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Why Retailers Can Benefit From Subscription Programs in 2018

Posted By: Jeff Miller    |    Fri, 03/23/2018 - 10:30    |    0

Retailers are at the beginning of a wave of experimentation and innovation in the direct-to-consumer subscription space, and customer expectations are continuing to grow. The movement originally driven by value, convenience, and replenishment is evolving in large part because major companies such as Amazon and Walmart are doing an impressive job of checking these boxes.

However, as the subscription landscape has gotten more competitive, it’s also become more valuable, and retailers who manage to pull off a successful subscription program enjoy benefits such as attracting new consumers and increasing lifetime value. Starting with an omnichannel retail approach is a smart play for new retailers, and implementing a subscription channel successfully can breathe new life into existing brands in 2018.

The SUBSCRIPTION Players

The most successful delivery of an omnichannel experience that combines retail and subscription comes from Sephora. The company’s subscription box, PLAY!, offers beauty samples similar to those Birchbox and Ipsy provide, but it’s integrated into the company’s brick-and-mortar business and its digital footprint.

In a remarkable feat of organizational alignment, getting accepted into the program after a tantalizing wait allows you access to not only sample products, but also to exclusive experiences both in-store and online that range from meet-ups at physical locations to online or in-person how-to’s to discounts.

Target has embraced the direct-to-consumer model for quite some time, and its stores already offer such brands as Harry’s, NatureBox, and Cora. Target tested the subscription-box waters with a beauty box, and it’s building on that success with its Cat & Jack kids’ clothing box, which competes directly with Kidbox, Rockets of Awesome, and GAP’s babyGAP OutfitBox.

The SUBSCRIPTION Prize

For retailers, offering a subscription box is a great way to broaden brand appeal and gain new customers, including people who might never have discovered the brand otherwise. Physical subscriptions can also increase customers’ average lifetime value. Plus, advertising for a subscription box simultaneously boosts and supplements a brand’s other PR and marketing efforts.

At its base level, a subscription program is about building a relationship with customers and understanding their wants and needs through multiple touchpoints. At a time when most retailers’ physical footprints are shrinking, providing access to products through the mail is a key advantage.

The SUBSCRIPTION Process

Seventy percent of consumers report in a Kibo survey that their most important consideration when making a purchase online is price, followed by product brand at 12 percent and retailer brand at 6 percent. It’s clear that if customers can obtain a product online quickly and cheaply, they’re unlikely to stay loyal to specific retailers.

To keep as many customers as possible, retailers must overcome the obstacles standing in their way and develop compelling subscription programs. It won’t be easy: Subscriptions generally start out small, and getting access to the necessary resources will require convincing top management to provide support.

Making changes to inventory processes is another considerable hurdle. Retail supply chains are generally very streamlined, and it’s difficult to “break the chain” in order to perform significant testing in a new channel.

Finally, running a subscription e-commerce channel requires a certain amount of knowledge and experience that most retailers lack; it’s certainly not the same strategy as traditional retail. Most retailers would likely benefit from professional help in setting up a subscription program, and while that might sound expensive, it will be cheaper in the long run than cleaning up major mistakes.

The Bottom Line

Deciding whether to offer a subscription box in the current retail climate can be tough; it’s hard to get started, after all. But retailers in the right segments that have sufficient financing can reap the rewards of implementing a subscription box from day one. Organizing the supply chain with an eye for subscriptions — by reserving exclusive products, for example — is a good idea, as is including a subscription in the point-of-sale setup.

For legacy retailers, adding a subscription service to existing offerings can be an uphill battle. Large, successful retailers are fighting for market share, and if they’re a public company, they are in some ways fighting against their histories.

With Amazon on the attack 24/7 and interest rates on the rise, it’s tempting for many retailers to discount the physical subscription channel in favor of “focusing on the core business.” It might seem like a valid short-term excuse, but in the end, it will likely turn out to be shortsighted. Instead, retailers should acknowledge the changing landscape and realize that the time to act on subscriptions is now.

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Category: subscription retail