes too.

From a customer perspective, subscription boxes help people budget their regular purchases. They are not just convenient in terms of door-to-door delivery, but also save users time because they don’t need to make payment and enter their address every time they make a purchase.

One of the challenges subscription models face is to balance sustainability, in particular excess packaging. However, most customers buy not just a product, but a brand that speaks to their values, and most boxes are now made of cardboard or recycled materials.

In unprecedented times like these, the model provides a good way for companies to forecast their financials and adapt strategies more accurately, and an opportunity for customers to take on a journey of discovery.