When I was a teenager in the 1980s, one of my most significant purchases was an amazing record collection offered by Columbia House Records. For a penny, plus shipping and handling, I could get 11 of the hottest albums of the day – J. Geils Band, Foreigner, REO Speedwagon, Journey, etc. The only catch was that I agreed to buy a certain number of albums at full price over the course of my membership.
As a music-loving teen with a decent paying part-time job, this was a steal. All of my income was disposable, and this company would send me music based on my personal tastes. I could choose to buy that month’s selection, skip it or purchase something of my own choosing. If I chose the selected album, it would be shipped to me automatically. I didn’t need to do anything, but wait for it to arrive. If I didn’t want that particular album, I checked a box on the form to provide alternate instructions.
I loved the whole idea of it, so when a beauty company contacted me with a similar idea, I was an easy mark. There was an introductory offer during which I’d receive a really cool make-up bag with full size products to try. After that, I would receive a similar selection each month to choose or refuse. It included products for my skin type and color palette.
I am sure I was only one of thousands who signed up for these and similar services. I wasn’t necessarily special, but those services made me feel like I was. Those companies and products have changed since the 1980s, but today’s subscription boxes have very similar models, and they are flying off the shelves with consumers clamoring for the latest beauty, book, or snack box.
Beauty-in-a-box, fashion, coffee and more
These days you can get just about anything in a subscription box: cosmetics, toiletries, tech gadgets, snacks, dog treats, wine, coffee, even tampons. Cratejoy lists five categories as the most popular for subscription boxes:
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Fashion
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Beauty samples
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Organic food
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Eco products
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Kids’ crafts and activities
With the growing popularity of the subscription model, many entrepreneurs have entered the marketplace for the first time, curating products they are passionate about. In other cases, companies with big ideas have been able to secure millions of dollars of capital to fund their dreams. Here are a few of the most notable, according to Subscription Commerce Insider:
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Harry’s ($287.1M)
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JustFab ($254M)
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Dollar Shave Club ($147.8M)
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BeachMint ($74.7M)
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Birchbox ($71.9M)
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ShoeDazzle ($66M)
With hundreds of millions of dollars committed to the success of subscription boxes, it seems they will only continue to grow in popularity.
Birchbox, a success story
B
irchBox is perhaps the most well-known of the subscription box companies. The company was started by two friends with different approaches to beauty. They wanted a better way to shop for beauty products, so they created Birchbox to help other women sample beauty products. They shipped their first box in September 2010. In April 2012, they added Birchbox for Men to the mix. The company has grown beyond its New York City headquarters with operations in the United Kingdom, France, Spain, Canada and Belgium.
irchBox is perhaps the most well-known of the subscription box companies. The company was started by two friends with different approaches to beauty. They wanted a better way to shop for beauty products, so they created Birchbox to help other women sample beauty products. They shipped their first box in September 2010. In April 2012, they added Birchbox for Men to the mix. The company has grown beyond its New York City headquarters with operations in the United Kingdom, France, Spain, Canada and Belgium.In addition to raising millions in funding, Birchbox has done a lot of things right. For example, it developed two programs to encourage customers to share their Birchbox experiences with others. With the Points Program, customers earn points every time they shop at Birchbox. Every 100 points earns them $10 to spend toward Birchbox products.
Subscribers can also earn points by inviting their friends to subscribe, reviewing monthly samples and sharing their box via social media. The Birchbox Aces Program is the company’s VIP program. To be eligible, a subscriber must earn 500 Birchbox Points for entry into the program and 500 points per year thereafter.
These loyalty programs ensure that subscribers will tell others about Birchbox, and it rewards subscribers who purchase other Birchbox products. Such programs also provide a quality control for the Birchbox team. If they curate products that are duds with subscribers, that information will be shared online too. That’s certainly an incentive to find products their customers truly want!
Happy subscribers
Ethan Chung of Seattle received a Birchbox for Men subscription box from his wife last June. She was already a subscriber to Birchbox herself and was pleased with the products, so she decided to purchase a subscription for her husband. At $20 a month, it was a fun and affordable gift, but also thoughtful and effortless. A gift that would deliver itself.
Each month Chung receives four sample size products, tailored to his personal profile and skewed toward hair grooming, skincare and shaving. He doesn’t have input on the brands, but his profile guides Birchbox in what types of products he wants. In addition to the sample size products, Chung receives a lifestyle item which he can choose from a small selection. Choices have included winter gloves, earbud headphones, underwear and hats so far.
“The surprise element is fun,” Chung said. “The lifestyle offering in the box is a great value, so I see the samples as sort of a bonus – I like to try before I buy.”
With customers like Chung, Birchbox benefits too. Not only does the company get $20 a month for Chung‘s subscription, but Chung has purchased several of the full sized versions of products he’s sampled through the service, giving Birchbox an additional revenue stream.
Heather Wilcox of Indianapolis is also a fan of subscription boxes. She subscribes to three – Ipsy, Play by Sephora and Julep – all beauty-in-a-box subscription boxes. Wilcox said price is an important factor for her.
“Price point definitely helps. At $10 a pop, each one feels like a manageable treat for someone on a budget. I’m self-employed, so I choose my indulgences carefully,” said Wilcox. “And the chance to try new things relatively risk-free is a bonus.”
She also likes the surprises and selections.
“They’ve introduced me to some brands that I might not have tried without getting a travel size or deluxe sample first
and it’s an easy, no-stress indulgence,” Wilcox said.
Subscription boxes do have their disadvantages though. She doesn’t like the lack of control of what’s in the Ipsy bag, for example. Some months she gets great products; other months she doesn’t, but at $10, she feels the risk and entertainment value are worth it.
Pros
Frederick Felman, Chief Marketing Officer for Recurly, said growth of subscription box services is driven by two factors: convenience and curation. The benefits of convenience are obvious. It is much easier to have something delivered right to your door than it is to go out and find it yourself.
The benefits of curation aren’t quite as apparent though. Some people love researching, shopping and testing and are happy to comb the earth looking for the latest and greatest products on the market. Others like Heather Wilcox do not.
“For someone like me who doesn’t enjoy shopping or feels intimidated in Sephora or other places like that, it’s a fun way to experiment with different types of products on my own,” said Wilcox. “I’m lazy and like having the items come to me directly.”
Subscription boxes are also great gifts – for yourself or for someone else. Each month when you receive your subscription box you are reminded that someone thought of you, whether it is a gift you are giving yourself or a gift subscription someone else has purchased on your behalf. Subscription boxes are truly the gift that keeps on giving.
From a company standpoint, subscription boxes are an exciting opportunity to offer a product the company believes in to customers who aren’t just signing up to buy one item, but who are making a monthly commitment as a subscriber.
Cons
There are downsides, however. With some subscription boxes, curation is tailored to the subscribers taste and profile. Others, however, are one-size-fits-all, like Sephora, where everyone gets the same box each month. Each company must find the best mix to suit its own needs as well as cater to its subscribers who it hopes to retain on an ongoing basis.
Another disadvantage is that each company has its own set of cancellation policies. With some, you can skip a month if you don’t want the selection, or you can put your membership or subscription on pause for a specified period of time. With others, like Kate Hudson’s Fabletics, canceling a subscription can be very difficult, even fraudulent.
For consumers, canceling a subscription can be confusing, but it doesn’t have to be. Subscription boxes with clear, readily apparent cancellation policies can make a customer’s exit more pleasant by keeping it simple and letting them know what to expect. By implementing best practices, companies can avoid the bad publicity that has come along with companies like Fabletics that have garnered thousands of consumer complaints.
Is it a deal?
From a consumer standpoint, how do you know if it is a deal? In an article for Pacific Standard, “Boom & Bust: Inside the Rapidly Expanding World of Subscription Services,” Liz Cadman of My Subscription Addiction, suggests that subscribers go through each item in their subscription box, determine the retail prices of each item and add them up along with the price of shipping and handling. If the monthly subscription price is more than the value of the items, she says the subscription box is not a deal. If it is worth more, then it is a bargain.
In some cases, it isn’t about the dollar value; it is about the value of the experience. Kent Bennett, an investor and subscriber in Blue Apron, a weekly meal service, told Jamie Wiebe of Pacific Standard that the subscription service made their lives better. It wasn’t about the cost of the ingredients; it was about not having to worry about what to make for dinner.
Industry challenges
One challenge faced by subscription box companies is that, with few barriers to entry, virtually anyone can start their own subscription box service. There is no limit to the size of the marketplace. While this creates much opportunity, it also creates competition. For example, beauty-in-a-box is one of the most common subscription box categories, and there are already many well-known brands in the mix. How many beauty-in-a-box companies can the market bear?
Source: Customer Image
Companies who enter the market in 2016 will be more successful if they identify a niche with little or no competition.
In addition to new entrepreneurs entering the market, the industry depends on word-of-mouth advertising from its customers as well as the goodwill of bloggers and others who tout the company’s products to the masses. Successful companies will have strategies in place to capitalize on this opportunity which might include complimentary subscriptions for prominent bloggers or loyalty programs to ensure subscribers share the love.Another challenge is the quality of the curation which is critical to subscriber acquisition and retention. To be successful, subscription box companies must be innovative, especially as the marketplace grows more crowded. They must be committed to providing something unique and packaging it – from marketing to the actual package itself – in a way that creates a positive and exciting experience each and every month.
What’s next?
Based on the success of the 2015 holiday season, Dan Burkhart, Chief Executive Officer for Recurly, predicts that subscription boxes will continue to grow.
“We expect this trend to continue, if not to exceed last year,” Burkhart said. “Increasingly companies that are consumer-facing are realizing that the holiday period is a big period of revenue that is largely coming from within their own subscriber audience. This is a wonderful thing to tap into for subscription companies seeking to grow their business.”
Burkhart said that subscription box companies that do exceptionally well send an email ahead of time that tells subscribers they’ve got something great in store, a teaser of sorts to build the excitement. The email will describe the contents of the box and the story of why particular items were selected for them. The storytelling in the email, coupled with the anticipation of the subscription box‘s arrival, create an unparalleled experience for subscribers – something they can’t duplicate in a store.
Felman added his take to the discussion.
“I think the companies that are blowing this out of the water are the companies that are taking the hassle and drudgery out of shopping for baby formula or grabbing razors, those things you just don’t want to do,” Felman said.
“The successful companies are the ones who are providing incredibly rich, curated experiences that deliver and delight subscribers, or offering them something unique, fun or beautiful on a monthly or weekly basis,” he added.
Successful subscription box companies recognize that it isn’t just about a product or a package. It is about providing a unique and valuable experience that not only keep subscribers coming back month after month, but one that is so special they are willing to share it with others.
Dana Neuts is a contributor to Subscription Insider.
