The Growth Of Subscription Models For B2C Retailers
The subscription model of retailing to consumers has seen significant growth recently, and is an industry that presents its own logistical challenges. For organisations looking to thrive in this potentially lucrative market, it’s necessary to get the fundamentals right for success.
Some of the first subscription box services hit the UK market back in the early 2000s. The trend gradually grew, and in the latter half of the 2010s, saw a massive upsurge in popularity. And while it’s not exactly new, the subscription market in the UK is still relatively young in comparison to more mature markets such as the US.
But with the increased pressures on businesses facing social distancing regulations and changes in consumer shopping habits in the post Covid-19 era, it is perhaps no surprise that even more companies are turning to creative ways to attract customers - and the subscription model is a key part of this.
The beauty of the subscription model is of course that, as long as your customer continues to enjoy the products - you have a steady stream of reliable, predictable income.
Broadly speaking, there are three distinct types of subscription model; convenient replenishment, easy access, and novelty. Each has their own specific logistical challenges - but also each has some advantages
Convenient Replenishment
Some of the earliest subscription models that came into prominence in the mass market were those based on the ease of replenishing disposable products. Many beauty and healthcare subscriptions are designed with this idea in mind.
It is relatively straightforward to model the depletion rate of items like razors, beauty creams and sanitary products. This makes managing stock control comparatively simple - and the compact nature of the majority of these products mean they are not heavily demanding in terms of per unit warehousing shelving space.
The same is also true for postage costs. Although small packets, bottles or sachets may need some level of protective packaging - the lightweight nature of most means that delivery charges are not prohibitive. Whilst it is not possible to generalise across the whole market, there are certainly many items that feature in beauty and personal care subscriptions which have very good rates of return. The perception of brand value means that stockists can expect reasonably good profit margins.
Stock control can pose one of the biggest challenges. Consumers are ultimately relying on the service as a way to keep a much-needed product in stock. If the supplier runs low, or delays delivery - it can effectively negate the purpose of the service, and quickly lead to cancellation.
Easy Access
This type of model arguably faces the biggest challenges in terms of logistics. These are fully consumable products that consumers could easily source themselves from a range of stockists, both online and in physical stores.
Examples would include recipe boxes, or food suppliers. Subscription models of this kind tend to rely on either providing a noticeable discount, or some other kind of 'value add'.
For the case of food-based subscriptions this might include recipe cards, or the appeal of totally organic, free range produce, for which customers may be willing to pay a premium.
Typically of course, there will be additional challenges for warehousing and packing these goods. Unlike toiletries or beauty products, most food cannot be stored and stockpiled in the same way. For recipe boxes including meat or fish, there is of course the issue of refrigeration.
Even exclusively-vegetable based products need to ensure their produce is still fresh and visually appealing upon distribution. This means there may be a shelf life of just a few days, after the product has arrived from the source, before it must either be sent to a consumer, or it will be wasted. For larger scale operations, a tailored flow racking system is likely one of the best options for ensuring goods are processed on a first-in, first-out basis and stored efficiently while awaiting picking and dispatch.
Appropriate distribution may mean keeping products chilled during transport - and is one of the reasons that these kind of subscription models may operate in a very localised area, at least when they first start out.
Further to this, stock availability is crucial in some models. Services that offer a 'mixed' supply of seasonal produce may be able to vary their products easily depending on supply - but for recipe boxes, or other services which include the selection of specific products - the management of stock, and the careful oversight of picking/packing the boxes is crucial to ensure consumers are satisfied.
Novelty Subscriptions
The third type of subscription is quite a cover-all term for the myriad of other subscription services that have sprung up, particularly in the last few years. It's possible to subscribe to everything from plants to socks.
In many cases the consumer gets a different 'surprise' each month - meaning the company is not tied to deliver a specific product each time. The scale of these companies differs massively. Some start-ups producing toys, crafts or other labour-intensive products operate from small offices, or even from home. Distribution is carried out through the normal post, or private couriers - and overheads are low because the scale of the whole operation is small.
Others operate at much larger scales, and depending on the type of product, for example plants - this can demand significant storage space, as well as the challenges associated with safely distributing such fragile goods.
One of the major advantages this does have is that because they are not tied to a specific product, it can allow the possibility of sourcing cheaper, readily available products depending on the season.
Plants are a good example of this - the customer knows they are getting a different plant every month, so if the supplier is able to source particularly cheap succulents one month and get a very good deal on palms the next month they can simply choose what to distribute.
Further to this as long as they have suitable tracking and records in place, there is nothing to say that they have to send the same product to every subscriber, they can simply control and manage stock and buy in small batches until they have enough to meet the monthly demand.
Considerations For Subscription Based Businesses
Subscription based retailing is certainly a growth industry and and so it is no surprise that there are new companies entering the market on a regular basis. For businesses looking to use this model to reach customers, there are a few key factors to consider and plan before entering the market.
A Unique Offering
Before entering the subscription market, it is of course vital to design a product offering that gives customers a reason to want to subscribe.
Whether the offer will help consumers to save time or money, or offer an experience that they are unable to easily find elsewhere, the most successful subscription based companies are usually those that are best able to differentiate themselves from others in terms of what they offer, whilst also delivering on the quality of product and service that the customer expects.
The right mix of price, product and promotion can help to drive new customer acquisition and reduce churn rate - something that is vital for long term success in the sector.
An Engaging Online Presence
Offering a great experience at each stage of the customer journey, from initial awareness to conversion and subsequent interaction with the brand, is vital for success in subscription based retailing.
The majority of subscription based retailers use online channels and e-commerce solutions to manage most customer-facing parts of the business, from new customer acquisition to relationship management and retention.
This means that as well as a strong online presence through social media channels and websites to attract customers, suitable web based solutions are also required to enable customers to easily manage their subscriptions.
It is important for subscription based businesses to ensure that all customer touch points are designed to offer as high quality a customer experience as possible. Usually through a website or mobile app, technology enables subscription retailers to offer a level of personalisation and individual control for customers, whether this is setting their preferences for certain products, changing their delivery schedule or switching between different subscription tiers.
Warehousing & Logistics
The subscription model presents plenty of opportunities for businesses, and one of the most vital components of a successful operation in this space is nailing warehousing and logistical operations. For subscription retailers, e-commerce warehousing means being able to quickly pick, pack and dispatch goods as efficiently as possible, manage stock rotation and ensure product safety.
For certain subscription products it may also be necessary to handle a high volume of returns. It is necessary to process returns in a timely and accurate manner to ensure the subscribers that are vital to the success of the business remain happy customers. Specialised internet returns shelving is designed with this in mind, and means that returns can be managed in a dedicated area that is separate from the general storage. With intelligent barcoding on the pick face, returned items can be scanned so that the retailer can identify that the item is back in stock and can pinpoint its precise location, ready to be re dispatched.
A warehousing solution that is designed around the specific needs of the organisation will therefore deliver significant advantages in terms of efficiency and profitability, and could be a major factor on the ability of new or growing businesses to outperform the competition.