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Subscription boxes like BirchBox and Barkbox are all the rage these days—and not just among us humans. My dog Bear jumps for joy when his Bark Box comes through the door.
In fact, a 2020 survey by CouponFollow found that one in five shoppers purchased a subscription box during the lockdowns, and McKinsey now estimates the value of the subscription box market at a staggering $12 billion to $15 billion.
This growth isn’t all that surprising, and marketers naturally want to jump on the trend. Subscription boxes can bring an element of fun into people’s (and pets’) lives by exposing them to a variety of new products, whether that’s food, toys, apparel or cosmetics. Not to mention subscription boxes can eliminate daily hassles like shopping for groceries, sourcing ingredients and figuring out what to wear.
Some subscription boxes even make certain products (think high fashion) more accessible to a broader range of consumers by offering a more affordable price point. The younger generations especially are moving away from traditional product ownership in favor of rental models that provide a convenient, personalized and often lower-cost way to buy the products they want and need.
These trends, coupled with the need for a direct-to-consumer relationship and a more holistic brand experience, are all feeding into companies chasing subscription models. It doesn’t hurt that many brands have also realized that SaaS companies tend to have higher multiples of revenues due to their recurring revenue relationships. Subscription boxes are arguably an analog version of that model.
While these advantages seem to indicate subscription boxes are the new, must-have product category for brands, they aren’t without their challenges. Subscription boxes have some of the highest churn rates in the industry, with consumers quickly canceling services that don’t deliver exceptional end-to-end experiences and ongoing value.
So, what’s the secret to success? In order to create and scale a profitable subscription box model, companies must embrace the following principles.
Treat it like a marketing channel, not just a product
As companies look to accelerate their omnichannel efforts, subscription boxes can offer a new marketing channel in and of themselves. Email open rates continue to be a challenge for many brands, while a subscription box literally arrives on the customer’s doorstep. But like any marketing channel, if companies don’t consider what their strategy is or how it fits into their entire product roadmap, it’s likely to become a wasted opportunity.
Operate from a unified customer view
The dual challenge with a subscription, especially in retail, is having the quantity and variety of products to continually satisfy the customer, while also getting the frequency right by delivering a refill or replacement precisely when the consumer wants it. If a consumer’s behaviors change, then their subscription needs to change too.
Considerations such as customer acquisition cost, the structure of the box, whether it contains sample sizes or full-sized products and whether it contains the same product or a mix of products must be factored in as well. This is where valuable first-party data collected from all systems and marketing channels can come into play. When first-party data is unified into customer profiles that are accessible and actionable, growth-oriented teams like marketing, product and commerce can gain valuable insights into consumers’ interests, behaviors and preferences to ensure their subscription box service remains valuable.
Add a layer of intelligence
Applying machine learning to these first-party data assets can also reveal customer trends and provide insights to allow for enhanced personalization of boxes and pre-emptive tuning. For instance, companies can run models to identify which customers are more likely to churn and act in the moment (by offering incentives, for example) before it’s too late. Ultimately, the more personalized the offer, the lower the churn rate is likely to be.
Eliminate operational inefficiencies
Certainly, driving better outcomes will be a key metric for any subscription box model. But business growth is a by-product of two things: performance outcomes, as well as operational efficiency. By unifying and synchronizing first-party data across other systems, marketing and adjacent parts of the business can not only deliver more personalized experiences across all touchpoints with customers, but also streamline segmentation, analysis, modeling and other core tasks.
On the whole, subscription models can help brands create a lifeline to customers and generate a lucrative and recurring revenue stream for their business. But success is not guaranteed. Longevity and growth will ultimately depend on a company’s ability to access and use the first-party data that’s generated from their subscription service and other owned channels to foster loyalty and lasting value among customers.
