Neglected for many years, business models involving customer subscriptions are now back in business for the digital channel. Recently, these business models receive lots of attention and funding. US-based company Beachmint for example created quite a stir-up in the US eCommerce industry, receiving US$75 million in venture capital.
Beachmint‘s business revolves around sales of products chosen by celebrities. Products range from jewelry, clothes and make-up to shoes. For a monthly subscription fee ranging from US$30 to U$80 predominantly female customers receive items such as special It bags or a T-shirt designed by the Olsen Twins. A video published by news agency Bloomberg recently shed light on the hype surrounding the new platform and the underlying business model. Another example, the ‘Million Dollar Shave Club‘ – an online shop for razors – generated quite a social buzz even without a huge amount of venture capital behind it. The company produced an advertising video for only US$4,500 and posted it on YouTube. On the first day alone 5,000 new subscribers were counted and within one week after launch the video was already clicked for as much as three million times. Up to now, the ‘Shave Club’ has more than 12,000 customers ordering high-tech razors for US$1, US$6 or US$9 every month.
The ‘Million Dollar Shave Club’: 5,000 new subscribers within 24hrs after launch of an advertisement video on YouTube
Unlimited number of subscription offers
The new subscription business models have not much in common with the good old Bertelsmann book club founded more than 50 years ago in Germany. The new business models are open to everyone. There is a huge number of different subscription models especially in the FMCG industry, ranging from make-up products and clothes to foodstuffs. One of the pioneers in the US is BirchBox. For only US$10 per month the company delivers make-up samples to its female clientele. The German equivalent would be GlossyBox, which recently irritated its customers by raising the subscription fee from €10/month to €15/month. News platform ‘Deutsche Start-ups‘ (German start-ups) counts as many as 22 different eCommerce subscription models in Germany alone. In most instances German start-ups are working in niche markets like men’s underwear (Mansbox), tampons (Trinkets), oranges (MyMuesli subsidiary Oh-Saft), shoes (ChicChickClub) or kids toys (Wummelkiste). No matter how small, there is hardly any market that has not been tapped.
Mansbox: Subscription service for socks, T-shirts and underwear
“More time for men to hunt animals, build an empire, climb a mountain or simply slay dragons”
Pros vs. cons: Enhanced customer-loyalty or impediment for growth?
Subscriptions offer a number of advantages for customers, convenience and timesaving in particular. Customers no longer need to spend a lot of time weighing pros and cons in hundreds of products, which can be quite a bore when it comes to socks for instance. Instead, customers key in their preferences and will be shown suggestions pre-selected by stylists, editors or simple algorithms. Price concerns are another topic making subscription a viable option to many customers. There are also advantages for retailers like long-term customer relationships, which allow for predictable revenues based on the lifetime value of customers. Customers do not need to be acquired anew for every sale.
In the long run, we expect that flexible box models that not only leave enough space to customers for making purchase choices but are also based on an individual’s consumption behavior and financial situation will prevail. An interesting example is Germany’s KommtEssen. Launched in 2010, subscribers receive recipes along with the necessary ingredients for their daily meals on a weekly basis. Services that are targeted at customer groups constrained by time or age have it much harder. Take PetiteBox for example: This service offers exclusive surprise gifts for babies only. The lifetime value for this service is rather short and requires much more marketing efforts to acquire new customers.
In general, all subscription services inherit certain limits for growth since the initial investment for first-time subscribers is rather high. This is especially true for the fast moving fashion industry. US-based pioneer in this business area - Shoedazzle – recently discarded its previous subscription-only business model and now offers its complete product range free for sale to everyone.
Subscription business model can be an impediment for growth: Shoedazzle recently discarded its subscription-only business model and opened its business to everyone
Coming on Thursday: Read on in Part II why the subscription business is much more interesting to wholesalers than for niche markets.