Updated: Sep 9
Subscription-based products and services have become the new norm. Though companies such as Netflix and Hulu have perfected this business model for entertainment services over the years, it wasn't until 2016 that the subscription-based product box exploded. In 2016, Shorr Packaging conducted a survey that reported that subscription box websites have grown by over 3,000 services in the US from 2013-2016. They have continued to grow since this study and are here to stay.
In 2018 Mckinsey and Company conducted a study to learn where and why consumers choose subscription-based services. They discovered that consumers are highly likely to sign up from social media and usually fall in the demographic of 18-25 living in major cities.
"Consumers do not have an inherent love of subscriptions. If anything, the requirement to sign up for a recurring one dampens demand and makes it hard to acquire customers. Rather, they want a great-end-to-end experience and are willing to subscribe only when automated purchasing gives them tangible benefits, such as lower costs or increased personalization."
Though the number one thing that triggers consumers to sign up for a subscription service is the recommendation of a friend, neighbor, or influencer, subscribers will cancel if they do not deliver a superior experience.
6 Ways to be Successful With Subscription-based Boxes:
Making the Subscription Model Work
It can be challenging for subscription e-commerce companies to acquire and retain customers. According to Mckinsey and Company's 2018 survey, they report that only 53 percent of consumers know about the top services. They also note that the conversion rate is weak, with only 55% considering a subscription service subscribing. They predict that consumers do not want to make a long commitment. Though cancellation rates seem high and conversion rates low, the good news is once a consumer finds a subscription they like, they become hooked.
Enter a less saturated market
As of 2018, the largest subscription service market was food and beverage, followed closely by hobby. Though a subscription box might be new and inventive, entry and overhead costs grow exponentially, making it best to enter a market that has not been affected as much by subscription boxes. If you are already selling in these larger product markets, set yourself apart from others with competitive pricing or create a niche within that field.
Focus on the experience
Remember, 50% of subscription-based customers are looking for curation. That is why food-based recipe businesses do so well. It is about the activities you do once you get the box and less about the box itself. Besides creating a subscription-based service with a built-in experience, try to connect your service to an experience. Offer free or valuable content on your website, or send this box if they order that one. Something that will help the customer feel involved and connect to your company and your subscription.
The experience includes ease of curation, delivery, ease of movement through their website, and even unsubscribing. Some subscription-based services also offer to skip a month, week, or year without any cost or hassle. What does your customer find essential, and how can your service help them get what they want?
Use software to help you grow.
Subscription-based services genuinely have to be well-oiled machines. They flood daily with requests and subscriptions. What tools help them save time and grow?
Price Optimization software
Metrics and Reporting Tools
Churn Reduction Software
Revenue recognition and delinquency tools
Not all of these tools will be beneficial to your subscription. You need to research and contact companies specializing in this software to ensure they are helping, not harming your business model.
One of the main reasons consumers sign up for subscription services is because they add value. Popular boxes may promise a box full of merchandise valued at $200 but charge only $49.99. That is massive value for the subscriber. Not every company or subscription service has the power or desire to offer drastic saving discounts. There are other ways to add value, such as connecting subscribers to a large online community or providing free products when they sign up for the first time, on their year anniversary, or referring a friend.
Understand your market and how your customers perceive value, as every consumer acknowledges value differently. Subscription boxes are not just about acquiring but also retaining customers for an extended period.
Over 84% of companies started by bootstrapping their funds. Most subscription-based services began small and grew slowly. Explosive growth with subscription-based services can come off as unauthentic to consumers, making it hard to gain industry recognition. Starting small and utilizing marketing tactics such as word of mouth can help achieve and keep customers. Every market and customer base is different, so surveying your customer base to understand their desires is a great way to get started.
Subscription boxes have particular circumstances but are popular for a reason. As mentioned, Netflix, the subscription service pioneer, is worth $9.6 billion and growing. Whether you decide to take the subscription route or not, you need to understand the hard work it takes to succeed. If you can figure out the right formula and retain customers, then a subscription service is a great business strategy.