Modern customers might know exactly what they want. But then again, it’s human nature to love a surprise. By combining these two facets, subscription box retailers are finding a new revenue niche. Whether it is sustainable depends on several additional elements.
Subscription box services usually focus on some particular theme—meals, cosmetics, snacks, pet treats, or children’s books, for example. They ask consumers to register and pay a fee, generally monthly. Then, each subscriber receives a box each week or month, filled with various options related to the focal theme. Customers do not get to choose the items included but instead enjoy a delightful surprise with each box arrival, enabling them to sample products they might not have known about or tried previously.
To source the items included in each box, many subscription retailers rely on free samples from manufacturers. For example, Birchbox collects sample-sized cosmetic products in its boxes, which the company receives for free or at a low cost from suppliers. Although consumers seemingly could receive similar samples on their own, they appear to find the combination of multiple products in one place valuable. Birchbox also makes full-sized and regular versions of the sampled products available for sale on its website, so that if a customer tries a mascara that she loves, she can order a regular tube of it too.
Not all subscription retailers provide this option, which might be the difference between success and failure. As manufacturers increasingly recognize how the subscription services are using their free samples, they are likely to start charging or demanding some percentage of the revenue that the subscription box services earn. Accordingly, many services that started strong have been forced to close, unable to maintain their profitability if they could not get the products for free.
Yet a website dedicated to subscription services still lists approximately 1200 offers, such as Blue Apron for meal planning, OwlCrate for children’s books, and BarkBox for dog treats. This site also reveals that an average visitor has signed up for about seven subscription services, each of which charges something like $10–$30 per shipment.
Discussion Questions:
- What is a subscription box?
- Do you subscribe to any subscription boxes? If so, which one(s)? Why did you subscribe? Would you do it again?
- How would you expect the strategic profit model ratios to differ between a subscription box firm and a traditional brick-and-mortar specialty store? Explain your rationale for each ratio.
- Do you believe the subscription box business model is sustainable—that is, will it be successful in the long-term? Why or why not?
Source: Stacy Cowley, The New York Times, August 12, 2015