The fad of subscription boxes is waning, but some shrewd brands have a plan to thrive. Their secret: Each box is not just a widget, but an insight-generating emissary.
Consumers are flinging open their doors and welcoming brands into their lives through the subscrition box model. All marketers have to do is box up a few products, reproducing the excitement of a gift that arrives quarterly, monthly or even weekly.
Consumers’ willingness to roll out the welcome mat for such brands as Birchbox, Barkbox and Blue Apron—and cough up quite a bit of data—stems from the trendy desire for a bespoke customer experience. They want the sophistication of a personal shopper without the human interaction. They want a curated collection of products without stepping foot in a store. They want to showcase it all on social media, sometimes for fans they’ve never met. Subscription boxes satisfy this appetite for a detached yet customized shopper experience, and they do so with the climactic bonus of “unboxing.”
Eager to satisfy these desires, companies are wrapping whatever they can in tissue paper: jewelry, pet toys, exercise equipment, socks, bacon, fishing gear and so forth. If it can be boxed and themed, it ships. Working off of the self-gratifying, “treat yo’self” mentality many customers embrace, the subscription box industry has taken off, and marketers have enjoyed a tantalizing spread of customer data.
We may have witnessed peak subscription box, though, according to experts. At some point a combination of oversaturation and fatigue causes customers to lose interest, and customer acquisition becomes expensive. Marketers must find a way to keep the warm and fuzzy feelings alive when customers outgrow the initial excitement of personalized packages—and that requires thinking of boxes as a marketing device, rather than the core product.
Before subscription brands considered themselves curators, they were known as introducers. Product-of-the-month clubs gave subscribers an opportunity to try new products, but they leveraged no knowledge of the customer, making blind recommendations writ large. A jelly-of-the-month club, for instance, didn’t take into account whether a subscriber preferred spicy foods or black coffee, tastes that could guide a personalized selection.
Modern subscriptions begin and develop alongside customer preference. Subscribers often take a quiz that helps the company characterize their interests, then rate the items in their boxes to continuously specify their profile. It’s the difference between receiving a present from a distant aunt and a best friend—both are nice, but the latter is more reflective of your current interests.
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With the promise of an individualized package, customers signed up in droves for the likes of Dollar Shave Club and Birchbox—the latter of which was once invite-only with a waitlist. An analysis by Hitwise, an audience insights solution, found visits to subscription company websites grew 800% between 2014 and 2017. Its calculations suggest about 5.7 million people in the U.S. are box subscribers.
Though there’s probably a box that would appeal to nearly anyone, subscribers are most often millennials or members of Gen X, with the sweet spot being those between 30 and 40 years old. Subscription box customers are more likely to be college-educated, liberal-leaning women. Their household income averages more than $100,000, and they tend to have children between the ages of 3 and 5. Plus, they’re willing to give up their data for a personalized home delivery.
“We hear sometimes that people don’t want to provide that much info to companies,” says John Fetto, senior analyst for research and marketing at Hitwise. “People who subscribe to these kinds of companies actually value that. They’re the people who like it when the company makes a recommendation based on a previous purchase or that a company tries to understand other things based on their browsing habits. They’re OK providing these subscription box sites with information that’s going to help them have a more bespoke, tailored experience and deliver products that they don’t have to go out and find. It’s a way for them to have a filtered experience with the products.”
The more customers seek a tighter filter, the more data they disclose to marketers. Even if customers return some of the items in their box and the company doesn’t make money, it marks an engagement that can be monetized in the future.
“Once someone subscribes to one of these boxes, you really have a Trojan horse going into their house once every month,” Fetto says. What that spy brings back to the company (almost immediately) are customer insights that directly guide the brand’s next decision, be it in product development, curation or otherwise. The company and subscriber feed off each other.
Putting together the perfect box is an art and a science, says Leslie Emmons Burthey, vice president of marketing at FabFitFun. The company, which began as a content hub, offers a quarterly subscription box filled with beauty, fashion, fitness and wellness products.
“We have an in-house team getting together every day, testing out products and thinking about the trends that are coming down the pipeline,” she says. “On the flip side is the science: polling members, surveying, figuring out what people want to see. It becomes this virtuous cycle.”
This cycle has boosted responsiveness to both what the audience likes and what the experts deem trendy. For instance, wine subscription company Winc has increased the responsiveness of the wine industry—which is not known for its agility. It was able to nimbly react to the seasonal and millennial favorite rosé by launching its Summer Water Rosé brand and a special membership that included items curated by lifestyle company Yes Way Rosé. Winc’s experts are also leading consumers toward the next trend: most recently, orange wine.
Winc CMO Nishant Mani says the company was surprised to see how well customers took to their Au-Delá Tocai Friulano orange wine—a type of white wine made by leaving the grape skins and seeds in contact with the juice. Mani says the popularity of the unusual wine empowered the company to experiment more.
Winc experiments with small batches and branding concepts until it hits on something customers enjoy. The company will bring a prototype to market, with the winemakers often engaging the creative team to design branding concepts. Some of these are placed in Winc’s marketing materials and social media to gather consumer reactions.
The team uses customer information to make buying and growing decisions for the next one or two years, but also for immediate blending, bottling and branding. “We get ratings on a product almost immediately,” Mani says. “We have the ability to learn from and react to those ratings and iterate on branding and bottling in a time frame that is significantly shorter than what it takes to build the whole thing from scratch in the wine business.”
Traditional retailers have found this model appealing as well, whether they have partnered with an existing subscription box company (as William Sonoma has with healthy meal kit Sun Basket) or created their own subscription boxes (such as Walmart’s Beauty Box). Up-and-coming brands find subscription box partnerships particularly appealing vehicles to move into homes and receive customer feedback.
“Working with us is like getting your own marketing campaign,” Burthey says. “You’re getting directly into the home of our subscribers and you get all this really rich data.” FabFitFun asks customers about their intent to purchase items in the future after receiving them in a box. “There’s a ripple effect of being in our box,” she says, “and [our partners] see the fruits of that for months to come as far as increased sales.”
The benefits have caused subscription boxes to spike in popularity, but the afterglow isn’t always long-lasting.
Is This the Beginning of the End?
‘What goes up must come down,” says Peter Fader, a professor of marketing at the Wharton School at the University of Pennsylvania. “Anytime you look at the diffusion of an innovation through a market, whether you’re talking about classic, old-school 1960s-style sociology; a new consumer product; new business model or a cold going through a daycare center, we know the faster it rises or the faster an adoption picks up in [a] viral-type manner, two things will happen: It will peak earlier than you think, and after that peak, the decline will be [fast].”
Fader compares subscription boxes with flash-sale websites such as LivingSocial, Gilt and Groupon, which were once consumer darlings but now seem to have their best days behind them. Part of this may be simple fatigue: Not only are there an estimated 400 to 600 different types of subscription boxes in the U.S. (according to The Washington Post in 2014), but consumers may tire of receiving something brand-new all the time. There’s no reason to keep sampling once you find the right mascara or the comfort of a go-to Monday night recipe.
The popularity of these subscriptions are beginning to show signs of slowing or plateauing growth. Fetto says Hitwise’s numbers suggest there is still some growth in the space, but even some of the leading sites have begun to see slight declines. He says there haven’t been many recent breakthrough subscription brands, at least not on the scale of Blue Apron or Dollar Shave Club.
Blue Apron might be the best example of the trend souring, and the drool-worthy depth of data these boxes provide may be their undoing. The company didn’t recognize the portents of stagnation in the data it obtained. Fader points to Blue Apron’s IPO announcement in spring 2017, during which it provided certain metrics in its S-1 disclosure. Blue Apron didn’t explicitly offer its retention rates or much about its customer acquisition costs, but the company did provide what Fader calls “trophy metrics.” Experts used this data to create relatively simple models that suggested future challenges for the meal-delivery service, including weak retention as well as a decline in revenues, new acquisition cohorts and average order values of aging customers. The models reduced Blue Apron’s per-share goals from $17 to $10. At the writing of this article, Blue Apron’s stock price is trading at nearly 70% below its offer price at about $3 per share, making it the worst-performing major IPO of 2017.
According to Fader, the subscription model offers the ability to measure and track granular details, but the industry’s ability to do the appropriate accounting and forecasting of valuations is lagging.
“A lot of these companies are opening themselves up for a level of scrutiny that they might not be subject to otherwise,” Fader says. “This is mixed news. It’s tough for them but good for the world that we can now really see what’s going on at a much earlier stage. And it’s harder to fool the investors that things appear to be rosier than they are.”
Subscription companies could take guidance from old marketing models. For instance, packaged-goods firms know they can judge a new product or service on the basis of aggregate sales. The trick, Fader explains, is to look at trial (acquisitions), first repeat purchase and the depth of repeat (or length of time customers continue their subscription). Marketers should separate and forecast each of these behaviors and determine where the bottleneck is. In Fader’s view, subscription companies are packing all those behaviors together and focusing too much on trial alone, believing it to be indicative of repeat purchase patterns.
“In old-school direct marketing, firms knew how to look at the data: how to decompose it, project it separately, run little experiments not only to find what the customer will like [or] what the UX would be, but to create enough variation in the data to make these forecasts more effectively,” Fader says. “It’s a shame that a lot of today’s subscription companies are basically reinventing the wheel and coming up with one that doesn’t roll nearly as smoothly as the old one.”
Even with the appropriate measurements, the subscription box model may have an innate struggle: Each successive customer cohort typically shows signs of declining patterns. Subscription companies need to project forthcoming cycles and be careful not to overestimate the devotion of future customers.
“There’s such a flood of data that they’re drowning in all of it, and they aren’t really sure what kinds of things they should be looking at,” Fader says. “They get all caught up in noisy signals like a lot of engagement metrics that sound nice but aren’t necessarily indicative or predictive of anything.”
How Companies Could Survive—and Thrive—In the Space
As fatalistic as it sounds, there’s a reason so many believe in the power of subscription boxes. There’s real appeal, especially if it’s just one corner of a larger consumer-brand tapestry.
Marketers can begin with foresight on patterns. In addition to looking at the appropriate data and signals, Fader recommends nudging and anticipating. To the first point, brands should leave room for experimentation—can they offer subscriptions of different sizes or quantities?—to mitigate future declines. To the latter suggestion, Fader says brands need to understand that churn will occur, so they should anticipate it and reallocate their resources accordingly.
“Don’t delude yourself to think it’s a branding issue,” Fader says. “Learn to go with that flow instead of trying to either ignore it or magically turn it around.”
BARK, the company behind Barkbox, understood the limited lifespan of the subscription model. The company anticipated that dogs wouldn’t need brand-new toys every month if the products were built to last. BARK keeps the demand up by creating items that are meant to be wrecked.
“The beauty of the box is the toys and treats are meant to be destroyed and eaten over the course of the month,” says Jay Livingston, CMO at BARK. “We lean into the idea of the joy of destruction of the toys.” Barkbox customizes the boxes to a large degree, and the quality of the toys and their ephemeral nature is what separates them from other chew toys.
The company expanded into one-off sales with an online store where customers can make purchases without being subscribers. Its second, more recent effort is a partnership with Target, where it’s selling some of its most popular products.
Similarly, Winc moved offline by selling its wines wholesale and repurposing its customer data. Mani says wholesale is the booster rocket for Winc brands that get a particularly good signal from its subscriber base. The company uses feedback and data from subscribers to convince retailers to carry its popular brands.
“[We tell them], ‘You don’t need to try this out, we’ve already been doing this for a year and a half or two years. Here’s the market sales data among our online consumer base,’” Mani says. “We’ve been able to build a wholesale program that has not required the backing of a bunch of marketing dollars behind the wines because we already have data to show that the wine works in the marketplace.”
Content and community can also drive consistent consumer interest. FabFitFun may be one of the leaders in this regard. The company creates content around the products that show up in its quarterly subscription boxes, describing ways to use the items—and it’s often in response to what its customers discuss on their members-only community forum.
“Our customers will tell us very explicitly what they like, what they don’t like,” Burthey says. “When we have a product or a website improvement we want to make, or we’re thinking of inspiration for upcoming boxes from a merchandising standpoint, it’s not unheard of for us to just ask people for their input.”
The FabFitFun box followed the content, and was intended to enhance the community. This could be a useful way for companies to think of subscription boxes: as a value-add for super customers.
“I’d like to flip the business model around,” Fader suggests. “For most companies, buying stuff in a one-off manner is the base business. [For] those few really engaged customers who know that they’re going to have these periodic needs, view the subscription version as a premium service above and beyond the merely occasional transaction.”
This is the model Sephora uses. The makeup retailer’s Play! Monthly subscription box comes with a customized group of samples and access to how-to videos and tutorials for the products. It also includes a book of tips for the samples and a tie-in to its other big customer draw: Beauty Insider points.
The subscriptions that survive beyond the hype years are likely to be the ones that grow beyond their boxes. As customers’ tastes mature, they don’t lose their interest in being delighted, it just takes a little planning once brands get a foot in the door.