Subscription is the Future — Not a Fad
There is some skepticism right now about the long-term viability of the subscription ecommerce model. Today’s subscription box businesses deliver everything from beauty/grooming products to trendy outfits to healthy snacks, and many have a passionate and loyal customer base. But investor funding for these types of businesses has fallen steeply over the last two quarters, prompting some speculation that the subscription model is indeed a fad — just as the naysayers have always said. So, is this the beginning of the end for subscription ecommerce?
No, it is not.
Important to note- not all subscription ecommerce is the same. We think about three different types of subscription businesses: 1) Subscription as the product. Think wine of the month club; you pay a monthly fee, you get the product, that is the transaction. 2) Subscription for replenishment. Think “subscribe and save,” for things like toilet paper or contact solution; you set up a subscription for things you need at a predictable cadence, and that is the transaction. 3) Subscription to generate new demand by providing you with a “taste” of something that you might now want to be a consumer of. Think Birchbox; yes there is revenue from the sampling part of the experience, but the primary purpose of our monthly box is to educate, introduce options, and create new demand where there once was not — the transaction is when you purchase the full-size product.
Taking a step back and looking at all of the changes happening in retail and consumer businesses reinforces our perspective that the subscription model is an important part of the future of commerce. It is the natural evolution of ecommerce in a marketplace that is increasingly fragmented and confusing for the consumer. Today’s consumers have less time — and more choices — than ever. They are inundated with information about a dizzying array of goods and services. Realistically, customers cannot do the work to stay up to speed with this proliferation of options in every category of their life: food, fashion, beauty, travel, etc. They need an option to be passive in at least some categories, without forgoing a delightful customer experience.
The definition of delight has evolved. It’s officially about having your cake and eating it too — experiences that are about fun AND efficacy. It benefits further from a warm, personalized experience with a human level of engagement, from companies who both respect and care about their consumers. And so, it is logical that at least in some areas, consumers truly prefer to have companies take the lead in how and what they consume. If the ingredients and recipes to get dinner (and a dinner suited to their diet and taste) on the table can be delivered to them regularly, as just one example, they’ve simplified their decision-making and saved a lot of time, without sacrificing the satisfaction of new discoveries. The personalized subscription is what delivers that have-your-cake-and-eat-it-too experience.
That said, I don’t believe subscription is often a standalone “answer.” And though I am bullish about subscriptions, that does not mean I believe everything is improved through a subscription, or that all subscription companies have a lasting model. My perspective is that companies that today are operating as subscription box pure-plays will continue to evolve if their goal is long term customer loyalty. They will need to think like a retailer that has a powerful tool to drive loyalty. In other words, if subscription is a relevant tool for a business, it is ideally wielded as one avenue of connecting with consumers, and as part of a larger effort to focus on building a delightful user experience. That means providing value as consumer needs, tastes and habits change — often very quickly. And it may mean that the subscription companies of 2018 look very different from those of 2012. Customers have more choices than ever of where to spend their time. These options are only increasing, which means all consumer-facing businesses will need to work harder than ever to earn that time.
Although many consider Birchbox to be the pioneer of beauty box subscription companies and one of the early movers in the modern subscription box category overall, we never were a subscription-only business. As mentioned earlier, we built our business on the idea of a new way of retailing: a try-learn-buy strategy that would help consumers try products in the privacy of their own homes, learn about those products with content we provided, and then buy what worked for them.
The box is a special and core element of building our connection to customers, but from day one we’ve strived to create value beyond that experience. We have thousands of pieces of content created by us to help our customers learn, and millions of pieces of content created by our customers to provide even more context. More than half of our subscribers shop for full-size products on our ecommerce site, which is still the fastest growing part of our business and accounts for ~35 percent of our revenue. To us, this shows that we’re doing what we set out to do — helping people find new products they love and giving them a more seamless way to buy those products.
There are many great subscription businesses that have similar aspirations: to solve a critical problem for consumers while simultaneously creating a more efficient retail experience for them. Subscription is part of the answer, but not all of it.
I am excited about what’s ahead for ecommerce in the coming years and, not surprisingly, I am a believer that some form of subscription — allowing consumers to be passive with their consumption — is a game-changing evolution for retail. The market size for almost all industries could quickly expand based on how this experience evolves to appeal to a wider base of consumers.
At Birchbox, we feel that we are still in the very early days of how we will contribute to this movement. We call it “the end of the 80/20 paradigm.” Brands have traditionally catered to the 20 percent of consumers spending the most in that category, but we see an enormous opportunity to reach the 80 percent of women who have a more casual interest in beauty and are underserved by the industry today. We know we can awaken their relationship with beauty — we’re already seeing it happen. This new reality in retail is transforming our expectations as consumers by questioning all of the rules of customer experience, and we are driven to deliver.
Katia Beauchamp is co-founder and CEO of Birchbox.
