Subscription Box Retailing: An Overview

One of today’s fast-growing trends in the online sale of physical products is the subscription box. Capitalizing on everyone’s love of receiving gifts, the subscription box offers customers a monthly chance for a bit of surprise while providing merchants with a stable cash flow. The subscription-box model only began in 2010, but it is already a $5 billion industry — selling everything from artisan meats and high-end cosmetics to fishing equipment and pet products. Below is a quick overview of this interesting retail trend:

How does the subscription-box model work?

The consumer answers a short survey about their personal preferences and agrees to monthly deliveries of a box with special, handpicked products from the merchant. Often merchants will offer several price-point options for larger or smaller boxes to please all customer demographics. The consumer opens their box each month without knowing exactly what’s inside, so they enjoy the excitement of a gift experience. Andrea Doman, a physiology expert quoted by Forbes, says that, “When something’s being handpicked for someone, it’s feeding their self-esteem. It makes them feel unique and keeps them continuing to purchase.” Because of this unique pleasure in discovery, subscription boxes make popular gift and auction items as well as personal purchases.

What benefits does a merchant receive from offering subscription boxes?

The staff at Birchbox could answer this question at some length since their subscription list has expanded to 800,000 people in the four years they’ve sold beauty-product samples by this method. Michael McCall, consumer-behavior expert and chair of marketing at Ithaca College, notes that customers are far less likely to return items they have already opened — even if they wouldn’t have chosen to buy those items on their own. Furthermore, consumers have the chance to sample unfamiliar items, and they often go on to discover they actually like a product that they might have previously ruled out. Subscription models in general provide vendors with a predictable income that provides a solid business architecture, and the standardized monthly shipping date simplifies inventory management.

What are some tips for setting up a winning subscription-box offer?

Here are our top four tips for joining this growing selling channel:

• Do some homework: Research competitors in order to capture customer loyalty by offering a fresh tweak that’s not available anywhere else.
• Work out supply-chain logistics: Consider partnering with a company that gives free promotional samples. How many subscribers does it take before a company gets quantity discounts on packaging or shipping?
• Stay flexible: Offer a choice between monthly, quarterly or annual subscription payments.
• Know the limits: Many subscription-box businesses hit a ceiling and have to resort to customer waiting lists.

The subscription-box model offers an interesting symmetry: predictability for the merchant and exciting novelty for the consumer. The dual appeal of this selling method adds up to a win-win situation for both sides of the transaction.

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