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3 Trends Defining the Future of the Subscription Economy

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Euromonitor International Bio

The Subscription Trade Association (SUBTA) hosted it’s Recur Chicago event on October 20-22. The event focused on the fast-changing and still growing subscription-based economy. SUBTA is attended by a wide range of subscription related companies, including SaaS solutions that support subscription business models, companies that supply products for subscription-based businesses and subscription services themselves.

While a wide range of themes were discussed at the event, Liz Miller, vertical lead at Euromonitor International over retail sector, sat down with Chris George, co-founder and Chairman of SUBTA and former CEO and co-founder of Gentleman’s Box, a men’s monthly grooming and style box. The ideas that follow were the most prominent from that conversation and the other aspects of the show.

Services as Subscriptions

When asked about the future of subscription-based purchases and where untapped potential for brands to explore might still exist, Chris brought up the services industry.

Today, subscriptions have started to permeate consumer service experiences. Some prominent examples include discount-based memberships from Lyft and Uber, salon services subscriptions such as Drybar’s membership option and home cleaning services such as Handy.

Some models are partially service based, such as Fernish, the furniture rental company, which includes white glove delivery and set up service. Lucas Dickey, the company´s Chief Product Officer and co-founder, described the needs of transient millennials, and soon to be Gen Z, who are looking to make moving easier by renting approximately $5,000-$6,000 worth of furniture for around $200 a month. The IKEA experience of hauling home boxes of shelving, bed frames and kitchen tables and then spending days or weeks working on assembly, may be a thing of the past. Consumers who can afford the service-based alternative, but don’t want to invest in furniture since another move is imminent in a year or two, now have other alternatives.

According to Chris, services remain an underdeveloped area of the subscription economy. One example he gave was of a heating, ventilation, and air conditioning or HVAC services provider, who has a membership model for monthly maintenance and filter replacement. This company has nearly 8,000 memberships in place, creating a unique experience for an industry sector where consumers may not have had much loyalty to one particular servicing company and even more likely, did not get as frequent and proactive maintenance support. In this case, a subscription-based service model offers the company more consumer data and a closer relationship to their customers, while for the consumer, a task that very few look forward to is easily relieved through this service.

Opportunities for Traditional Retail

According to SUBTA, 18% of the US$41 trillion in global credit card charges is made up of subscription-based purchases. Some retailers have leveraged subscription-based purchasing to grow their business, with the most dominant success story being Amazon. Amazon not only charges Prime members an annual subscription fee to access a wide range of benefits but also promotes a “Subscribe and Save” model for a wide range of products including grocery and household goods.

Target has also prioritized subscription-based businesses, but in a different way. By partnering with several direct to consumer subscription brands, it has brought them to brick and mortar shelves. A recent example is Quip, the toothbrush company with a subscription model for replacement toothbrush heads, which has a substantial and attractive display in most Target stores today. It’s often a win-win for brands and retailers, as discussed with Chris. The brand gets access to new consumers who might want to examine the product in person before purchasing and the retailer offers exclusive in-store access to an exciting new product.

Another example of a strong partnership is Birchbox and Walgreens. Birchbox, one of the most prominent “discovery box” brands partnered with a retailer rather than with a direct to consumer manufacturer. The Birchbox discovery process, focused on helping consumers to try new products and open up to brands they may not have previously considered, has helped to solidify Walgreens’ growing position in the beauty category. In the select Walgreens stores where there is a Birchbox display, shoppers can try smaller-sized versions of products they’d like to test before committing to. Today, Walgreens’ website lists 11 stores across the U.S. where shoppers can enjoy the Birchbox experience.

Chris imagines a world where the norm is for traditional retailers to leverage subscription formats to drive in-store engagement. One example could be an underwear subscription box that then offers a coupon to go to the store and get a matching bathrobe or coordinating bra at a discount. This is a similar concept to the loyalty revelation that some retailers are still going through, where many traditional retailers are playing catch up to capture strong consumer loyalty data and effectively implement its value across all channels.

Much of the traditional retail play in the subscription space is still in early stages or in the form of collaborations with subscription brands. In the coming years as subscription-based brands look for stability and logistics support, there could be additional collaboration and perhaps even acquisitions. Traditional retailers will continue to seek differentiation to stay exciting and competitive.

Source: Birchbox

Relationships a Key Focus for Differentiation

In an increasingly competitive space, Chris discussed the need for differentiation and personalization. For subscription-based services, he described the importance of a relationship and staying close to the customer base. Creative data analysis and frequently asking for feedback are some of the ways to do this. The result is a closer connection to consumers making subscription brands a success and more effectively meeting consumer’ needs.

As an example, Chris mentioned that many new subscription services focus too heavily on acquiring new customers and don’t invest sufficiently on retention. Retained customers, however, provide more insight and product feedback and it always costs less to retain than to acquire new consumers.

During her conference, Kara Goldin, CEO and founder of Hint water described their consumers’ decision-making process when determining whether to buy Hint water through their local Target or Kroger, rather than the slightly more expensive subscription model that’s accessible through the Hint website. Through the subscription model, clients can have several cases of their favorite flavors delivered to their doorstep each month. This option is usually the most convenient since it includes delivery, but with the higher price tag, some shoppers are conflicted. According to Kara, the key drivers for subscription are convenience and the added benefit of exclusive access to new flavors. Staying close to the customer and listening to their thoughts and feedback, whether in the form of proactive input on their part, customer service engagements, purchase data, or survey responses, is essential to understanding what motivates them and how subscription businesses can maintain customer loyalty.

With a compound annual growth rate of 17.3% in the last 5 years, according to SUBTA’s 2019 annual report, the global subscription commerce economy shows no signs of slowing down. Established players and new market entrants, as well as companies considering developing a subscription aspect of their business, should be thoughtful about the consumer demands and fierce competition in this space that must be balanced to yield profitability.

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