Sign Me Up:Sign Me Up:Sign Me Up:Why Subscription –Based Models Are on the Rise

by Rachel Starr Marketing Associate

New subscription-ecommerce services, from Stitch Fix to Hello Fresh,

have leapt into market spaces, disrupting billion-dollar industries that

have been around for years. While some companies have not taken

advantage of the subscription-services boom, many are jumping onto

the bandwagon, hoping to entice consumers with free trials, discounted

packages, and no-commitment time periods.

Most people are familiar with the subscription-commerce (subcom)

trend that’s underway, but what really accounts for its rise in popularity?

In an age where consumers want things NOW, why are many choosing

to opt for subscription packages, which may take a few days, sometimes

weeks, or even months for them to receive?

This paper discusses the ongoing subcom evolution, and examines

the consumers who are drawn to the appeal and the mentality behind

why. It also explores how industries moving toward data-driven mod-

els can learn from the growth of subcom.

THE METEORIC RISE OF SUBSCRIPTION BUSINESSES

2

Subscription-type business models

were around for years before the

rise of subcom, in a form familiar to

many—magazines. Since 1663, the

year the first magazine was published,1

consumers have

been attracted to the

value proposition of

receiving consistent,

relevant content

weekly or monthly.

Almost 400 years later,

there are thousands

of magazine titles

available worldwide

for consumers to subscribe to, and

millions do. Magazine subscribers are

drawn to the titles that match their

lifestyle and personal preferences, and

they look forward to receiving content

regularly that they value, engage with,

and are inspired by. Many companies

have capitalized on the magazine

subscription service mentality; they’re

implementing their own forms of

subscription-based services, with

products, instead of content, delivered

in consistent intervals, otherwise

known as subcom.

Subscription commerce is separated

into two models: convenience

commerce and discovery commerce.2

Convenience commerce is for

consumers who enjoy a consistent

restock of favorite products that they

plan to continue using. Amazon offers

automatic delivery of thousands

of products, free shipping, and

free cancellation at any time for its

convenience subscription service,

called Subscribe and Save. The

products available through the

retail giant range from

household cleaning

supplies to personal

care products.

Discovery commerce,

on the other hand, is for

consumers who have

certain tastes in terms of

clothes, personal care

products, or food, and who want a

subscription service that will provide

samples, or curate unique packages

using advanced customer data, letting

them experiment with new items

they may not otherwise have found.

Loot Crate, for example, is a discovery

commerce service that sends out

monthly boxes filled with niche

merchandise that makes geeks and

gamers swoon with each new delivery.

Discovery commerce services have

to establish an attractive value

proposition for individuals to sign

up for their services. Their efforts

are paying off, as evident in the

most popular subcom companies’

successes—some are now worth

millions of dollars after only a few

years in existence.

subscription commerce

MAGAZINES: THE ORIGINAL SUBSCRIPTION-BASED MODELeven in the digital age, nothing beats the thrill of opening the mailbox

Convenience Commerce

Discovery Commerce

Many companies have capitalized on the magazine subscription service with products delivered in consistent intervals, otherwise known as subscription commerce, or subcom.

In April 2017, subscription company websites had 37 million visitors, an increase of 831% from 2014.Source: Hitwise.

Sign Me Up | MNI Targeted Media Inc. | 3

Two words: black socks. Many people wear them daily but

rarely do they stock up on them. Enter Blacksocks.

This convenience online commerce company offers monthly

subscription services for consumers looking to replenish

their personal black sock inventory. With this service,

consumers sign up to have three pairs of high-quality black

socks—from knee-highs to ankle socks—delivered to their

doorstep every month for a year.

And then there’s retail discovery commerce, for people

looking for an introduction to new products similar to their

tastes… like Jenny.

Jenny caught her mailman as he was leaving a package at

her apartment door. She ripped it open right on her doorstep,

her eyes lighting up at the colorful dress and accessories

combination—perfect for a Millennial like her—that sat

waiting in the package. She had just signed up for this

retail service, at the recommendation of a friend, and was

extremely pleased with what her online stylist had picked out

for her. At the bottom of the box was a reminder slip, telling

her that the discounted sign up was one-time only, and

she would be charged the full amount for her next delivery.

Jenny threw out the paper. She wasn’t going to cancel before

the next shipment, and would keep going with the service for

the foreseeable future.

Jenny’s subscription service is similar to well-known service

Stitch Fix, which was launched in 2011 with a $750,000

investment, and by 2016 it generated an impressive

$730 million in revenue.3 This leading subcom site eases

the clothes-shopping process by allowing consumers

to input their sizes, their clothing preferences, and their

budgets, and then shipping out stylist-picked outfits,

personalized for the individual. Stitch Fix is constantly

evolving, by leveraging artificial intelligence to analyze

purchasing behavior and learning what elements of styles

are popular.4 Stitch Fix’s stylists make sure each piece of

clothing matches the users’ styles and preferences, and

based on consumers’ individual data, outfits are curated

each week or month to make sure they match their ‘clothing

identities.’ The success of the Stitch Fix discovery model

continues—in 2017, 2,508,378 visitors came to its site, an 86%

increase from the year before.5

1. RETAIL

Stitch Fix was launched in 2011 with a $750,000 investment. In 2016 it brought in $730 million in revenue.

Source: LA Times

The biggest players in subcom align with the interests and

needs of their mostly-Millennial user base, playing off trends

in 1. Retail, 2. Beauty, and 3. Food.

Sign Me Up | MNI Targeted Media Inc. | 4

Personal care items such as haircare, soaps, lotions, and

razors, are also being shipped out regularly to consumers

interested in replenishing everyday items and/or

discovering new products for their daily hygiene routines.

Like retail subcom, the personal hygiene subscription

service category is increasing in popularity. One-in-ten

consumers, ages 18-34, purchase at least one personal

care item most often via subscription services.6

Dollar Shave Club, a monthly convenience commerce

company that delivers razors, shaving cream, wipes, and

more, began as a small start-up in 2011. It has since boomed

to controlling 27% of the razor market share.7 Well-known

shaving brand Gillette, with 70% market share ownership in

2010, reached a low of 54% market share in 2016,8 thanks

in part to Dollar Shave Club. What helps to explain Dollar

Shave Club’s popularity? There are a few reasons: its low-

cost commitment to consumers—starting at one dollar a

month—and its humorous social media advertising. Subcom

shoppers are drawn to Dollar Shave Club, and in April 2017

alone, it saw over three million unique site visitors.5

Birchbox is another well-known personal care subscription

service—a discovery commerce one—that has its value

proposition rooted in consumers’ desires to discover new

products. The always-changing personal care samples that

are sent out monthly have Birchbox subscribers waiting

by the mailbox, anxious to try new products that match

their skin tone, beauty preferences, and personal profiles.

Consumers begin by filling out a profile that dives into

their beauty preferences and the kinds of products they

use. Then, five sample products are sent out each month.

Consumers are encouraged to go on the site and review

the items received, so the next shipment is even more

personalized to their tastes. The cost starts at $10 a month,

and is zero-commitment—users can cancel at any time. Of

course, subscribers have the option of purchasing full-size

products as well; if someone receives a sample they want

to start using consistently, they can upgrade on the site

and receive loyalty points for every $10 spent,9 giving this

discovery platform a convenience appeal.

2. BEAUTY

One-in-ten consumers, ages 18-34, purchase at least one personal care item most often via subscription services.Source: Mintel

Sign Me Up | MNI Targeted Media Inc. | 5

Rounding out the top subscription-services categories is

food subcom. Subscription services tailored to the epicurious

made up approximately 33% of the subscription-service

site visits in 2017,5 with a combination of convenience and

discovery services offered. Amazon’s Subscribe and Save,

for example, is a service in which shoppers select items

that they want sent to them in consistent monthly intervals,

from spices and soups to cereals and granola bars. Amazon

markets this convenience service as an ideal way to save

up to 15% on products, with the opportunity to skip or cancel

with no penalties.

There is also a wide range of options for those looking to

cook new meals and discover new brands. Blue Apron and

HelloFresh, two competing

culinary-minded discovery

subcom services, are the

most popular of the delivery-

to-dinner services. Launched

in the U.S. in 201210, these

subcom services introduced

the idea of convenient,

ready-to-make meals for

the busy individual, couple,

or family, who doesn’t have

time to meal plan or shop, and who wants to make

few-to-no decisions when it comes to making dinner.

Amazon’s Subscribe and Save keeps a consumer’s pantry

well-stocked for cooking and snacking, while Blue Apron

and HelloFresh are discovery commerce services that add

convenience to everyday life. Five years later, with over

100 meal kit delivery services available, food subscription

services have blossomed into a full-on industry, and experts

predict that the industry will be a multi-billion dollar market

by 2022, with heavy appeal to time-pressed Millennials

and wealthier Americans.10

3. FOOD

Food subscription services have blossomed into a full-on industry, and experts predict that the industry will be a multi-billion dollar market by 2022.Source: Time magazine

Sign Me Up | MNI Targeted Media Inc. | 6

There are almost six million subscription-

service members in the U.S., and nearly all

are between the ages of 25 and 44.5 Overall,

subcom shoppers are 28% more likely to

buy online than in-store, because they know

how to conduct research and read reviews

online, and they value their time. Millennials,

in particular, are more likely than any other

generation to be subcom shoppers, because

they find shopping online and via mobile to

be easier, more convenient, more enjoyable,

and cost effective.11 Subcom services have

increased in popularity with Millennials,

with over 10% purchasing retail, beauty,

or food products through subscription

services in 2016.12 Females, especially, are

more likely to opt for subscription services

(61%), while males are less likely (39%).5

Today’s consumers are overwhelmed by

all of the decisions they have to make when

it comes to purchasing products, and many

are drawn to subscription services because

it takes the burdensome decision-making

process off their plates.

SUBSCRIPTION- COMMERCE statistics & demographics

HAVE COLLEGE DEGREES (index 128)

HAVE LIBERAL POLITICAL VIEWS (index 127)

ARE FEMALE (index 116)

HAVE A HOUSEHOLD INCOME EXCEEDING $100K (index 119)

HAVE CHILDREN AGES 3-15 IN THE HOUSEHOLD (index 109)

There are about 5.7 million subscription box shoppers in the U.S., almost all between ages 25 and 44.

Source: Hitwise.

Sign Me Up | MNI Targeted Media Inc. | 7

Subcom consumers understand that they need to share

personal information with companies in order to have a

custom experience that will enable them to get products or

services that satisfy their preferences and needs (index 120).5

Consumers want a company that knows them, one that

will use their personal information to elevate their current

lifestyles by recommending hip, trendy products for them

to use. From tracking how many times individuals purchase

products, to their names, emails, home and/or business

addresses, and preferences, subcom companies have more

than just opt-in data—they have tracked data as well.

With this mountain of personal data, subcom companies

are leading the industry overall on how to target, tailor, and

engender trust with their audiences. While an increasing

number of companies in other industries are using data to

capture and understand their target audiences, very few

have successfully captured information to create highly-

tailored experiences for their consumers to keep them

long-term like subcom models have.

COLLECTING DATA: understanding subscription-box industry statistics to capture long-term consumers

Consumers want a company that knows them, one that will use their information to elevate their current lifestyles.

Sign Me Up | MNI Targeted Media Inc. | 8

Spotify has invested heavily in

improving its use of personalization

and recommendation features for its

consumers. Like many companies,

the music platform captures data

in order to paint a clear picture of

consumers’ interests and habits,

but it doesn’t stop there. Spotify’s

focus is on constantly serving

personalized ads and offering

personalized experiences to keep

consumers past just the initial sign

up, offering services that lead to

long-term retention.

Since 2015, the music streaming

service has been

capturing consumers’

listening and skipping

habits, to recommend

songs and playlists

that cater to each

individual. Discover

Weekly and Release Radar are two

of the playlists that subscribers can

listen to with content that changes

every week. Spotify uses technology

and algorithms that analyze both real-

time and historical data to understand

users’ contexts and behaviors,13 and

to generate these recommendations.

From what time a subscriber plays a

certain playlist to how many times that

same person plays a song, Spotify

captures it all. Any other company,

and consumers might be wary about

their data being used so blatantly,

but Spotify expertly provides a service

its subscribers love, so many willingly

allow it to track their habits. Collecting

data is the first step to capturing an

audience, and Spotify takes it one

step further by understanding its

audiences and their habits and using

collected data to provide a consistently

personalized experience.

Subscription shoppers are hooked

on subcom services, for the same

reasons many consumers subscribe

to magazines and Spotify: they look

forward to an experience that matches

their personal preferences and

lifestyles, they eagerly

anticipate engaging with

new content and services

that match their tastes,

and they look forward to

the surprises that await

them weekly or monthly

in their mailboxes. Marketers in other

industries need to focus on increasing

levels of personalization so consumers

feel as if brands are listening to their

needs and are worth their loyalty. After

all, 75% of consumers are more willing

to buy from companies that are able

to recognize them as individuals and

provide recommendations that meet

their particular needs.14

DATA COLLECTION IN ACTIONSpotify demonstrates the importance of capturing consumer data

Spotify so expertly provides a service its subscribers love, that many willingly allow it to track their habits.

CONSUMERAQUISITION COSTThe key to enhanced profitability

is selling products that are

appreciated by the subscriber

so much that they extend their

subscription beyond the trial.

Sign Me Up | MNI Targeted Media Inc. | 9

It’s time to take a page from the subscription-

services’ playbook and consider how to use data

to benefit consumers instead of focusing solely

on how to use data to benefit marketers and their

business objectives.15 Many companies can learn

from the success of the subcom boom, and

use data to create personalized experiences to

appeal to consumers.

Ready to sign up?

MNI Targeted Media Inc. can help. Personalizing

digital experiences is at the core of the subcom

experience and at the heart of what MNI Targeted

Media Inc. does best. Let’s discuss how we can

help you learn more about the mentality of subcom

consumers and how best to reach them and build

long-lasting relationships. Contact us at mni.com.

mni.com

1. Magazines.com. “The History of Magazines.”

2. Subbly. “What is Subscription Commerce? 7 Things You Need to Know.” June 2014.

3. LA Times. “How I Made It: Stitch Fix Founder Katrina Lake Built One of the Few Successful Ecommerce Subscription Services.” June 2017.

4. Wall Street Journal. “The Next Top Fashion Designer? A Computer.” March 2017.

5. Fetto, John. Hitwise. “The Rise of Subscription Boxes and the Consumers Behind Them.” May 2017.

6. Mintel. “There’s a Subscription Service for Everything.” August 2016.

7. LA Times. “Dollar Shave Club Succeeded with Razors, but the Rest of the Bathroom is a Challenge.” September 2017.

8. MarketWatch. “Procter and Gamble’s Gillette Razor Business Dinged by Online Shave Clubs.” April 2017.

9. BirchBox. (2017, November). Retrieved from http://www.birchbox.com.

10. Time. “This is the Best Meal-Kit Service on the Market Right Now.” July 2017.

11. Hitwise. “The Rise of Subscription Box Shopping: Consumer Insight Report.” March 2016.

12. Mintel. “Women’s Clothing-US.” July 2017.

13. Spotify. “Personalization at Spotify Using Cassandra.” June 2015.

14. Skyword. “What Spotify’s Data-Driven Marketing campaign Can Teach Us about Localization and Personalization.” April 2017.

15. Harvard Business Review. “Use Big Data to Create Value for Customers, Not Just Target Them.” August 2016.

Sources

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