Why retailers are signing up to the subscription model

By Ruth Cooper in retailbiz

Do you dream of wearing expensive watches but don’t have the means to drop $28,000 on a German timepiece? Ten years ago your only options were probably to attempt to save up enough money for that kind of capital investment, rob a bank, or forget the dream altogether. Not so for today’s consumer.

Thanks to the Eleven James subscription service, all your watch fantasies can come true. Members pay a monthly fee (starting at US$149) to have a different luxury timepiece delivered to their door every three months. Once the rotation is up, you send your current watch back in return for a new one. Not only do you avoid outlaying a huge amount of cash, you can upgrade or downgrade to different styles and stop at any time.

This is just one example of how companies are using a subscription model to innovate and change the concept of retail, providing consumers with an experience—in this case the experience of wearing a fancy watch—rather than ownership of a product.

“Consumers are moving increasingly rapidly from the ownership of assets to subscribing to services,” said David Gee, chief marketing officer at subscription service business Zuora. “The way consumers demand the things they want is changing dramatically.

“We are changing from the concept of owning a car that’s parked outside 95 per cent of the time to just wanting to access a form of transportation.”

Australians are already signed up to media subscription services like Netflix, Stan and Spotify in large numbers, opting to stream content rather than own it. These media brands are pioneering personalisation, using algorithms to learn their customers’ likes and dislikes in order to serve them content they will enjoy. Consumers like this personalisation, Gee told Retailbiz, pointing to Amazon as an example of it done well.

“Amazon’s impact on US retail has been dramatic—over 5,000 retail stores are closing or have closed in 2017. This wallet share shift is coming from dealing with a retailer that doesn’t know you, to dealing with a retailer that does.”

Convenience factor

Other subscription services are focused on offering customers extreme convenience. In Australia we have Pet Circle, which has a ‘set and forget’ pet food delivery option, ensuring Fido never goes hungry. Then there’s grocery delivery service HelloFresh, which lets you create home cooked meals without having to visit a supermarket, and Dollar Shave Club, which keeps you stocked in razors.

Dollar Shave Club is one of the breakout stars of the subscription scene. It began in March 2012 as a membership service that provided razors by mail, and was purchased by Unilever in June last year for a reported US$1 billion.

The success of Dollar Shave Club’s commodity-as-a-service model is disrupting legacy shaving brands including Gillette. According to Euromonitor, Gillette claimed a US market share of 70 per cent in 2010, but this fell to 54 per cent in 2016. In an effort to claw back business from competitors like Dollar Shave Club and similar subscription service Harry’s, Gillette launched its own razor membership service, Gillette On Demand.

Benefits for retailers

Along with Gillette, other major brands (mostly in the US) have signed up to the subscription model, including Starbucks, which sends subscribers coffee beans every month through its Reserve Roastery service. Beauty retailer Sephora has also got in on the action with its Play! Box, offering a monthly delivery of beauty samples.

So what are the benefits for retailers of running a subscription service? You get a predictable income stream and detailed insights into your customers, said Gee.

“They get predictability, consumer insight, they can cross-sell and up-sell, and can see early warning signals of customers at risk of churning or switching off the service,” he said.

The ability to gather data on your consumers improves your ability to forecast, handle inventory and enables you to manage profitability in a way that makes it much more predictable. The more you know about your customers the better you can market to them, and a subscription service like Dollar Shave Club has inbuilt opportunities to up-sell, with add ons like shaving cream and other grooming products.

“There’s lots of disruption out there,” said Gee. “That creates opportunity… Retail is a prime industry for transformation and to develop the subscription model.”