Subscription boxes

History of subscription boxes

Various subscription commerce companies are growing rapidly. Since launching in 2011, Quarterly.co has doubled in size every six months. NatureBox, which launched in 2012, grows by 50-100 percent every month and BarkBox’s subscribers grew from 1,500 to 55,000 between 2012 and 2013. According to Forbes, Birchbox, which is arguably the most recognizable service and valued at a reported $485 million in April, 2014, led the subscription box trend with its 2010 launch. Birchbox's model of providing customers with samples of personal care products in order to up-sell customers into buying the standard sizes of the sample products they enjoyed has proven to be a successful marketing tool. Birchbox has reached nearly 400,000 monthly subscribers and has inspired many other companies to start utilizing subscription boxes.

Types of subscription boxes

Subscription commerce falls into two categories: discovery commerce and convenience commerce. Both categories are meant to foster brand loyalty and increase sales. The difference between them is necessity. Discovery commerce is for customers who are looking to try something new. Discovery commerce allows customers to enjoy discovering a new product by experiencing surprise and delight. Convenience commerce caters to customers who want a specific product regularly and enjoy having them delivered. Convenience commerce is a more effective way to maximize customer lifetime value, purchase frequency, and annual spending.

Customers

The Subscription market has seen rapid growth over the last few years. New companies are building successful businesses selling all manner of products and subscriptions. There is no single market encompassing all subscription commerce, because a lot of products are targeted to different demographics. With the vast range of products that can potentially be delivered by subscription, there is no obvious limit to the size of the subscription commerce industry/

Online store visitors

Source of revenue

E-commerce and men

E-Commerce is popular among clothing retailers, and clothing retailers are creating new ways to reach their customers. Studies project online sales of clothing and accessories will continue to grow at a rate faster than even the electronics with sales reaching $73 billion by 2016. Shopping malls and outlet stores are designed to target women, while many men often avoid these shopping centers. The growing presence of internet and mobile technologies in fashion e-commerce allow men to have a new medium to purchase goods. Surveys show that 83% of men prefer to shop online and generally shop more than women by 20-30%. Numerous companies are offering subscription services to make shopping more of an efficient experience for men. Subscription commerce is popular with men, because it adds convenience and guidance. Many guys readily admit that they need help looking good, and many online shopping services and subscriptions are adapting to this by providing more guidance. This trend of popularity of e-commerce among men is predicted to continue to grow. Technology innovations will aid in growing the market. Mobile transactions account for 5 to 10% of all retail transactions and most online commerce is increasing at a rate of up to 185%. Men aged 18–34 use their phones and apps 24-30% of the time to purchase services online.

Benefits for customers

Customers often receive discounts on products by buying them through subscription boxes. Many subscription boxes are offered in tiered levels of value as well as frequency of delivery. This allows subscription boxes to be affordable to a wider range of customers. Subscription boxes often have products in them that are of greater value than the subscription allowing customers to save money on products they already know they enjoy as well as try new products without having to risk spending as much on a product they may not enjoy.Choices are minimized for customers which prevents them from becoming paralyzed and makes decisions simpler to make. Because subscriptions are automated after activation, continuing to receive the product and maintain the subscription takes minimal effort for the customer. Customers are more satisfied when the purchasing process requires less work.

Discovery

Subscription boxes can be a fun experience for customers. Customers enjoy the surprise of discovering what is inside, and they discover products they may not have known about or tried otherwise. This allows customers to try products and brands risk free. The increased exposure to new products helps customers discover optimal products for their preferences and needs. While only some subscription boxes have return options, there exist places such as blogs to exchange the unwanted items.

Convenience

Convenience subscription boxes provide customers with products they are already familiar with, automatically, and conveniently through reoccurring payment processing. This allows customers the ability to increase their amount of free time, because customers no longer need to take the time to travel to a physical store to make their purchases. Instead, customers place their initial order online, the products are delivered directly to them, and they do not need to repeat the ordering process, because products are delivered for the duration of the subscription they have agreed to.

Disadvantages for customers

Customers often do not like every item in every subscription box they receive, but this may help to increase excitement when they receive items they love and still enjoy discovering new items. This can become problematic when customers experience vendor lock-in. When a customer subscribes to a monthly service for a set time period, the customer is locked into their subscription until the time period has elapsed. Some subscription box companies make it a hassle to cancel a subscription. Companies may do this by not allowing a customer to cancel the subscription online and instead require the customer to cancel the subscription over the phone. Some companies charge early termination fees. This hassle can benefit subscription box providers, because for some customers, the hassle can be enough to keep them subscribed. Since subscriptions are often frustrating to cancel and sometimes require a minimal subscription period, subscription boxes are not suitable for single box purchases. Despite this, some customers still make purchase single boxes.

Privacy

Customer privacy is a major concern for customers using ecommerce and online subscription based companies. Brands such as Amazon.com and IKEA have inadvertently exposed customer information and/or have suffered from security breaches on their websites. Many consumers are reluctant to make purchases on the internet out of fear that their personal information will be misused or compromised. People have suffered identity theft, lost jobs, blocked careers, bankruptcy, and loss of earnings because private information was inappropriately released. There are currently no federal laws in the United States requiring websites to disclose how the information they gather about visitors is used. Online businesses are also largely free to use data obtained on their websites without oversight by the consumer.

Benefits for businesses

Tim Ray, founder of Carnivore Club, explained part of the incentive to start a monthly subscription box company, “The obvious attraction of recurring revenue after coming from the world of flash sales was a big reason for pursuing the model. From a business perspective, [a monthly subscription box is] the most efficient, flexible and easy to operate business model in e-commerce.” Subscription boxes allow businesses less risky marketing opportunities, require simple operations and provide opportunities to up-sell and cross-sell. A wider range of customers can be targeted by offering subscription boxes at a variety of price points. This is done by offering varying levels of service such as package size and delivery frequency. Point of sale is online. Subscription box companies rely on social marketing, digital marketing and word-of-mouth. Viral reviews on social media are one of the most successful ways subscription boxes are advertised. Many successful subscription box companies have left it to their subscribers to take the lead on brand evangelizing. Businesses are freed up to target new customers and operations are streamlined. Costs for the subscription box companies tend to be low for products, because sample products are often largely subsidized by manufacturers. Some manufacturers pay for category exclusivity and distribution of the boxes. Businesses also can detour customers from canceling services prematurely by using vendor lock-in. This can make the process difficult for customers to cancel the subscription or impose a fee for terminating the subscription prematurely.

Product diversity helps consumers build a knowledge of different brands that exist in the market. When a consumer finds a product they prefer, he or she will often purchase this product again and develop brand loyalty. This is good for the company that manufactures the preferred product and can be good for the subscription box company as well. By connecting customers with products they enjoy, customers are likely to positively review the subscription box company and the product they enjoy. They are also likely to continue their subscription and may even subscribe to a convenience subscription for the discovered product. Businesses can track when customers convert from subscription box sampling to full size purchases through specially coded coupons or offers placed in the subscription box that customers can use for purchasing regular size items in stores or direct from the manufacturer.

Low risk marketing

Many traditional marketing approaches require businesses to risk spending money on a product customers may not like, or burden the customer with the task of taking on time-consuming research products. In contrast to traditional marketing, that struggles with customers who are most often not motivated to take action to purchase the product, using sampling allows minimal effort and motivation on the part of the customer. Buyers are easily identified and thus more easily targeted. It is easy to determine the customer's value, because the subscription services show how much a buyer is willing to spend every month as well as how long they will be a customer. Minimal sales efforts are needed to do additional marketing as well as collect recurring revenue with minimal sales efforts. There are more opportunities to develop customer relationships. Improved customer relationships allow businesses to communicate more directly with customers. This allows businesses to more easily identify customers' interests and desires, so they can develop new products with less risk. Companies are able to do this by requiring new users to create a profile survey to determine their personal styles or tastes. Most companies utilize this requirement and the depth of the questionnaires vary greatly. This allows businesses to create more specialized packages for customers which leads to greater customer satisfaction and loyalty. Businesses can capitalize on anticipation. Customers enjoy products more when they have a waiting period to anticipate the product. The excitement of getting chosen specifically for them helps maintain membership. Subscription boxes offer good publicity for vendors whose products are featured in the boxes. Subscription boxes offer good exposure for new companies as well as existing companies introducing new products to the market. New up and coming products that are introduced to customers through subscription boxes allow customers to feel like they are insiders and thus can stimulate greater excitement for new products.

Simple operations

Subscriptions allow business owners to serve customers both simply and in a better way while tripling lifetime value and amortize acquisition costs over multiple purchases. Demand trends are generally known and inventory management is not a significant issue. Revenue and costs, such as shipping, are more predictable which allows greater control and predictability of cash flow which allows businesses to make more optimal decisions. Business owners can be in regular contact with loyal customers and benefit from predictability. By better serving top customers businesses grow goodwill and benefit from word of mouth. Businesses gain the ability to market additional products by up-selling and cross-selling through built-in, recurring opportunities. Subscriptions allow customers to receive the products they desire automatically and conveniently through recurring payment processing. In the United States, 41% of revenue comes from returning and repeat customers who represent 8% of all visitors.

Challenges for businesses

Customers are often afraid of contracts. This fear can be alleviated by allowing customers to sign up for a set number of months and pay upfront. This will prevent customers from experiencing unwanted credit card charges. Subscription boxes are gaining popularity among businesses creating more competition. Businesses must maintain the value of their subscription boxes in order to retain customers by keeping them excited and satisfied. The longer businesses can keep their customers, the harder it is at maintaining value. Businesses have to keep finding new products to put in their boxes, repeat items risk losing customers. Its hard for businesses to attract one time shoppers. A subscription commerce is hard to sell to one time shoppers. Buyers looking to purchase what you are selling only once, will be immediately put off by the need to subscribe. Naturally, some people might subscribe for a month to get what they want and unsubscribe after they receive their purchase. However, the whole operation is tedious enough to go through for people who are accustomed to making a quick one-time purchase.

Industries affected

Retail

Morgan Stanley expects the e-commerce opportunity “Retail Sales Disruption” to get even bigger in the next few years, and says global e-commerce sales could top $1 trillion by 2016. Five factors that will contribute to the growth in the subscription e-commerce industry and disruption of retail industry include:

1. No constraint of shelf space- subscription companies ship their products to their customers straight from manufacturer saving shelf space.
2. Online offers accelerated and scheduled delivery. Monthly subscriptions send product and services on a regular scheduled basis every month.
3. Merchants can easily initiate global distribution.
4. Online benefits from sales marketing efficiency.
5. Consumers like to buy products at the lowest price possible which is usually found online.

The grocery industry

The grocery industry, annually grossing $600 billion, is by far the largest retail category in the United States. It has been the least disrupted by e-commerce but shopping habits are changing, and niche online grocery services that compete on convenience and selection are gaining traction. New start-up companies that focus on concierge shopping and subscription prepared meals are innovating on the online grocery model and offering services. These companies offer a shopping experience that is greatly differentiated and is far less limiting than traditional supermarket shopping.

The Fashion Industry

The fashion industry, annually grossing $225 billion in the United States, has been picking up steam in the subscription box industry. New start-up companies that focus on personal styling and shopping convenience have been popping up monthly. These fashion industry subscription boxes offer convenience and value with boxes that advertise values higher than subscription fees. Inevitably Chic is a jewelry and accessory subscription box company that charges a monthly subscription fee of $25 for 3 items and say that each box has a retail value of at least $65. Dapper Box, similarly, offers 4-5 items valued at up to $96 for a monthly subscription fee of $29 per month. Notable firms in South East Asia include Lowinsky, Singapore's first styling service that offers $120 worth of 'stylist-approved' clothes for women for $60 a month. In addition, OHHMYBOX an all man subscription service in Singapore offers 4-5 items mainly lifestyle and grooming products for a monthly subscription fee of $27 per month.

The Pet Industry

The pet industry, estimated at $61B in the US alone in 2015, is beginning to leverage the subscription box model. Most startups in this sector offer full size products, including toys, treats, accessories, and apparel for pets. Consumables, such as pet food, sometimes come in sample sizes. Consumers typically get 25% or more in retail value compared to the price of the boxes and shipping is free in the US, which has become the standard subscription box offering across most verticals. Most of these subscription boxes also participate in charitable animal welfare causes, donating a portion of their proceeds and products to shelters and other animal welfare organizations. The greatest focus is on dogs and cats, although a broad variety of other pets are covered by various players, ranging from fish to pet rats. The top subscription box for dogs is BarkBox with approximately 200,000 subscribers, starting at $20/month. The most popular subscription box for cats is KitNipBox, starting at $19.99/month.

Adult Product industry

There are less than 15 sex toy subscription box startups currently operating based within the United States and Australia. SexBox, the Australian-based start-up company, offers 4 different subscription boxes aimed at specific demographics. The company follows the typical subscription operational model, which delivers boxes to customers doorsteps monthly, quarterly or yearly. The company alleges to have successfully targeted where previous Australian-based Sex Toy subscription box services have failed.] In light of this, it is still early days, not just only in regards to the Adult Product subscription box industry, but subscription box services as a whole, across Australia. As of March 2016, there exists only the one sex toy subscription box] company in Australia.

Snack food industry

NatureBox is an online subscription service for healthy snack food that uses direct sales, analytics and iterative development to get its products to market and subscribers faster. It is projected to ship over 1 million boxes this year and will raise over $8.5 million. The company has used the popularity of other monthly subscription boxes to build its reputation and grow its brand. The health food industry is beginning to recognize the importance of the new e-commerce model, which could make NatureBox even more valuable in the future. Fifty-two percent of U.S. consumers are already buying directly online from brands they trust. NatureBox is bringing innovation to the health snack industry by their monthly subscription service, which is disrupting the snack industry overall. There are also several boxes venturing into the imported snack space. Phoenix based MunchPak was the first to enter this space in 2013, followed by San Francisco based Treats, and Detroit based Bocandy. These companies send out a monthly shipment of candy from several different continents while companies like Skoshbox (Japanese Candy) or Mexican Candy Box focus on specific countries. There is also a sizable number of Asian companies delivering snacks to the West using a subscription model like OyatsuBox (Japanese Snacks), SnackFever (Korean Snacks) and ThaiThaiBox (Thai Snacks).

The Pop Culture industry

Many start-up companies have begun to cater to geeks, gamers and pop culture fans. San Diego Comic-Con International, a pop culture and comic book convention, alone saw 130,000 attendees in 2015. Loot Crate, an American-based company launched in July 2012, with the idea of delivering “comic con in a box”. The company now offers different subscription boxes that cater to different genres, including pop culture, gaming and anime. Loot Crate surpassed 200,000 active subscribers as of 2014. Other subscription services in the space include Indie Box, which provides digital games along with collectors gear, Hero Box, which provides superhero swag, and FanMail, which provides pop culture items to women.

The make-up industry

Beauty items have traditionally not sold well online because customers want to “touch, try and feel” the items they’re going to purchase. With the monthly subscription box business model, customers may pay a small fee to have access to product samples to discover new products that they may be interested in. This business model has disrupted the way beauty companies may market their products. For example, as of March 2014, 450 companies partner with Birchbox, a company dedicated to help customers discover beauty products, to get their samples into the hands of potential customers. As of April 2014, Birchbox had 800,000 monthly subscribers. Birchbox then sells the full size item on their website, accounting for about 30% of total revenue.

The alcohol industry

The alcohol industry, annually grossing $221 billion in the United States, is by far the least disrupted industry given its heavy regulation. Alcohol purchases are expensive and have to be verified by someone over 21 years of age. With the monthly subscription box business model, customers have access to the convenience of home delivery and ability to discover new products that they may be interested in. This business model has disrupted the way alcohol companies may market their products. As of December 2015, there are a number of cocktail subscription companies launched including Crafted Taste, SaloonBox and Bitters + Bottles and Tipple Box in the United Kingdom. [7] Beyond cocktails there is mass market Club W as well as Pour-This for a more curated wine offering.

The education industry

Many new start-up companies have started to focus on educational subscription boxes. Flintobox, an India-based start-up company, produces educational activity boxes for children in the age group of 2-8. The company makes a new theme-based resource for Early Child Development each month. The company follows a subscription operational model and delivers boxes at a child's doorstep. The company claims to have shipped to more than 1,20,000 customers in its two years of operations. Although subscription boxes for educational products are in their early stages, start-up companies like Flintobox are making education fun for children through their monthly boxes. US-based Kiwi Crate and Little Passports are a few notable companies that have ventured into the space of educational activity boxes for children. Unlike the claims made by manufacturers of educational subscription boxes, several early childhood practitioners have fund manufacturers claim to be wrong. Early childhood practitioners have observed that neither the contents of the boxes are fun nor they help in play based education. Educational & Family type boxes subscription these boxes include challenges, brainteasers, puzzles, instructions and tons of inspiration.

Environmental effects

Monthly subscriptions send packages every month to their subscribers. These packages range in a wide variety of sizes and shapes and contain numerous contents. Critics of subscription boxes have examined the environmental impact of subscription boxes. Shipping goods over long distances require energy, however the energy used to send subscription boxes is not always more than purchasing products locally. One example of this can be seen with streaming video versus hard copy DVDs. Videos and downloads can be part of monthly subscription boxes. While Netflix is a monthly subscription but not a monthly subscription box, it serves as a good example for the contrast. Netflix streams movies that requires 78% of the energy needed to ship a DVD, but streaming the video accumulates a carbon footprint that is roughly 100% higher than the hard copy DVD and the impact of shipping it. The carbon footprint comes from the intensive energy use from the data centers that are in control of streaming the videos into peoples homes. Along with streaming, contents in subscription boxes may not always appeal to the subscriber. This leads to a waste of product, and transportation costs. This affects the environment in the form of energy needs to get product to the customer, the natural resources to make the product, and the disposal costs to get rid of the product. Especially because some of the products that are sent can be purchased.

Other factors supporting subscription boxes

When the economy in a slow recovery after a significant downturn, recession, or depression, consumers are either unwilling or unable to afford big-ticket purchases or risk spending money to purchase a full size product they are not confident they enjoy.These products can range from homes to makeup. A few effects that have contributed to the rise of the subscription economy include:

1. The bursting of the Housing bubble and the attendant rise in personal bankruptcies.
2. Lower disposable incomes as wage growth in America remains elusive.
3. The introduction of new apps and websites over the past few years have increased renting and sharing opportunities.

Suspected growth

Virginia Lee, senior research analyst with market intelligence firm Euromonitor International anticipates subscription boxes to continue to grow in popularity but at a slower rate. Lee anticipates more industries will begin using subscription boxes as the popularity continues. The Subscription service model is only a few years old, but has grown like wildfire. Every year thousands of new subscription start-ups companies appear. Research firms estimated in 2011 that by 2015, more than 40% of media and digital-products companies around the world would use subscription services. It has grown so fast that larger companies like Walmart and Amazon are investing and coming up their own version of a subscription box. With larger companies getting into the industry, it is anticipated that the subscription box industry to continue to grow.

Suspected decline

An analyst from Fortune.com has a bleak outlook for monthly subscription boxes. He says, “The costs of packaging and shipping can be high and are hardly offset by the enticing low fees for subscription. It may be tough for send-a-box services to innovate so frequently that they avoid an expiration date.