Subscription-based businesses aren’t a new concept. But here’s what’s going to change.
Today, we are in a subscription box craze with hundreds of “of-the-month clubs” providing a regular supply of everything from beauty supplies to socks. I, myself, am in the subscription e-commerce business. My company, Carnivore Club, is a monthly subscription service for cured, artisan meats. I’ve learned that, just like with any other industry, you have to watch trends in order to thrive.
Within the subscription box industry, there are three main market approaches: replenishment (e.g. Dollar Shave Club), sampling (e.g. Birchbox) and curation (my business falls under this category), but the industry has become so saturated that late entrants trying to find their place are starting monthly subscription boxes for more obscure categories like teddy bears and boxes specifically designed to gift your grandparents.
It’s reminiscent of the daily deal flash-sales craze popularized by Groupon in 2010 and emulated by countless entrepreneurs looking to jump on the bandwagon. By 2012, the bubble had burst and millions in investment had evaporated, as businesses realized that deep discounting was a quick way to lower the perceived value of their service and did nothing to attract long-term customers.
Despite the number of subscription box companies, we’re not in the midst of another e-commerce trend burst. Subscription businesses are built on sound business fundamentals, and the business model has been used for decades by companies like Columbia House and the Wine of the Month Club, which was started in 1972.
Here are my six predictions for the future of subscription e-commerce:
- Micro-Subscription box companies will proliferate. White-label subscription e-commerce platforms like Cratejoy will enable thousands of entrepreneurs to start niche subscription box offerings. These startups will be characterized by niche offerings, filling their boxes with everything from adult diapers to hockey tape. They’ll likely be started by part-time entrepreneurs and rely on organic growth. One notable niche subscription service is Curator and Mule, which delivers men’s accessories.
- Professional services via subscription service fees will be disrupted. Some of the oldest and most respected professions in the world have enjoyed the status quo when it comes to billing and charging hundreds of dollars per hour without any real accountability to productivity and cost. Their billing models are actually incentivized against productivity via the time for services model. One of the services we like is Scalability, a subscription company for back-office services. Watch out, lawyers and accountants: this could disrupt the way you charge.
- The luxury lifestyle will be accessible to all. The membership/subscription model allows businesses to increase the value for all. The higher margin and perceived value, the riper for disruption. Enterprising service-oriented entrepreneurs have started to offer luxury services en masse, whether it’s access to private clubs, salons, personal concierges, virtual assistants or vacation rentals. Businesses that stray from the dollar-per-hour or cost-per-night model to subscription models will enable more predictable revenue and offer luxury good and services to a larger demographic. One example of this type of business is JohnAllans, a premier men’s grooming club.
- Consumer packaged goods companies (CPG) will offer subscriptions direct to consumers. Many billion-dollar consumer products companies have direct access to millions of customers through email and social media globally. However, they have yet to capitalize on using monthly subscriptions to increase their margin and expand their share of household and own the relationship with their customer directly. Walmart and Target have paved the way for these titans of commerce to dive in, so hopefully enterprising marketing executives will take the bait.
- Consumers will experience subscription fatigue. Like anything, we will eventually hit a wall where people will realize they have way too many subscription services and memberships as the model penetrates every facet of our lives. The gap in fees and usage of so many different services will drive breakage as people manage their personal finances. Once the novelty of the industry has subsided, I see the average consumer maintaining six to eight subscriptions covering various categories from music to beer.
The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
Image credit: CC by Torley