Why large retailers are launching subscription programs in 2018
Retailers are at the beginning of a wave of experimentation and innovation in the direct-to-consumer subscription space, and customer expectations are continuing to grow. The movement originally driven by value, convenience, and replenishment is evolving because major companies such as Amazon and Walmart are becoming masters of these 3 core ingredients behind the psychology of subscriptions.
However, as the subscription landscape has become more competitive, it’s also become more valuable, and retailers who pull off a successful subscription program enjoy benefits such as attracting new consumers, generating recurring revenue and increasing customer lifetime value. Starting with an omni-channel retail approach is now expected for most retailers, and implementing a subscription channel successfully can breathe new life into existing large retailers in 2018
THE SUBSCRIPTION PLAYERS
The most successful delivery of an omni-channel experience that combines retail and subscription comes from Sephora. The company’s subscription box, PLAY!, offers beauty samples similar to those Birchbox and Ipsy provide, but it’s integrated into the company’s brick-and-mortar business and its impressive overall digital footprint.
In a remarkable feat of organizational alignment, getting accepted into the program after a tantalizing wait allows you access to not only sample products, but also to exclusive experiences both in-store and online that range from meet-ups at physical locations to online or in-person how-to’s to discounts. Sephora’s entrance into subscription is both a way to connect and create a sense of belonging, discover new products, get exclusive products and offers all while generating recurring revenue and high valuable customer data.
Target has embraced the direct-to-consumer model for quite some time, and it already offer digital first modern brands such as Harry’s, NatureBox, and Cora. Target tested the subscription-box waters with a beauty box, and it’s building on that success with its Cat & Jack kids’ clothing box, which competes directly with Kidbox, Rockets of Awesome, and GAP’s babyGAP OutfitBox.
THE SUBSCRIPTION PRIZE
For larger existing retailers, offering a subscription box is a great way to broaden brand appeal and gain new customers, including people who might never have discovered the brand otherwise. Plus, advertising for a subscription box can simultaneously boost and supplement other PR and marketing efforts by offering a unique story to communicate.
At its base level, a subscription program is about building a relationship with customers and understanding their wants and needs through multiple touchpoints. At a time when most retailers’ physical footprints are shrinking, providing access to products through the multiple channels that consumers want is a key advantage.
THE SUBSCRIPTION PROCESS
Ecommerce has been the go-to channel, but the subscription subchannel has also seen its share of adoption: Consumer insights firm Hitwise reported visit growth of more than 830 percent for subscription brands between April 2014 and April 2017. Plus, McKinsey & Co. reports that the industry has grown more than 100 percent each year in the past five years.
To keep as many customers as possible, retailers must overcome the obstacles standing in their way and develop compelling subscription programs. It is not always easy: Subscriptions generally start out small, and getting access to the necessary resources will require convincing top management to provide support.
Making changes to inventory processes is another considerable hurdle for some large retailers who are used to running their operations in a certain way. Retail supply chains are generally very streamlined, and it’s difficult to “break the chain” in order to perform significant testing in a new channel.
Finally, running a subscription e-commerce channel requires a certain amount of knowledge and experience that most retailers lack; it’s certainly not the same strategy as traditional retail. Most retailers would likely benefit from professional help in setting up a subscription program, and while that might sound expensive, it will be cheaper in the long run than cleaning up major mistakes.
THE BOTTOM LINE
Deciding whether to offer a subscription in the current retail climate can be tough; it’s hard to get started and some of the traditional retail KPIs are not as important when you move from a transaction to a relationship. However, retailers in the right segments that have sufficient support can reap the rewards of implementing a subscription program from day one. Organizing the supply chain with an eye for subscriptions — by reserving exclusive products, for example — is a good idea, as is including a subscription in the point-of-sale setup.
For legacy retailers, adding a subscription service to existing offerings can be an uphill battle. Large, successful retailers are fighting for market share, and if they’re a public company, they are in some ways fighting against their histories.
With Amazon on the attack 24/7 and new digitally native brands hitting the market every day, it’s tempting for many retailers to discount the physical subscription channel in favor of “focusing on the core business.” It might seem like a valid short-term excuse, but in the end, it will likely turn out to be shortsighted. Instead, retailers should acknowledge the changing landscape and realize that the time to act on subscriptions is now.
To learn more about the Psychology of Subscriptions and how they can help large retailers and brands see if a subscription will succeed please download our Psychology of Subscriptions Whitepaper or check out the 6 part video series on our blog.