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Will Subscriptions Work for Traditional Retailers?

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Blog July 19, 2018 by Melinda Deines
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Will Subscriptions Work for Traditional Retailers?

The subscription trend began online with platforms like Netflix and Spotify, companies that provided access to information over the internet. As delivery costs drop and customers become more comfortable with e-commerce, e-retailers have begun successfully using subscriptions to sell everything from shaving supplies to groceries.

Clever bricks-and-mortar retailers are getting in on the action by offering their own subscription services — but what makes a winning offering? How can a subscription model create a better customer experience, increase brand loyalty and impact sales? Here we offer some factors retailers need to consider when developing a subscription offering.

Why Customers Like Subscriptions

The first thing to note is the different reasons customers are signing up, and then figuring out which of these fits with your brand. Customers are signing up for three key reasons: to enjoy the surprise of something new and unexpected, to refill everyday items, and to gain VIP access that offers additional benefits.

Sephora Play!

According to a study by McKinsey, the “curated” subscription which offers customers a personalized selection of various items is the most popular category, taking 55 percent of subscriptions. Sephora Play! is a great example of a retail brand utilizing this model. For $10, customers can get curated beauty products based on a profile questionnaire. The boxes include large sample size products (with occasional full-size products) and customers get additional perks, including bonus points on a full-size purchase.

Why It Works: For a very low monthly cost, the brand has the opportunity to promote products in a fun and engaging way, and drive customers back to the store. By linking the subscription to rewards points, the brand creates more opportunity for customers to engage.

Dollar Shave Club

Replenishment of commoditized items is the second most popular at 32 percent. Dollar Shave Club is the best example of this — who ever imagined delivering razors to men would build a company that worth $1 billion? The brand does just that: it delivers high quality shaving products to men at a low monthly cost.

Why It Works: The branding and marketing for Dollar Shave Club was on point from the viral launch video to its acquisition by Unilever. The brand solved a key problem for men for a very low cost.

Thrive Market

The third category is VIP access. Membership to Thrive Market, for example, gets you discounts on organic food products. While this model is significantly less popular than the first two, it is a good way for smaller brands to find their way into consumer’s hands.

Why It Works: Thrive Market takes a category where price and availability are prohibitive factors and then removes those barriers.

Traditional Retailers and the Subscription Model

The question is, will this work for traditional retailers? It’s working for Sephora, but not many other traditional retail brands have figured out how to use subscriptions well. Certain categories like beauty products, snack food, wine and books, fit more easily into the model. Before retailers invest in developing a subscription, it would be useful to ask a few key questions:

1. Can a subscription model drive traffic into stores and increase in-store purchases? In Sephora’s case, because the beauty box includes sample sizes of products they sell in the store, the answer is yes. For a book club, however, a subscription might threaten the in-store visit — unless the subscription creates access to special events such as in-store readings and signings. If the subscription cannot be linked to other elements of the brand experience, it will not create value for the brand. In some cases, brands have created a sub-brand to cash in on the subscription craze, but keep an arm’s length from the master brand. The Trunk Club by Nordstrom is a good example of this. Trunk Club is a personalized styling service for men and women, offering both virtual and in-person shopping options. If you choose the virtual styling option, a personal stylist will send a curated Trunk of clothing to your home based

2. Do you have the infrastructure to deliver an excellent subscription experience? The best subscription offerings arrive in beautifully branded packaging, allow for smart customization, and offer the element of surprise. There is no point in throwing a few product samples in a box and calling it a subscription. There is tough competition out there — just go to mysubscriptionaddiction.com to see the kind of offerings that customers prefer. Delivery needs to be seamless, and you will need customer service infrastructure to support in making that happen. If you cannot deliver a great experience, your subscription will not work.

3. Does the subscription model have staying power in your category? Only 10 years ago, everyone was wild about Groupon and Living Social. Now web-coupon sites have eaten each other up, and Groupon struggles to stay alive. The format struggled for a number of reasons, and there are some similarities to the subscription model. First, online coupons became so over-indexed that consumers were overwhelmed. Many industry experts think the same has happened with subscriptions. Secondly, small businesses began to discover that the model didn’t provide them the kind of value they were looking for. Customers were ultimately looking for a bargain, which decreased the value perception of the brands and products. Small business owners also indicated that they didn’t see these customers becoming repeat customers; perhaps because the relationship was with Groupon rather than the brand itself.

As small businesses left, offerings were restricted to big name brands, and part of the fun in discovering something new was almost entirely eliminated from the format. This factor provides some insight for brands investing in subscriptions: it needs to be sustainable, and the customer need should be deeper than just “to have fun.” The core value it brings to the customer needs to be strong enough to drive continuous usage. Car sharing, for example, eliminates the need for car ownership. This is an extraordinary benefit. Netflix offers a huge range of ever-changing content, on demand, without any advertising. Before launching a subscription, think about how you can address a deeper need than participation in a fun fad. Otherwise, you may need to view a subscription as a short-term marketing tactic.

In the break-neck pace of change it can be tempting to embrace every new idea with gusto. Subscriptions do have potential to grow in some categories, especially for the first brand to really get it right. Grocery stores, for example, have an opportunity to leverage the model to replenish basics such as toilet paper and milk. For some categories, it may never take off, and for others it may be used as a marketing tool for as long as the fad lasts. If you focus on creating value for your key customer and evaluate using these key questions, you will be able to determine whether or not a subscription offering will make sense for your brand.

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