23rd October, 2017
The subscription box model has been around for about a decade now, but new marketing and tech solutions have made them a go-to solution for entrepreneurs.
The likes of Birchbox, HelloFresh, Dollar Shave Club and Blue Apron have ridden the wave to billion-dollar valuations and stock exchange listings.
Interest in them has skyrocketed over the past five years.
A subscription box is a box of physical products delivered to customers on an ongoing basis, containing things that interest them – whether it’s snacks, beauty products, or T-shirts.
In return for supplying items on a regular basis, the company books ongoing recurring revenue – which makes cash flow nice and (somewhat) predictable.
The thinking behind subscription boxes isn’t exactly new (newspapers have been doing it for a fair while now).
So why do they work?
The first subscription boxes such as Birchbox are ‘sample boxes’, giving people the chance to try out different products they may not otherwise seek out.
Because boxes usually contain a variety of products, people are more likely to try instead of spending the equivalent amount trying something they haven’t seen before.
The risk to potential reward scenario is flipped in favour of the consumer, meaning they’re much more likely to try a new product.
The growth of meal-preparation boxes such as Blue Apron speak to those who are time-poor, and don’t have the time to do grocery shopping or the energy to constantly experiment with new things.
Instead, a subscription box gives the customer everything they need in a neat package – and they don’t need to do anything else, which saves them time.
It’s the ultimate in convenience.
Getting a fancy new package in the mail each month with a box of goodies is a great experience – it surprises and delights.
This literally triggers dopamine receptors in our brains (the pleasure centre), meaning people are much more likely to keep on paying.
Boxes which are artfully presented and expertly curated add to this, making opening each box an event in itself.
People recoil at the thought of too much choice when they shop, as the brain can only process only so much data.
Each time we decide to buy a product, we mentally run a cost-benefit analysis on it against other products in the category. If we have to do this for 10 different products, it can get overwhelming.
Having products confined in a box removes this unpleasant aspect of the retail experience.
The costs of setting up a subscription box model are usually pretty low in comparison to other retail operations – basically a box, the products, shipping and a website.
Costs such as shipping can be included in the price of the box, and because you’re buying from a supplier in bulk you can usually get a break on the order.
The cost of setting up an online sales channel and managing inventory, whether you’re new or established, has also come down dramatically in recent years – with players such as Neto making the process easier.
One of the great things about automatic payments is that people tend to…forget about them.
By automatically scheduling payments, the path between the business and customers paying them is much simpler.
But if the customer has to conscientiously pay each time, it adds friction to the eCommerce funnel.