The subscription business model has steadily spread, moving away from traditional print publications and toward such market sectors as clothing, meals, and pet supplies. The reason for such trends is clear: If retailers can convince consumers to sign up to pay a regular fee and receive regular, predetermined shipments, they earn a steady, consistent revenue flow, and they also enjoy the planning benefits of consistent, easy-to-predict shipping and sourcing logistics operations.
Accordingly, vast numbers of subscription offerings are available from various retailers, including start-up service providers like Stich Fix or BarkBox, well-established consumer packaged goods manufacturers such as PepsiCo, and restaurants like Panera Bread. But for several years, growth and stability in this market has been hard to come by. Consumers exhibit substantial price sensitivity, a willingness to try various options without remaining loyal to any particular provider, and resistance to handing over the control for their ordering and purchasing to the retail entities.
The COVID-19 pandemic upended some of these trends though, by shifting consumers’ priorities and shopping preferences. In particular, when shoppers realized it was safer to stay home and receive deliveries, rather than venture out to stores on their own, they gained increasing familiarity with and exposure to the various offers. If they were already placing an order for chips and colas to be delivered from a grocery store for example, it seems like a logical leap to consider receiving them directly from PepsiCo. If they were going to receive curbside delivery of their Panera breakfast sandwich, why not add a coffee subscription and receive a hot beverage without having to pay for it each day?
But the pandemic is not the only source of change. Subscription providers also have gotten more savvy through their experience. For example, many of the seemingly ubiquitous meal kit companies (e.g., Blue Apron, Hello Fresh) initially sought to gain subscribers by offering very low cost or even free introductory package. Consumers realized that they could feed their families for virtually nothing and for several weeks, just by switching among the different providers and signing up for inexpensive trials with each of them. When it came to paying full price though, they balked. Having learned this lesson, the companies are moving away from price-leading propositions to value-oriented options, seeking not just to attract but to retain more subscribers.
Stitch Fix provides a good example of this value-oriented approach. Rather than mandate a certain purchase level or impose specific clothing items on subscribers, it allows them to select which of the fashionable options, shipped to their door, they will keep. If they have a busy month of meetings, shoppers can request a bigger order; if they are taking some time off, they can adjust their subscription to receive fewer pieces.
Through these combined effects, the market for subscription services is performing remarkably well, relative to the retail sector as a whole, especially considering its struggles in dealing with the ongoing effects of the coronavirus. Notably, a recent report determined that rather than losing sales, as many retailers have, approximately 90 percent of subscription-based retail providers were holding steady or even improving their performance. In an environment in which seemingly every retailer is at risk of sinking, treading water is a form of success, especially for companies that previously had been hard pressed to get consumers on board with their subscription-based model.
Discussion Questions:
- What pricing model would be most effective for not just attracting but retaining loyal customers to a subscription service?
- Do you subscribe to receive any products? Which ones, and why?
- What other forms of value do subscription-based retailers need to provide to keep customers loyal?
Source: Matthew Stern, “Are Subscriptions a Winning Strategy to Get Through the Pandemic?” Retail Wire, July 15, 2020; Scott Edinger, “How to Convince Your Sales Team to Adopt a Subscription Model,” Harvard Business Review, June 23, 2020; John Gaffney, “Can Subscription Retail Solve Its Retention Problem?” Retail Wire, April 3, 2019.