“Subscription based economy” – Emerging model for business?

You might have seen the news – Unilever acquires Dollar Shave Club for $1B dollars. Who knew this was coming?

All of us are accustomed to Netflix, newspapers and magazine subscriptions, software based subscription models, and a few other subscription based service, but there are plenty of companies getting to subscription business. Enter Subscription Economy – It is here! A few key subscription players are listed below –

  1. P&G starts Online Subscription Service for Tide Pods
  2. Starbucks Coffee subscription for $19/month
  3. Play! by Sephora
  4. Birchbox Beauty for $10/month
  5. GlossyBox Beauty for $21/month
  6. Macy’s beauty based subscription box for $9.99 a month
  7. Graze snacks for $11.99 each
  8. Themed collectibles for Gamers, generally <$20/month
  9. Rent the Runway for $139
  10. Adidas Avenue A delivers a selection of workout clothes and accessories for $150/quarter
  11. Amazon Dash buttons are available for 29 different brands, representing over 500 products.(Amazon Dash for Gum? For the life of me, I cannot figure this out)

In total, 185+ companies and counting …. Subscription to something in the physical world is getting exciting!

How big is the market?

The subscription commerce market has seen rapid growth over the last few years.
Subscription box - interest over time

Visits to top subscription box sites have exploded in just over 2 years. 700,000 monthly visitors to 21.4 million monthly visitors.

HITWISE sub-box-chart1

Why are customers getting onboard?

  1. Convenience – set it and forget it.
  2. Choice by experts E.g. in case of Starbucks, let the experts pick coffee of the month; In case of Rent a Runway, you get to wear expensive gowns for a lot less
  3. Price. It’s easier to shell out $10 per month, rather than going to store and spending $50-$100 or more.
  4. Lastly, Curiosity – it’s an interesting concept, why wouldn’t you want to try

Subscription model benefits companies and customers mutually

1. For Companies / Brands:

  • Eliminate middleman i.e. retailers and participate in “Direct-to-Consumer” play. Helps companies to engage with customer one-on-one
  • Cost efficient
  • It provides recurring revenue model for brands

2. For Customers:

  • Flexibility of not having to own the products with pay as you go model

Subscription Model will eventually disrupt traditional business models

In this age, when brands are heavily focused on customer experiences, subscription based model provide a mechanism to build positive relationship with customers on regular basis rather than sell and forget as in traditional model. Brands can truly personalize and customize the product + up-sell/cross-sell to customer at individual level. A great opportunity for marketers!

I am bullish on the growth of the subscription economy, and believe there are lots of untapped industries that will also jump on the bandwagon. The way we consume food, what we wear, way we watch movies, listen to music, drive cars, take vacation, etc is all changing. Consumer is undergoing a total transformation himself.

What do you think is next for the subscription box industry? How will this change the traditional business model for companies?