Subscription shopping: Fad or future?

Are subscription services feeding a need?

Subscription selling may not be a “new” model of retail, but it could up-end traditional shopping patterns.

Want razors, the ingredients for a healthy home-cooked meal or even essential toilet paper delivered straight to your door? It’s the ultimate in convenience shopping and an expanding number of businesses are tapping into a demand for items that arrive regularly, without the hassle of negotiating a supermarket aisle or putting in a weekly online order.

The concept of subscription services isn’t new. For years people have subscribed to newspapers and magazines and, in more recent times, home deliveries of fruit and vegetable boxes. Now consumers can also set and forget purchases for many basics including socks, men’s business shirts, undies, tampons and pet food.

Successful subscription services fall into one of two categories: they are either necessities, or items that buyers are passionate or curious about. Some deliveries may include something a little extra, too, such as a mini pack of a new beauty product, or a new brand of tea. While some of these may be random samples, others will be items individually picked to meet the consumer’s own preferences based on in-depth questionnaires.

The subscription sector got a boost after the global financial crisis, as companies slashed marketing expenditure and searched for ways to reach customers more directly, says Mark Cameron of customer experience consultancy Working Three. The evolution of online marketing and data storage has also breathed new life into subscription marketing.

Razor-sharp service

One of the better-known subscription services is Dollar Shave Club, a three-year-old company selling razor blades that initially arrive with a razor handle.The concept is very simple: subscribers can choose from one of three options – ranging in price from US$4 to US$10 a pack – and have it delivered monthly or bi-monthly.

The US company already has more than a million members receiving shipments and an annual revenue of about US$60 million. That’s a lot of razor blades.

Supermarket-free zone: Each Sunday, Theresa Guttung's My Food Bag delivers a week's worth of fresh food to subscribers' doors

Dollar Shave Club’s marketing pitch is also no-nonsense – why pay overinflated prices for razors to cover the cost of a big brand’s flash marketing campaign? Instead, get them delivered to your door, without fuss, on a regular basis.

It is conceivable that many more essentials could be bought on a subscription – everything from washing powder to bread and toothpaste. But there are gatekeepers who may prefer this doesn’t happen, says Cameron.

“You have got the retailers who leverage certain brands,” he says.

“Then you have got the manufacturers themselves who need the retailers to sell their goods. So you are kind of caught in a cycle … but as [subscription services] start to mature you will see that it will change and that is a threat for traditional retail.”

But some retailers could choose to add a subscription service as an additional revenue stream, points out Dr Sean Sands, research director at the Australian Centre for Retail Studies at Monash University.

“Department stores are pretty well placed to move into that kind of space because they have such a wide product range, so they could easily develop it as a channel,” he says.

Know your customer

Yet just as with traditional bricks-and-mortar businesses, simply starting a subscription enterprise won’t guarantee success.

“The businesses that do it right … understand the importance of personalisation and using data really effectively,” says Cameron.

“They need to focus on the customer all the time because what they are doing is creating an expectation of what this relationship is going to be about. Even getting that 5 per cent wrong can have a dramatic impact on the brand.”

There needs to be the illusion, at least, that the subscription company intimately understands a customer’s needs, even if the reality is different.

“The truth is that large supermarkets such as Coles and Woolworths, through their loyalty programs, probably know you better than any of these other businesses,” says Cameron.

Subscription marketing is a model that traditional retailers could well consider. A 2014 report from the Australian Interactive Media Industry Association and Australian Centre for Retail Studies found that 32 per cent of retailers were focused on building online sales via e-commerce over the next 12 months. But if they opt to use elements of subscription marketing, Cameron has some advice.

“All of these things can be done badly and when things go badly it is usually because people – the business owners – have rushed into it,” he says.

“The key is to really understand why the customer will just not buy once but will do it over and over and over and over again. You are essentially creating a brand that someone has to live with on a day-to-day basis and really wants to be part of.”

Successful subscription services … are either necessities, or items that buyers are passionate or curious about.

Feed a need

This year New Zealand company My Food Bag is expecting to pull in revenue of more than NZ$30 million. It’s been a fast start for the two-year-old firm. And a very simple, inescapable fact has driven the success, says its co-founder Theresa Gattung.

“People have to eat every day,” she explains.

“Even if you sort out what to do for dinner tonight you still have to worry about what you are having for dinner the following night.”

The My Food Bag solution involves a box of farm-fresh ingredients delivered on Sundays. The box comes with recipes and enough produce to make three, four or five meals. There are gourmet options and family choices and absolutely everything should be used up if all the meals are cooked.

My Food Bag runs off a user-friendly website.

“Obviously 20 years ago it wouldn’t have been possible in terms of technology but it has been possible for a few years,” says Gattung.

“For us, it has been about putting the pieces together and going ‘look, here’s a market’.”

My Food Bag is expanding in New Zealand and recently launched in Melbourne and Sydney. The company now has 45 staff and in 2014 it took home the Excellence in Innovation award in the Westpac Auckland Business Awards.

Its rapid growth could be partly due to good timing.

“Look at the popularity of television programs MasterChef and My Kitchen Rules,” says Gattung. “Cooking is great and really cool. Chefs are the new rock stars."

My Food Bag’s direct competitor, HelloFresh, is certainly building on the popularity of cooking shows. The founder of its Australian arm, Tom Rutledge, was a MasterChef top 24 finalist in 2011. He’s drawn on his TV profile and his farming background to launch an Antipodean branch of the three-year-old UK business, which has a similar service to My Food Bag.

Rutledge now oversees HelloFresh’s weekly Australian menus, which can be delivered with pre-measured ingredients to most suburbs in Brisbane, Sydney, Canberra and Melbourne. 

This article is from the March 2015 issue of INTHEBLACK.

March 2015
March 2015

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