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Could subscription commerce work for your business?

The only thing that tends to land on doormats are unopened bills, bank statements and the rare postcard from someone probably too old to be on any kind of social media. But all this is slowly changing.


Subscription boxes are becoming more and more popular and the idea is simple enough. You can get a regular delivery of goods you’re interested in – from makeup boxes to gourmet cheese toasties to fashionable men’s clothes – and pay a recurring monthly or weekly fee. It seems that as long as it’ll fit through the letterbox, you can receive it in the post on a regular subscription.


This has been around since the 1990s when vegetable boxes were first introduced in the UK. The ‘veg-box’ idea has grown in the past few years with some of the big name suppliers seeing a 10% increase in organic food orders. The idea of a veg box scheme has now been copied by other businesses and the idea of ‘subcom’ (subscription commerce, silly!) has risen.


The subcom model works in two ways: convenience or discovery. Both are straightforward; pay to have a pre-chosen item or range of products conveniently delivered to your door, or discover and be surprised by new products each month.


Boxes are low cost with low overheads, have predictable demands and breed customer loyalty and retention. If you’re thinking of new ways to market your business and reach a wider audience, adapting your product and making it deliverable over and over again might be an option.


Snacks


Graze launched in 2009, starting off as a project that was started by seven friends – including the founder of now defunct DVD delivery service LoveFilm – before having majority ownership overtaken by American private equity firm the Carlyle Group in 2012.


The idea of Graze is to provide an alternative to snacking at work. Too often we’re lured by fizzy drinks and chocolate bars, and Graze wanted to change this behaviour. Customers can order punnets of snacks to their office / home / wherever and graze away until their hearts content for a fee, currently £3.99 per box.


“We were constantly tempted by snacks at work. We needed snacks that tasted delicious and didn’t make us feel guilty afterwards. So we started mixing our own snacks together using the tastiest ingredients nature has to offer.


When other people told us they thought the snacks tasted really good and it was a good idea we got really excited because we realised there might be a business in this. So we set about working out how we could send our snacks to anyone in the UK who wanted them.“ – Ben Jones, Graze Founder


Graze work on the convenience commerce model. In a nutshell, the subscription that “makes customers lives that little bit easier” and saving them time and effort. Think about it: no more traipsing through the whole foods aisle in search of honey-toasted quinoa strands when you can have them delivered, affordably, to your desk.


Beauty


Ever thought how cool it would be to be able to try an assortment of beauty products each month? Birchbox – a multi-million pound service from the US – allows that to happen.


Based on the discovery model, Birchbox sends out customers a box of beauty samples each month to “to help consumers cut through the clutter of the retail world to find products that really work for them” – according to founders Hayley Barna and Katia Beauchamp. Birchbox is the Avon Lady for 2015.


The Birchbox model gets beauty fans hooked by curating the box based on taste, style and look. When signing up, each customer informs Birchbox of their preferences. For example, oily skin, wavy hair and adventurous. The system takes these preferences and compiles a box of samples for £10 + £2.95 postage with the idea being that customers love the samples so much, they invest in purchasing full-sized products from the website.


Samples are supplied by both big name brands and cool, hip startups. Birchbox boasts over 400,000 subscribers and converts half of these into making full-sized purchases from their website. Birchbox appears to be a superbly orchestrated (and marketed) subscription box.


But how does a business like Birchbox scale? Will the samples still come in thick and fast when demand reaches 500,000 or even 1 million customers? Is Birchbox actually e-commerce or a stunningly clever marketing model in which women actually pay to be marketed to? Give me a monthly trip to Lush anyday over thirteen quid for a box of samples.


Games


Targeting “geeks and gamers” is Loot Crate, another US based discovery subscription box that sends “$40 worth of shirts, collectables and other gear for less than $20 a month!” If that is the case, how do Loot Crate make any money? Founder Ryan Matthew Pierson laid bare on his blog that:


“Because Loot Crate would be buying the crate contents in bulk, it would be receiving a significant discount on them (the items). It would be like a retailer buying products in bulk, but instead of selling them individually, Loot Crate would essentially sell them all at one time.”


Bulk buying leads to greater purchasing power, essentially meaning that the quality of the products should be consistent. Loot Crate has over 500,000 subscribers since their launch in 2012, with generally favourable reviews. The appeal of receiving computer game related gifts and trinkets every month, centred around a particular theme (for example ‘villains’), clearly has won people over, and it seems Loot Crate maintain accurate costings meaning their customers feel like they’re getting more bang for their buck.


The psychology behind subscription addiction is simple; the anticipation, element of surprise and excitement keep people hooked. Amanda Doman, who works at an American Addiction Recovery institute says:


“The chemical reaction our bodies have when we’re excited and waiting for that box each month – not knowing what it is, but knowing it’s coming – creates an adrenaline rush… When something’s being handpicked for someone, it’s feeding their self-esteem. It makes them feel unique and keeps them continuing to purchase.”


As companies look for new ways to join this trend – Google and Amazon are already dipping their toe into the grocery shopping delivery business – is the way we shop for simple things such as shampoo or oranges going to be the next ‘disrupted’ model? Will the notion of going out to the shops eventually become obsolete?


The subcom model provides businesses with the opportunity to not only explore a new way to market their product, but also potentially become profitable by doing so. Subcom is a cheap way of branching out into ecommerce; get a product, put in a box and post it. No large overheads and no huge rental costs. This makes it an exciting business model for startups, and the UK market isn’t overly saturated… yet.

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