July 26, 2013
RSR Research: Should Subscriptions Be Part of an Omni-Channel Brand Experience?
Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
Most people know about entertainment subscription services, such as Netflix, but subscription retail clubs have gone beyond simply renting this weekend’s entertainment.
Generally, the services available either offer "curated" assortments or a targeted assortment of items that tend to be "replenishment" oriented. Such names as ShoeDazzle, Birchbox, Carmine, and The Trunk Club surprise the shopper with new selections every month, while companies such as the Dollar Shave Club, which replenishes razors monthly for a few dollars, focus on a very narrow set of solutions that fit a particular need.
DSC also makes it fun. For example, included in the ultra-low-cost plain brown envelope that carried this month’s razor supply, I also got this (and not much more):
Having managed an IT HelpDesk function, I feel like I know that guy!
Now DSC is expanding their categories, introducing "One Wipe Charlies" (I’ll leave it to your imagination).
Hoseanna offers replenishment for (you guessed it) women’s hosiery. MyDogBowl will replenish your pet food pantry. Peets Coffee replenishes your chosen bean via a "straight from our roaster to your front door" service with a percent-off incentive on each order. Starbucks has a similar service. Even Amazon Prime makes it possible for consumers to receive replenishment items.
Is there a subscription play for established multi-channel retailers? For example, could Nordstrom (already with a fine direct-to-consumer offering and a catalog business) get into a subscription model? Their website offers a "personal stylist" service that will "make shopping fun and easy by curating items from the entire store that reflect your personal style, advise you on the best shades and silhouettes for your coloring and body type, put together a complete look for any occasion, work within your budget and schedule."
But the shopper has to make an appointment. Why not go to the next step? After the initial consultation, offer periodic updates (for curated seasonal fashions) or replenishment (for cosmetics) directly to the consumer.
Subscription retailing doesn’t have to be only an alternative for people who don’t have the time or who hate to shop. It can be part of the total Brand Experience. It’s another permutation of "omni-channel" that even traditional retails can — and perhaps should — explore.
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Discussion Questions
Could the subscription retail opportunity extend beyond niche websites? What are the challenges of more mainstream retailers launching subscription services? What do you expect will be the survival rate of these new pure play subscription retail websites?
Poll
This will mostly be niche players for some time. Long term I do expect that it will play a larger role for many consumers and be offered in various forms by major retailers.
The challenge is making it convenient and valuable to the consumer and being able to scale those two dimensions (however they are weighted). The foundational elements are there and/or emerging, but it will take awhile for more mass adoptions.
With so little attention left in shoppers’ minds these days, I believe this model has strong opportunity… globally. This allows smaller retailers to capture new markets with a stress-free process that maintains revenue streams. Established, large retailers can make this model appeal to a wide audience, rather than being relegated to a “pure play” existence.
This can easily become a significant percentage of total revenue for retailers—and CPG brands—when it is targeted to the right markets.
Amazon has been doing this for years with Amazon Prime. Amazon is well beyond niche as is Costco, which also has a web site and allows for direct orders. Amazon has the ability to include the niche sellers under its umbrella, or compete with them, or both. It’s done this with books for years. My guess is that innovation will always tend to happen on the low risk, lots of work, slow growth model. However, when demand is established, then more efficient operators will piggyback a concept and may drive the founders of the concept out of the business.
Survival will depend on the concept’s ability to deliver a unique product, provided that product has qualities that aren’t easily duplicated. For instance, you can sell coffee based on taste, but you can also claim organic, free trade, sustainable production, fair trade, etc., etc.
Subscription is here to stay and it will play on two fronts: 1) on the normal consumables it is a convenience play for consumers — every month, I’m getting what I need; 2) on the surprise and delight side — every month I’m getting new products to try which are tailored for my interested and maybe one degree of separation to try something new.
Goodies.co (the Walmart Labs test) which I’ve been testing for several months seems more on the surprise and delight side and not always the items you know and love (e.g., coconut water).
The pure play websites will either be acquired by mainstream retailers for the tech or fold as the main streamers build it themselves.
I believe there is a tremendous opportunity for many retailers to activate subscription services and have been advocating this model for many years. There are many regular maintenance opportunities for items ranging from coffee makers to motor oil.
An appliance brand introduced such a program for regular ‘service’ to maintain the quality of your brewed coffee. The results not only added revenue to the bottom line, but incoming customer call center calls reduced dramatically and the brand was able to establish a direct, personal, and relevant dialog with their customers—a winning trifecta when it comes to ROI and digital shopper marketing. This wasn’t designed and activated as an ‘omni-channel ‘ solution. It was designed and activated to deliver quality service and keep that customer for life!
Subscription programs address a critical need for consumers—getting them what they need when they need it. There are really two different services contained in the concept of subscriptions—refills of standard products when a consumer needs them and curation which provides consumers with a customized selection of new products that they are likely to prefer.
The first one appeals to a consumer segment that is motivated strongly by convenience and will pay a slight premium to eliminate one more trip to the store. The second one appeals to consumers who both want convenience and advice, who do not feel that they can make the best selection on their own. This group needs advice and caring while the first group needs pure service.
Pure-play online providers will struggle as brick-and-click retailers expand their offerings to address these needs, They will do so quickly, I predict, because replenishment and curation customers are some of the most profitable, with higher frequency than any other customer.
I recently signed up for a water filter subscription for my fridge, once I identified it is a recurring need (the web site actually identified it for me based on repeated purchase), made me a good pricing offer (price lock guarantee) so I accepted. Of course, for limited accessible items like wine or chocolate clubs, subscription has been how it was sold for a long time. I think for particular categories if you can use analytics to identify for individual customers repeated purchases, subscription model does help generate revenue.
Maybe. Their survival rate is suspect, since this is still not a proven model for all categories. Only trying it in major categories, and then seeing the impact of the effects will determine whether this is viable or not.
There are two types of subscription or membership services. The first is a true paid subscription—just like a magazine. That’s what Netflix, with its monthly fees, and Amazon with its annual fee Prime program, or other retailers have done. They are a pay for services model.
Then there are “free subscriptions.” These are marketing strategies, but very powerful if they truly deliver value. Some of them tie into loyalty programs. Some are so basic in that once a customer buys, he or she is in the club.
Bottom line, both have to offer value. The paid model has more than just an emotional bond with the customer, but if any subscription model doesn’t deliver value, the customer moves on.
Fast forwarding a little into future with internet things, your fridge, pantry and also your closet will know how much you have consumed and how much you would need and tailor the order accordingly.
All the regular, repeat purchases could be on replenishment. This includes grocery, beauty and personal care. Retailers could send samples with delivery to try out and switch if necessary.
With advanced personalization engines, understanding your tastes—even fashion and music could go this way—and automated returns if you do not want it. All retailers have an opportunity for this. The battle would be the race to get the most subscriptions—it would work like a telecom company or movie rentals.
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This will mostly be niche players for some time. Long term I do expect that it will play a larger role for many consumers and be offered in various forms by major retailers.
The challenge is making it convenient and valuable to the consumer and being able to scale those two dimensions (however they are weighted). The foundational elements are there and/or emerging, but it will take awhile for more mass adoptions.
With so little attention left in shoppers’ minds these days, I believe this model has strong opportunity… globally. This allows smaller retailers to capture new markets with a stress-free process that maintains revenue streams. Established, large retailers can make this model appeal to a wide audience, rather than being relegated to a “pure play” existence.
This can easily become a significant percentage of total revenue for retailers—and CPG brands—when it is targeted to the right markets.
Amazon has been doing this for years with Amazon Prime. Amazon is well beyond niche as is Costco, which also has a web site and allows for direct orders. Amazon has the ability to include the niche sellers under its umbrella, or compete with them, or both. It’s done this with books for years. My guess is that innovation will always tend to happen on the low risk, lots of work, slow growth model. However, when demand is established, then more efficient operators will piggyback a concept and may drive the founders of the concept out of the business.
Survival will depend on the concept’s ability to deliver a unique product, provided that product has qualities that aren’t easily duplicated. For instance, you can sell coffee based on taste, but you can also claim organic, free trade, sustainable production, fair trade, etc., etc.
Subscription is here to stay and it will play on two fronts: 1) on the normal consumables it is a convenience play for consumers — every month, I’m getting what I need; 2) on the surprise and delight side — every month I’m getting new products to try which are tailored for my interested and maybe one degree of separation to try something new.
Goodies.co (the Walmart Labs test) which I’ve been testing for several months seems more on the surprise and delight side and not always the items you know and love (e.g., coconut water).
The pure play websites will either be acquired by mainstream retailers for the tech or fold as the main streamers build it themselves.
I believe there is a tremendous opportunity for many retailers to activate subscription services and have been advocating this model for many years. There are many regular maintenance opportunities for items ranging from coffee makers to motor oil.
An appliance brand introduced such a program for regular ‘service’ to maintain the quality of your brewed coffee. The results not only added revenue to the bottom line, but incoming customer call center calls reduced dramatically and the brand was able to establish a direct, personal, and relevant dialog with their customers—a winning trifecta when it comes to ROI and digital shopper marketing. This wasn’t designed and activated as an ‘omni-channel ‘ solution. It was designed and activated to deliver quality service and keep that customer for life!
Subscription programs address a critical need for consumers—getting them what they need when they need it. There are really two different services contained in the concept of subscriptions—refills of standard products when a consumer needs them and curation which provides consumers with a customized selection of new products that they are likely to prefer.
The first one appeals to a consumer segment that is motivated strongly by convenience and will pay a slight premium to eliminate one more trip to the store. The second one appeals to consumers who both want convenience and advice, who do not feel that they can make the best selection on their own. This group needs advice and caring while the first group needs pure service.
Pure-play online providers will struggle as brick-and-click retailers expand their offerings to address these needs, They will do so quickly, I predict, because replenishment and curation customers are some of the most profitable, with higher frequency than any other customer.
I recently signed up for a water filter subscription for my fridge, once I identified it is a recurring need (the web site actually identified it for me based on repeated purchase), made me a good pricing offer (price lock guarantee) so I accepted. Of course, for limited accessible items like wine or chocolate clubs, subscription has been how it was sold for a long time. I think for particular categories if you can use analytics to identify for individual customers repeated purchases, subscription model does help generate revenue.
Maybe. Their survival rate is suspect, since this is still not a proven model for all categories. Only trying it in major categories, and then seeing the impact of the effects will determine whether this is viable or not.
There are two types of subscription or membership services. The first is a true paid subscription—just like a magazine. That’s what Netflix, with its monthly fees, and Amazon with its annual fee Prime program, or other retailers have done. They are a pay for services model.
Then there are “free subscriptions.” These are marketing strategies, but very powerful if they truly deliver value. Some of them tie into loyalty programs. Some are so basic in that once a customer buys, he or she is in the club.
Bottom line, both have to offer value. The paid model has more than just an emotional bond with the customer, but if any subscription model doesn’t deliver value, the customer moves on.
Fast forwarding a little into future with internet things, your fridge, pantry and also your closet will know how much you have consumed and how much you would need and tailor the order accordingly.
All the regular, repeat purchases could be on replenishment. This includes grocery, beauty and personal care. Retailers could send samples with delivery to try out and switch if necessary.
With advanced personalization engines, understanding your tastes—even fashion and music could go this way—and automated returns if you do not want it. All retailers have an opportunity for this. The battle would be the race to get the most subscriptions—it would work like a telecom company or movie rentals.