The Rise of Subscription Based Brands

Adopting a subscription model gives brands unprecedented consumer insight, paving the way for stronger customer loyalty

Subscription brands are gaining traction across a slew of different industries, disrupting the market and growing at a time when traditional retailers continue to struggle. By mid April of last year, subscription businesses had racked up 37 million website visitors, a growth of 800% in three years, [1] with revenues from these companies growing 8 times faster than the S&P 500. [2]

Employing a subscription based model means sending customers a package of curated products on a consistent basis and charging a regularly scheduled subscription fee. This isn’t about creating new products, but instead, creating a new channel to get products into the hands of consumers. Through capturing valuable consumer data in the process, brands can gain useful insights into individual preferences to further personalize the products they send.

This model can span across almost any industry, offering everyday necessities like food or toiletries, or more aspirational products in fashion and beauty. Some of the most popular subscription sites include Blue Apron, which provides meal kits, and Dollar Shave Club, which sends its members monthly shaving supplies.

 

 

One of the greatest advantages of a subscription based model is the offer of convenience. Consumers receive regular top ups of their everyday essentials, through consistent, automated payments, saving them time and energy in the process. Even more importantly, the success of this business model can be attributed to its offer of personalization, where consumer data and analysis makes the possibility of mass customization a reality.

One company that credits much of its success to its heavy emphasis on data science and algorithms is Stitch Fix, an online styling subscription service. By the end of April this year, Stitch Fix had an active user base of 2.7 million, an increase of 614,000 customers. Their sales rose to $317 million, with consistent 20% jumps in the last five quarters. [3] They continue to expand their offerings, introducing a kids’ line this year after launching men’s and plus sized fashion categories last year.

 

 

Stitch Fix asks for over 85 different inputs from their consumers ranging from size and price preferences, to details about a consumer’s life stage and upcoming life events. They create algorithms from these data points and employ over 75 data scientists to mine clear insights from this information. These insights, coupled with up-to-date clothing trends, are passed on to human stylists who use this information to choose clothing specifically curated for each individual consumer.

 

 

To offer even more incentive to their consumers, Stitch Fix doesn’t require a regular subscription fee. Instead, consumers simply pay for what they want to keep, and return the rest. Like a loop, this data then gets folded back into the company’s algorithms ready to help style experts cull the most relevant styles for the next month’s deliveries.

It’s no surprise that more brands are moving to a subscription type model. Once they can achieve a strong and reliable consumer base, companies can expect a consistent revenue stream and better financial stability. They can improve their financial predictability from forecasting revenue, to managing inventory and warehouse space. As they aggregate more data, they can better serve their customer, improving satisfaction and creating longer lasting and deeper relationships with consumers.

Brands hoping to break into the subscription market should ensure that personalization is at the core of their strategy. Consumers are the best source of information and are willing to tell you what they want if you are willing to listen. Convenience should be a top priority, offering hassle-free returns and easy, user-friendly websites, compatible with smartphone devices. SEO and Social Media marketing is the best strategy for customer acquisition.

 

 

The subscription market is still open and in flux. New players like FabFitFun are growing quickly while market leaders like IPSY and Blue Apron are seeing stagnation or declines in their site visits. Traditional retailers will also likely become a threat as they start to see the success of other brands within this space. With new entrants creating success stories and larger retailers normalizing this business model, the subscription market is primed for new brands looking to jump in.

Looking to see how your brand can utilize the subscription-based model to tap into this new consumer base? Contact us at content@stjoseph.com.

Sources

  1. Forbes
  2. Zuora
  3. Forbes