How the Subscription Economy is transforming consumer behaviours
This is the fourth and final part in a series of blog posts based on a presentation our CEO and Founder gave to one of the world’s leading CPG companies. So far, we have explored: the influence of the Smart Consumer; the social and environmental responsibility being placed upon the CPG sector by modern consumers; and the exciting digital consumer experience trends being set by China. Here, we look at how and why the Subscription Economy is transforming consumer behaviours.
You may have seen our previous series on the Subscription Economy. Here, we look at its growing popularity, and how it is transforming consumer behaviours.
eBusiness Institute CEO Luigi Matrone is one of the world’s leading experts on digital transformation, eCommerce, and the digital trends impacting retail. If you would like to see Luigi’s keynote slides relating to this topic, please download them here.
The move towards the Subscription Economy
We are seeing businesses moving away from the traditional product economy, where a consumer pays per product, to the Subscription Economy — in which the consumer pays a fee to subscribe to receive a product or service on a recurrent basis.
Some of the best-known examples of brands operating within the subscription economy include Uber, Amazon Prime, Spotify, Netflix and Salesforce.
The basic premise of the subscription model is that customers are not just seen as one-off sales, but a long-term investment. As a result, customer retention tends to be more of a focus than acquisition.
The three different subscription model categories
Subscription models change how businesses need to handle customer loyalty, pricing and selling.
The first subscription model, as categorised by McKinsey[1], is where a business offers the same or similar items on a regular basis, offering convenience by saving time or money. Dollar Shave Club, the male grooming digital disruptor that delivers razors and other personal grooming products to customers by mail on a monthly basis, is a great example of this model.
The second offers a curated selection of different items to surprise the consumer, and requires varying levels of consumer decision-making. Examples include personalised make-up and beauty product monthly subscription service and , the ingredient-and-recipe meal kit service.
The third is where premium access is offered to ‘members’ in the form of libraries of music, films, gaming, media streaming and software. These of course include Netflix, Spotify, and Google’s forthcoming Stadia platform.
The growing popularity of subscriptions
The subscription eCommerce market has grown by more than 100 per cent a year over the past five years. Retailers who saw the potential of offering subscriptions generated more than $2.6 billion in sales in 2016 — up from a mere $57.0 million in 2011.[2]
According to a survey by McKinsey, subscribers are most likely to be 25 to 44 years old, 61% female, have college degrees and incomes from $50,000 to $100,000. Lastly, the subscriber lives in urban environments.
In the UK, meanwhile, four in five people have at least one subscription service.
But, when looking at how subscriptions are changing consumer behaviour and their expectations, it’s important to bear in mind that consumers do not have an inherent love of subscriptions.
Rather, they want a great end-to-end experience, and are willing to subscribe only where automated purchasing gives them tangible benefits. Modern consumers are always expecting much more. Gautam Gupta, the Co-Founder and CEO of NatureBox — a subscription company that creates and sells its own line of snacks online and in big retail chains — puts it like this:
“The subscription implies that you will provide value on a sustainable basis, so think about what happens after the first few months. How do you make the experience unique?”
The emergence of the nomadic consumer
The nomadic consumer is a subscriber that has access to services and products anytime, anywhere, and whenever they desire them — but is never quite fully committed to a brand despite having built an initial relationship with one.
This means that they are liable to move on if their expectations are not consistently met.
The subscription mindset is simple: customers are absolutely key to the relationship. Rather than putting the focus on the ‘product’ or the ‘transaction’, subscription economy companies live and die by their ability to focus on the customer. The formula for growth is focused on monetising long-term relationships rather than just shipping products.
Brands, then, must get back to basics and demonstrate a customer-first approach across the board.
They have to really get to know ‘who’ their customer is and what their needs are. Subscription economy businesses are obliged to develop their offering to continually delight and surprise nomadic consumers in such a way that keeps the relationship as fresh and exciting as it was when it first started. If subscription brands fall short of this standard, they will lose consumers.
Boxes of goodies regularly delivered to your door
In a world where some might argue that we have ‘too much’ choice, consumers can find selecting the products or items they want tricky.
Subscription boxes are an ideal solution for this 21st century phenomenon, as they curate products on the consumer’s behalf according to their personal preferences.
They simplify the buying process while surprising and delighting their consumers by putting personalisation at the core of the retailer-customer relationship — and, in doing so, create extreme loyalty.
A box subscription is one that sees a new user sign up for a monthly fee and usually complete a short survey about their tastes and preferences.
Subsequently, they get a box of exciting curated products — or a recurring shipment of the same items — that are automatically delivered to their doorstep at a frequency chosen by the subscriber.
There are now over 3,500 subscription box services running in the United States alone — an increase of 40% on last year. The popularity of subscription boxes is rapidly growing, hence the reason why retail giants like Walmart and Amazon have entered the market.
What appeals to consumers about subscription boxes?
Convenience is the most obvious aspect, with subscription services allowing members to try out and shop for products at the touch of a button, all from the comfort of their own home.
Then there’s Value, with the box content costing a fraction of what it would if you were to purchase all the products individually.
Which leads on to Variety. Spotify is a great example of this, as it provides constant access to an almost ‘unlimited’ library of music.
And, indeed, music — which is very much a subjective choice based on individual tastes — segues nicely into Customisation, as the products within the box are usually selected to match each customer’s individual style.
Surprise and Delight are vital. They transform the formerly mundane experience of buying something like a razor into a unique and memorable activity that’s worth paying for.
Dollar Shave Club is a great example of a subscription service that understands and provides Simplicity. They show how a clean, simple and explanatory ‘How To’ website page is central to making consumers feel in control of starting, stopping and amending their subscription at any time, in a straightforward way. And, a website with real images and down-to-earth product descriptions provides a simple and easy way to just get what you want without having to trawl through unfamiliar brands and often absurd product descriptions.
For the most successful subscription brands, personalisation does not stop here. Most capitalise on initial data to not only inform the product, but the entire customer experience. Birchbox, for instance, offers ‘personalisation that disappears’, whereby customers receive the right message at the right time, without it affecting the joy of discovery or appearing to be overly intrusive.
Packaging is a critical part of the experience
While a great product is an all-important factor in influencing the overall customer experience, packaging also has a critical part to play in creating meaningful end-to-end personalised experiences.
Packaging needs to be designed with a personalised approach and a consumer-first mindset.
Subscription box businesses therefore create and curate new distinctive packaging that adds to the overall experience and factors in convenience, personalisation and surprise.
The handle on the Cravory Cookies box makes it is easy to carry to the office or a friend’s house, while the individual packaging of each cookie keeps them fresh in a way that you couldn’t, say, with a box of doughnuts or cakes. Graze boxes are also packaged in a similarly convenient way.
Sips by, meanwhile, excels in creating ‘Personalised Tea Discovery Boxes’ that keep up the surprise and delight element.
Others — like POPSUGAR — are great at maintaining that friendly, chatty and personalised 1:1 communication in their packaging that modern consumers are so receptive to.
It all adds to the experience.
In conclusion — adopting a subscription model mindset
From a retailer’s perspective, subscription boxes are great because they provide: recurring, predictable cash flow; higher lifetime value of customers; and more valuable, long-term relationships.
But there are some important things to remember when creating your roadmap towards a subscription model. With subscriptions, it’s not a case of simply tweaking a product. Brands have to do so much more.
Making the subscription mindset shift requires careful planning and an innovative strategy to enhance the consumer experience, and fulfil the needs of convenience, personalisation and surprise.
This series of blog posts has given the CPG industry a lot to think about if it’s to keep up with modern consumer needs and digital trends — but there are exciting times ahead for the sector if it can do so. Here are the topics the series has explored in depth:
This series of blog posts has given the CPG industry a lot to think about if it’s to keep up with modern consumer needs and digital trends — but there are exciting times ahead for the sector if it can do so. Here are the topics the series has explored in depth:
- What is a Smart Consumer, and why are they increasingly so influential when it comes to shopping online?
- How is the CPG sector responding to consumers demanding it does more to safeguard the environment?
- What can Western brands and eCommerce platforms learn from their trendsetting Chinese counterparts?
- The way the Subscription Economy is transforming consumer behaviours.
This article was written and created by the eBusiness Institute Team.
Our team of experts can help you understand and make the most of the consumer trends explored in this article to drive business success. If you’re interested in learning more and benefiting from our extensive expert insights, please contact us.
At the eBusiness Institute, we have extensive experience of working with numerous brands on their digital transformation. We understand the importance of an optimised consumer experience to drive your brand’s sales online and offline. Contact us to learn more about how we can help you.
Download Subscription Economy Keynote Slides
Sources
[1] McKinsey survey: Thinking inside the subscription box: New research on e-commerce consumers — 5,093 U.S.-based respondents, 4,057 of which were online shoppers who had spent at least $25 online in the past month.
Originally published at https://ebusinessinstitute.com on September 9, 2019.
