Jekyll Insights

The rise of subscriptions

Aitor Ballesteros

Insights Team

Business Models

Aitor Ballesteros

Insights Team

In 1997, Netflix was born, a business concept that started as a video store, but later transformed to offer its customers a subscription service.

Would users pay a monthly fee to watch series and movies? The phenomenon worked so well that it now has 167 million subscriptions worldwide.

Following in the footsteps of Netflix and its concept of subscriptions, many companies in other sectors have raised in order to emulate this booming service. This is a model that offers the opportunity to build long-lasting relationships with customers, which translates to stable income for companies.

In this field, the possibilities go beyond a streaming service; brands are looking for new implementations such as hyper-customization of the product. Birchbox is the most notable success story of this strategy. This company sends its subscribers a box of makeup samples or other beauty-related products. The package is totally customized, divided by interests, concerns, and customer needs. This way, the company manages to create a unique experience and brand engagement.

In order to get to know in detail what consumers like, Birchbox conducts monthly surveys to its customers; however, there is another, more advanced formula to anticipate consumer needs and offer the ideal product for each person, known as "automatic replacement." Automatic replacement is a way of knowing customer information based on Artificial Intelligence, the Internet of Things and Big Data. 79% of customers ages 18 to 34 are interested in automatic replenishment services for household items, according to a BI Intelligence survey.

For example, Boxed, a household goods wholesaler, has developed an algorithm to predict when consumers will need to reorder certain products, and it notifies them about it. The company has taken this idea of artificial intelligence to another level: a pilot test, called the Boxed Concierge, automatically completes items for bulk buyers, shipping them without even asking for approval from the recipient.

Another idea related to the automation of the delivery service comes from Glossier, a brand of beauty products that makes Never-Run-Out available to the client. This is a system in which the consumer can choose the frequency that they would like to receive their favorite products. This implementation ensures that followers of a popular article will not end up on a waiting list.

Additionally, information to get to know the user can be obtained through aggregated data. In other words, companies like Under Armor launched AmourBox to its subscribers, a box whose data source is collected from their apps (My Fitness Pal and Map My Run). For example, if a user runs regularly at night using the app, the company will provide its subscriber with reflective and warmer clothing to better withstand the night temperature.

Subscription services work very well for niche brands, focused on a well-defined audience. Influencer, Alexis Ren, offers a subscription service so that her fans have access to exclusive products. As for wholesale retailers, the membership-based business model is one of the most widely used. The company provides an annual fee and customers get a 20% discount, in addition to free deliveries for every purchase.

Along the same lines, launching subscription rental programs can also attract the mass consumer market. The World Economic Forum predicted that in 2030 people would not own anything, thus making product rental popular, especially in the fashion sector. The global garment rental market will grow at a Composite Annual Growth Rate (CAGR) of 10.76% between 2018 and 2023 and will reach a value of $1.96 billion by 2023, according to Reuters.

To facilitate the return of clothes, as well as the procedures of the rental service and savings in the costs of hiring a carrier that makes the return, Rent the Runway, an American online rental site, installed return depots in WeWork centers. Thanks to this, devolution inconveniences were minimized.

New consumption habits aim for sustainability and delve into the idea of using a product without the need to buy it. This would also attract groups more concerned with prices, such as millennials or Generation Z. In this quest for sustainability, fashion brands focus on environmentally responsible laundries for their rental programs. This measure will also extend the life cycle of the garment and thus increase its use.

However, these guidelines must be based on a prior market study, to ensure the added value of the strategy. Knowing the focus well, subscription services allow companies to build loyalty with their customers, thus ensuring frequent sales. For this reason, techniques such as automatic replenishment or hyper-customization of the product facilitate this objective, and they also rise trends such as clothing rental under subscription.

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