December 12, 2020
I am often surprised by the sheer innovation happening in the subscription box industry. Right from marketing to product and packaging innovation, there is just so much happening on all fronts. At the same time, new challenges have emerged - the most important being in the area of retention.
In this article, we are going to look into four key trends happening in subscription box ecommerce. These aren’t temporary fads. These trends are here to stay in 2021 and beyond. The sooner you know these trends, the better equipped you will be to navigate through the rising tides of change in the subscription economy.
For the first time in human history, the experience around buying and consuming a product has taken prominence. Of course, the product matters but everything else around the product matters as much.
Saying it the other way round, the subscription economy is increasingly becoming experience-centric.
Suppose two businesses are offering subscription boxes to new moms. There is every possibility that both these businesses will thrive. Not because they offer unique products but because they offer unique experiences. When we talk about experiences, it’s about three things:
Even if these two brands are selling the same kind of products to a similar market, the way they communicate and package their subscription box will create a unique experience. And both these subscription boxes will acquire a specific segment of the market because of one simple factor - they both offer unique experiences. This concept will be much more clear when you discover the next trend - micro-niching.
One of the most important trends we have seen in the subscription industry is micro-niching. Of course, everyone is aware of niche marketing. But what are micro-niches?
Let me explain.
Suppose you are looking to start a men's apparel subscription box. You plan on sending hand-picked apparel to men in their 30’s and 40’s every quarter. As a business owner, you will find that entering into the men’s apparel market would be an uphill climb for two reasons:
Micro-niching on the other hand focuses on a very small, narrowly-defined group of people with a common interest or a behavioral trait.
For instance, a men's apparel subscription box for golfers would be a micro-niche. It would be much easier to penetrate the golf player niche for two reasons:
So even if you acquire only 1,000 subscribers in year one, you would do well because your marketing and retention would be less challenging. You will have more loyal customers who stick with you for a long time.
We have seen some really interesting micro-niches in 2020 such as - a subscription box for lego block lovers, healthy meal subscription box for undergraduate students, subscription box for women’s razor and so on.
Subscription businesses thrive on data.
And data-driven personalization is becoming mainstream for every major subscription box player. For instance, if a business owner is selling an education subscription box to kids. The business owner could use the data derived from surveys, feedback, and customer communication to come up with personalized subscription boxes for each customer segment.
The business could evolve educational subscription boxes based on a subject (physics, life-science, geography) or they could further personalize their offerings based on age group or gender. The key here for the business is to collect data and turn them into insights.
In this context, it is important to note that every subscription box business goes through three stages of growth.
In the first stage, when the subscription box business is in its infancy the focus is on providing a quality experience at a great price point. A lot of subscription box businesses begin by delivering price value so the consumer builds the habit of receiving the box on a periodic basis.
In the second stage, the business begins collecting data and starts noticing consumer trends. This is the learning stage where data collection and analysis begins. The business starts making sense of data.
In the third stage, the business begins actively translating data into personalized experiences. Once a certain data trend reaches a critical mass, it can be turned into a unique subscription box product for a certain interest category. It is in the third stage that the data-driven personalization really starts mattering.
According to Forrester's research, subscription businesses are seeing as much as 34% customer churn. Customer churn is simply the number of customers unsubscribing the service each month. Perhaps, this is the #1 enemy of any subscription business.
Because it is a known fact that getting new customers is far more expensive than retaining existing ones. Hence, businesses are increasingly focused on retention. Here is why. According to a Harvard Business Review report, if you can prevent 5% of your customers from leaving, you can increase your bottom line profit by 25–95%.
Simply moving the retention needle by 5% can be a game-changer for a subscription business. It simply means finding those profit pockets that were previously missing. And with the rising cost of customer acquisition, more and more subscription business owners are making retention their top priority.
Of course, if you are a start-up, your initial focus needs to be customer acquisition. But as time passes by and you reach a break-even point, you’ll want to give more weightage to retention. What kind of trends are we seeing in the area of retention?
Well, the first thing we are seeing is that there is a lot of focus on personalization. The more personalized a customer’s experience, the better goes retention.
The second trend we are seeing is proactive, personalized and relevant communication.
Business owners are realizing that simply sending a subscription box business once a month won’t make the cut. Hence, they are tightening their customer communication channels. It usually falls into three major buckets.
The third major trend in the area of customer retention is failed credit card payments. Nearly 40% of consumers leave a subscription box business due to a failed payment. Either the credit card has expired or it has maxed out its spending limit.
Subscription businesses are rising to occasion and dealing with this challenge by implementing simple practices such as:
With these minor adjustments, subscription businesses are seeing an increase in their recovery rates thereby preventing customer churn.
The year 2021 is going to see these four trends amplify and go to the next level. Subscription technology will play a crucial role in helping you leverage these trends instead of simply watching them like mute spectators.
So you can take advantage of the benefits of the subscription e-commerce business without getting lost in the maze of technology and rising customer expectations.
What do these subscription box trends mean to you? I would love to hear your thoughts in the comment box below.