Unboxing the Success of Subscription eCommerce

In fact, there is very little you can’t have delivered to your door in a neat little package each month. After only five minutes of Google investigation, we’ve managed to find subscription boxes for quirky Japanese sweet treats, slime, carnivorous plants, a vast array of CBD products and a hand-curated selection of exotic noodles. The list goes on.

It seems many of us are quite taken by what is a profoundly convenient, often cheap and delightfully surprising form of retail. Research conducted by First Insight showed that 25% of respondents (both men and women combined) are currently receiving a subscription box, and another 32% of respondents plan to subscribe in the next six months.  

McKinsey describes three categories of subscription boxes: replenishment, access, and curation. Replenishment automates the purchase of a particular commodity like razors, while access delivers members-only vouchers or discounted prices. Curation delivers a data-driven selection of highly personalised items.

Part of the appeal of subscription boxes is that consumers discover new products, risk-free. The delivery mimics a gift or reward of some sort, with the contents always a mystery and the unwrapping process an experience in of itself. Anticipating or receiving this reward invokes a powerful rush of dopamine, as illustrated by the trend of ‘unboxing’ videos on Youtube.

Forbes considers B.F. Skinner’s theory of operant conditioning that found one of the most powerful forms of positive reinforcement – getting subjects to do what you want them to do – occurs when there is a “reward uncertainty,” often compared to the thrill of gambling.

The article quotes gambling researcher Dr Charles Livingstone: “if someone is given a predictable set of rewards, they lose interest quickly. But if it is unpredictable, they tend to establish behaviour which is hard to extinguish.”

Subscription boxes, though hardly a gambling addiction, entail a predictable yet uncertain set of rewards: “[subscribers are] receiving custom-picked items based on their personal preferences, offering convenience while introducing customers to new brands and trends.”

It’s a way of gifting yourself without losing the element of surprise.

‘Subscription e-commerce services offer these consumers—often younger, affluent urbanites—a convenient, personalised, and, often a lower-cost way to buy what they want and need.’ McKinsey

Evolving Consumer Demands

Perceptions of the modern ‘self’ have been entirely transformed in the era of the internet. No longer do we care for ownership, but value access to and utility of consumer goods. Brands are adopting new and creative ways to penetrate the sharing economy, heralding collaboration and quality as cornerstones of revamped business models.

Subscription boxes are symptomatic of this new way of thinking; a personalised dialogue between brand and consumer. The brand divulges expert opinion, offering curated goods based on the needs and tastes of each individual subscriber. Recipients feel privy to insider knowledge and enjoy uniquely personalised packages (all contributing to a heightened sense of exclusivity). In return, consumers relinquish personal data and capital, offering valuable market insight for further personalisation and a continued revenue stream for the brand.

Here lies the success of subscription boxes; the mutual dependency of brand and user and cyclical gains for each party. Using consumer data sets, brands can cultivate and control a uniquely intimate relationship with their customers that transcends traditional retail channels.

"There's no burden of ownership, you [subscribers] don't have to worry about residual values, you don't have to worry about resale, you don't have to worry about insurance,"  says Iman Ghodosi, general manager of subscription consultancy Zuora.

More than just a relationship between consumer and brand, subscription packages offer entry into a shared community. Access to blogs or promotional events often accompany subscription packages and create both digital and physical spaces for like-minded consumers to forge relationships, exchange ideas and drive user-generated content. FabFitFun, for example, (a lifestyle subscription box that sees 300% growth per annum) hosts a members-only TV station where active subscribers can watch workout videos and cooking demonstrations.

You win some, you lose some

There’s been a buzz in the ‘subscription box’ industry ever since Unilever acquired Dollar Shave Club for $1 billion – five times its original revenue. Not surprisingly, the big retailers are beginning to recognise the value of subscription models.

Target launched “Beauty Box” with Walmart to resounding success, while Amazon boasts 18 subscription packages. The success of the subscription model speaks to the profound effect of direct-to-consumer retail, as well as the shift away from a product-centric mindset to selling outcomes.

Yet direct-to-consumer models risk high churn rates. Consumers are quick to cancel services that don’t deliver a superior end-to-end experience, particularly when they don’t feel they are getting value for money. A key challenge facing all subscription eCommerce outlets is matching supply and demand; consumers are much more likely to cancel when products pile up or they can’t customise order volumes to match their actual requirements (for example, if they are going on holiday).

The most successful brands combine the element of surprise with secondary revenue streams. Ipsy makes advertising revenue from YouTube videos showing how to use its beauty products, Sephora Play seeks to drive customers to shop with the core brand and FabFitFun sells sponsorships from brands seeking to reach new customers.

“We’re fully aware that we can lose a subscriber at any time,” says co-founder of FabFitFun, Katie Ann Rosen Kitchens. “But if members see us as more than just a box, but access to a community and valuable knowledge, then it’s hard to put a price on how much that experience is worth.”

The Future

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 harder to acquire customers. Rather, they want a great end-to-end experience and, according to McKinsey research, are willing to subscribe only where automated purchasing gives them tangible benefits, such as lower costs or increased personalisation.

The very best subscription boxes will invest in content that makes the unboxing experience exciting every single time. This requires copious research in customer retention. Brands must consistently inspire and delight its subscribers - no easy feat in a world where consumer expectations are sky-high.

With data being king in every aspect of retail, subscription boxes offer a vanguard in personalisation. Brands can forge ever closer relationships with their clientele and are offered the chance to impress each customer in profoundly innovative ways.

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