Subscription boxes: Successes and Challenges

Let’s talk about subscription “box” companies.

In particular the BOXES and the businesses that are built around the concept of shipping product over a specified cadence for an adjusted recurring fee.

Technically, this model’s conception is first seen around the 1920s from a “Book-of-the-Month Club” where the founder Harry Scherman wanted to provide literary access to people who lived in more rural parts of the country. In this way, a subscription model was formed and books were shipped through postal offices and delivery services would be fulfilled.

Later, in 1955, Columbia Records followed the BOTM model and began to distribute music on a subscription, this was a short-lived success due to changing demands and tastes in the industry.

Even for wine it seems - a BOTM model was used back in 1972.

While the model existed, it seems as if it really didn’t catch on until the public had been acclimated to the notion of delivery services as a replacement for shopping at brick and mortar stores.

Ironically, when I think about this - Amazon - essentially took the BOTM model and updated it for modern times. When Jeff Bezos started Amazon in 1994, if you’re old enough to remember - he focused specifically on BOOKS! Books had complexity due to perceptively infinite variety, constant additions, and also a consistent demand. However, this was not a subscription based model - but it paved the way for society to familiarize itself specifically with online purchasing and delivery fulfillment.

Yes - Delivery has existed for a long time, phones have been around for quite some time as well, and magazines and catalogues existed too - but the primary driver behind why those didn’t help push the BOTM model into the 21st century was time and accessibility.

It took TIME to read through a catalogue, it took TIME to pick up the phone and place a call, and it took more TIME to have your products delivered. Once your order was received - it could have been a week or even two later. Now, that still can exist today - but usually not for consumer or retail type products. The products that would still require a slower delivery system are those that are either highly customized , heavy industrial equipment, extremely valuable, fragile, or products that are simply too difficult to package.

Everywhere I’ve read - Birchbox was the subscription box that revitalized the concept of subscription boxes in 2010. This is why I didn’t find out too much about subscription boxes - because makeup just wasn’t on my radar! It took the successes of Amazon with online ordering and delivery to a more focused level. Different boxes that contain a different variety of makeup, all for one recurring monthly price.

2010 onwards to today. If you were to name a product - chances are high that you’ll find a subscription box. Why are they still so successful? Are there any challenges?

Subscription boxes success continues because of these three things:

1. Value of Convenience - As I had described earlier - online shopping and the ability to have deliveries sent to your home instead of going out to purchase items has the potential to save us a LOT of time. A subscription will arrive at your door every 30 days and you pay $X every month to receive it. With today’s technology, it’s so easy to click and forget.

2. Relative Personalization - While I don’t think that there are Highly Personalized options due to fulfillment timelines and expectations, subscription boxes still allow a variety of bundles from their set inventory that a user can choose to create a somewhat curated experience. Receiving products that feel personalized to you generate a lot of excitement and surprise when you receive it, which subsequently increases brand recognition and loyalty, and an increased consumer experience.

3. Market Exploration & Discovery - Subscription boxes are very inviting, with usually a lower cost to entry with giveaways or "first-box” deals and discounts - there are creative ways to explore different product industries that one could have otherwise passed by at a local Target. Similarly to the personalization, there is a feeling of excitement and gratification when exploring the different options that are available to you. No single subscription box is the same, (and that’s how they like it!)

However, with this business model - there can be some serious drawbacks too.

1. Fulfillment and Inventory Management - Have you ever received something late from a subscription box? Didn’t receive a delivery at all? The logistics behind delivery can be extremely complicated and while there are solutions that businesses can transact with to improve their delivery - even human error at times can dour a customer experience and cause a cancelled subscription.

2. Subscription Retention - How do you keep a customer from leaving your subscription box? Some of this may come down to how saturated your particular market is, but even still - how do they prevent users from leaving them, especially if it is to another competitor? Making it difficult for the user to quit your subscription is in my opinion the KEY element that the businesses are focused on every day at work. They can’t keep subscribers from quitting them, that would just make everything worse. How can you say, “okay - but what about this?” while still making sure that you’re maintaining margin with your boxes? It’s a bit of a game of risk - and some subscribers have to be let go because the retention cost would be too high. It gets complicated!

3. Personalization - I keep talking about this don’t I? Well, it’s because the personalization aspect of subscription boxes is one of the primary differentiators and draws to customers who don’t want plain ol’ product from Target or Walmart. They want something that better defines them! How do you customize something enough to draw in customers AND make sure that your product development team doesn’t immediately quit on you? Customization adds burden to product development, increasing the amount of time it takes to conceptualize the product, create the product, and even to manufacture the product. Dare I forget, the costs of customization increase significantly the higher you go. Even with a lot of proactive planning and development processes, a business will have to strategize how much customization they’re able to afford to achieve margin. Businesses can work hard to capture more market, but how price sensitive is the customer base? These are all things that subscription box companies have to look out for.

Despite the challenges, it seems to me like the sub boxes are here to stay - but with an increasing expectations and demand from the consumer population, some corners of the industry are heavily saturated and difficult to enter into. For people like me that have considered a subscription box company this late in the game, we have to be very selective and intentional about the market we would enter into.

Thinking about my earlier post about Celiac Disease and thoughts about businesses in that space - would a gluten free product subscription service be something attractive to a broad consumer base? Do any of these boxes exist today? There is some market sizing and exploration in order here!

-SZ