Trends & ForecastsOctober 23, 2019

Selling ‘Convenient Discovery’

Understanding the Emerging Subscription Economy

By BRANDON SAMS | CONTRIBUTING WRITER‍

[RETHINK Retail] — There’s an oft ignored line through today’s consumer purchasing habits.

After grooming with your Dollar Shave Club razor, you open your latest Blue Apron meal kit to cook a pre-organized gourmet dinner while listening to your curated playlist on Spotify.

The subscription-based business model is ubiquitous. No longer is it just relegated to the magazine and newspaper market as unprecedented growth has it poised to overtake the retail industry.

 

Breaking down the numbers

Between 2011 and 2016, the subscription e-commerce market grew from $57 million to over $2.6 billion in generated revenue, according to a consumer survey published by media and tech firm McKinsey & Company. That is an increase of 100 percent every year over the course of a five years. Traditionally, subscriptions were reserved for media streaming services such as Netflix, Hulu and Amazon Prime Video. Approximately, 46 percent of people subscribe to at least one of these online streaming media services.

However, in more recent years the market has evolved to include digital outlets, meal kits, beauty bags and even curated wine selections. Today, 15 percent of consumers are entrenched in this specific subscription media landscape. They break down the subscription economy into three easy to understand categories: replenishment, curation and access.

 

Thinking ‘inside’ the box

By far, the most popular is the curation model, which accounts for 55 percent of all e-commerce subscriptions. This brand of subscription services offers personalized, curated products to consumers. Replenishment and access make up 32 percent and 13 percent of the market share, respectively. They deal with convenience options and exclusive membership perks. All three types of subscriptions benefit from the financial incentive and word-of-mouth recommendation; however, they suffer from a shaky consumer base with 40 percent of subscribers cancelling their subscriptions at one point or another.

Still, subscription e-commerce has become a roadmap for startup businesses and retailers hoping to capitalize off young consumers, who are more apt to subscribe to subscription services than their older, more traditional counterparts.

The McKinsey & Company survey reports subscription service users are more likely to be relatively affluent, female urbanite. Data collected from marketing firm Retail Dive older generations are more hesitant to try out subscription services, citing the recurrent payment model and expense as main detractions. Meanwhile, Millennials are 24 percent, 35 percent and 28 percent more likely to subscribe to meal kits, shave clubs and beauty boxes, respectively.

The subscription model fuses two conventionally held wisdoms together to reach this conclusion. One, young people are the tastemakers of the retail industry. Two, their shopping habits are set to reorganize the retail industry. It is an expansive, unstable industry that is seeking to absorb a larger section of the retail industry through innovation and activating younger, more urban consumers with a yuppie aesthetic.

 

The future is curated

Retail palates have become a bit more sophisticated over the years: moving past giving people what they want toward a business model of giving consumers something new and fresh. Technological innovations have been a catalyst in this business strategy allowing retailers to track the purchasing habits of their customers and curating options for them based on this consumer data. Combine that with younger consumers obsession with the idea of convenience and novelty and you get the perfect foundation to build a subscription-based consumer economy on top of.

Even traditional retail outlets have already begun testing the waters of the subscription industry. In 2014, Walmart launched the Walmart Beauty Box: a subscription service that sends sample products to subscribers on a seasonal basis. Since the initial success, the company has launched a limited time Walmart Men’s Grooming Box and Walmart Baby Box. Similarly, retailers such as Target and Amazon have also rolled out subscription beauty boxes and wardrobe items, respectively.

It is hard to say whether subscription e-commerce will overtake traditional consumer habit. However, if subscription-based media streaming services are any indication for the future, the subscription retail market has potential to disrupt the industry and rewrite the rules of consumer engagement.