Are subscriptions a winning strategy to get through the pandemic?

Discussion
Photos: Bark Box; Stitch Fix
Jul 15, 2020
Matthew Stern

While some retail models and segments have run into significant difficulties withstanding the pandemic and demands of social distancing, subscription services seem to be thriving.

Nearly 90 percent of subscription services have demonstrated either flat numbers or growth since the onset of the novel coronavirus pandemic, according to a study by Zuora reported on by the Harvard Business Review. The reloading, renewal and reordering characteristics of the revenue model can be a lifesaver for businesses in the midst of a crisis, the article asserts, as it allows cash flow to remain steady when things are otherwise rocky.

Growth in this area could be related to other pandemic-era shopping trends. With trips to the grocery store suddenly carrying a risk of contracting COVID-19, many customers early in the pandemic began trialing online grocery shopping and, alongside that, grew more comfortable ordering direct from CPG brands, some of which have subscription elements to their direct-to-consumer offerings.

The boom in consumers buying CPG products vendor-direct inspired massive CPG companies like PepsiCo to launch direct-to-consumer services. In fact, PepsiCo developed its Snacks.com and PantryShop.com websites in only 30 days to get in on the trend. Although subscriptions are not currently available on the websites, the FAQ on Snacks.com addresses their absence and indicates the company is continuing to build new features into its offerings.

Plenty of retailers were already experimenting with subscription services leading up to the pandemic. Both Panera Bread and Burger King launched coffee subscription programs over the past few years. Outside of food/QSR, Nike launched a service to automatically replenish children’s shoes.

In non-crisis times, subscriptions did not always demonstrate the stickiness they promised. In 2019 subscription services were experiencing a churn rate as high as 40 percent.

The shakeup from the pandemic, however, does seem to have breathed life into some subscription services that had been sagging. Briefly popular meal kit services like Blue Apron were all but out of steam by March of 2020. Recent Nielsen data, however, indicates that in April 2020 U.S. consumers spent $100 million on meal kits, double the spending during that month in 2019 according to CNBC.

DISCUSSION QUESTIONS: Should CPGs and retailers who had not implemented subscription services consider launching them due to pandemic-era factors? How might existing subscription services improve and differentiate themselves?

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Braintrust
"Yes. Full stop... With consumers facing many complex issues, they want product solutions that make their lives easier."
"Subscriptions give financially-strapped consumers a way to make ethical purchasing decisions without ever leaving their homes."
"Maybe I’m missing something here, but I don’t see this as a good long-term strategy for retailers or brands."

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22 Comments on "Are subscriptions a winning strategy to get through the pandemic?"


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Bethany Allee
BrainTrust

Yes. Full stop.

Experience is the metric that drives up cart size, shopper return rate, and loyalty. With consumers facing many complex issues, they want product solutions that make their lives easier. Additionally, with many consumers not going into stores, it is advantageous to retailers to package goods in a way to anchor new or growth items to legacy goods.

Existing subscription services can improve and differentiate themselves best through partnership. This motion helps them scale, diversify, and capture more share of market.

Mark Ryski
BrainTrust

COVID-19 has been a trend accelerator for subscription services. Given that the pandemic event seems to be one that will linger for some time, I would encourage CPGs and retailers to seriously consider how subscriptions could work in their own context. But while the pandemic has been good for subscription-based services, I believe that this is primarily a result of social distancing and consumers wanting to avoid physical stores, and so some of this behavior may create a headwind for subscriptions once a vaccine or therapeutics have been created.

Suresh Chaganti
BrainTrust

Subscription boxes do help, but they are certainly not a silver bullet. Companies mistakenly spend a lot more than they would otherwise to acquire customers, thinking that subscription customers are more profitable.

Subscription boxes do not equate to loyalty or an increased lifetime value. In our experience at VectorScient, product recommendations and engaging only at the right frequency and right time had the biggest impact on increasing the customer LTV.

David Naumann
BrainTrust

Even long before the pandemic, subscription services were booming. The pandemic just provided subscriptions services an additional boost as consumers avoided malls and physical stores and turned to online shopping. Subscription services should now be a component of many CPG and retail companies’ marketing strategy, as it provides a nice incremental recurring revenue stream. One of the best ways to increase the loyalty of subscription customers is to continue to surprise and delight them with continued new product offerings and include a surprise little extra gift in each box.

Neil Saunders
BrainTrust

Subscription services have worked well for regularly purchased household staples. For many they take the hassle out of replenishment shopping and signing up to a subscription service often unlocks discounts over standard prices. From work we have done in grocery, subscription consumers switch brand far less often as they don’t shop around for brand alternatives. That’s great for the CPG company or brand that initially locks the consumer into the service; not so good for the rest!

Outside of staples and regular purchases, things like meal kits have traditionally worked less well as a lot of households find it hard to plan meal occasions and disliked being locked into services. However, the pandemic has disrupted that trend and means more people are staying home more often rather than eating out. So it’s logical that meal kits and meal subscriptions are having a moment. How long that moment lasts remains to be seen!

Stephen Rector
BrainTrust

Subscription boxes can give consumers back one of the biggest luxuries people want, which is time. The boxes that use AI and data to put the correct product in the boxes will be the winners.

Jeff Sward
BrainTrust

Subscription services for replenishment and replacement products make enormous sense. Knowns + predictability. But for those product categories prone to high return rates it seems they walk a razors edge when it comes to profitability. Lack of predictability + handling costs. I think they will prosper in the long run, but some categories are going to have a longer learning curve than others.

Ralph Jacobson
BrainTrust

The personalization opportunities of subscription services for both CPGs and retailers is the key to creating long-term loyalty to programs. If the program is relevant, convenient and affordable for the individual, there will be far more reason to stay with it.

Cathy Hotka
BrainTrust

Think out of the box, people. A lot of customers are still leery of going into stores, and interested in alternative ways to procure product. Thumbs up for all these new approaches.

Zach Zalowitz
BrainTrust

Retailers should most definitely consider launching this functionality. We have a number of my current customers achieving this in their OMS and others that need advanced analytics go to a standalone application. Differentiating comes down to ability to skip or hold subscriptions, and also the ability to apply AI/ML into fine-tuning what the next subscription box shows (vs. giving the same KIT over and over again, for example). We’ll only continue to see the subscription business grow, the question is can this be done with a leading OMS or do some retailers need to pay the premium for advanced standalone solutions.

Mohamed Amer
BrainTrust

Until the pandemic hit, I had not used any subscriptions services. Today our family has a growing list of at least a dozen items on subscription and we are valuing the ease, flexibility, and convenience of this model. Subscription services are here to stay and will succeed by how much control the consumer has on quantity, frequency, and delivery options combined with a fair price point.

Joel Goldstein
BrainTrust

Customers are looking for efficiency when they go into stores now. This offers a seamless checkout process and, as Amazon did with their one-click checkout, this will bring about a faster more convenient process. In 10 years, stores are going to be the place that people go when they need to “grab something fast” not where people go to stock up for the week. This is just another step in that direction.

David Leibowitz
BrainTrust
Replenishment subscriptions with guaranteed goods delivery will benefit both customers and brands. Consumers will no longer have anxiety about the out-of-stocks on the shelf and brands will be able to better predict demand while developing direct customer relationships that they can nurture when we emerge post-pandemic. Brands need to act now before the competition beats them to the punch, because once a shopper saves their credit card and clicks “Deliver to me every three weeks” it’s a lock. More pointedly, the first brand that assembles a monthly guaranteed care package (cereal, soup, paper goods, laundry detergent, baby care needs, and cotton swabs) so I don’t have to worry about empty shelves at retail earns the right to store my credit card. What’s the LTV of that? Next, when brands and retailers have laser precision to demand intent, they might also capitalize on reduced markdown and other sales strategies. The deep markdowns due to overstock and soon-to-expire items erode margin for retailers to the tune of $300 billion per year. Convert those into consumer-direct campaigns to… Read more »
Georganne Bender
BrainTrust

I have tried several subscription services; none of them held my interest for long, but times are different now. Like other consumers I am looking for things that make me smile, a mystery box of goodies can do that.

An uptrend during the pandemic makes sense, let’s see how long the subscription companies can make that trend last once it’s over. Judging from COVID-19 updates they have plenty of time to make it stick.

Cynthia Holcomb
BrainTrust

For most CPGs and retailers, no. As the article points outs, prior to COVID-19 subscription services were experiencing a 40 percent churn rate! Shuttered-at-home consumers experiment. The fatal flaw of subscription services is they don’t offer a free choice of what one likes and wants to buy. In the post-COVID-19 world — like in the pre-COVID-19 world — consumers once again will have free range to go out and experience the thrill of buying something they really like.

Ron Margulis
BrainTrust

Subscription services are a bit faddish, a stepping stone to much more personalized curation of product for shoppers. There is almost always a miss among the assortment sent, so the shopper is rarely totally satisfied. Plus, there is rarely real value beyond the “surprise” of the package contents. Maybe I’m missing something here, but I don’t see this as a good long-term strategy for retailers or brands.

Phil Rubin
BrainTrust
25 days 43 minutes ago

Transactional businesses want recurring revenue and recurring revenue models want transactions. Subscriptions, like other trends accelerating these days, are compelling and will succeed but not for all categories of product or retailers. The key is ensuring the value proposition is relevant, sustains engagement and leads to transactional growth on top of it.

Ricardo Belmar
BrainTrust
Yes, no question subscription services should be considered by brands and retailers, but that doesn’t make it a guaranteed winning solution. Success depends on how much value is perceived for the item(s) your customer is subscribing to. Ultimately this works because human beings don’t perceive expenses over time very well, meaning they lose track of recurring subscriptions and end up paying for them without thinking about what they are getting. The classic example is gym memberships, where less than a quarter of paying members regularly use the facility (even pre-COVID-19!). However that assumes the consumer associates an intrinsic value to the items under subscription. This works exceptionally well for streaming media and intangible items (take gym memberships again). This means brands and retailers need to test this out. I’m most impressed with the news that meal kit services appear to be growing again as a result of the pandemic, although I do wonder if those are just consumers experimenting and trying them out – it remains to be seen if they stick around. And if… Read more »
Jasmine Glasheen
BrainTrust

This does not come as a surprise. Millennial and Gen Z consumers are less likely to shop at dollar stores as more comes to light about many of their unethical manufacturing processes. Subscriptions give financially-strapped consumers a way to make ethical purchasing decisions without ever leaving their homes. This is a segment I expect to see grow exponentially in the next year –– especially in household essentials.

Lauren Goldberg
BrainTrust

Subscription services are doing well, but they’re not a silver bullet for any CPG or retailer. The items in the box need to meet customer needs in this moment. Meal prep kits, kids activity kits or craft cocktails make sense because people are eating, playing and staying home. Jewelry and fashion curation for rent or purchase probably doesn’t make as much sense because we’re not going anywhere.

Craig Sundstrom
Guest

“Trialing”? Anyway, the crisis has reinforced some existing trends, and created blips (temporary surges). I would put DTC CPG subscriptions in the former, and meal services in the latter. Time and money are the big factors in subscribing — you save some of the first, but potentially give up a little of the second by being locked into a supplier — and while the pandemic has perhaps reversed these priorities, and added the wildcard of reduced exposure, I don’t see it ushering in long-term changes; the appeal of meal-kits will fade when — not if! — restaurants reopen.

Xavier Lederer
BrainTrust

Are subscriptions growing because they are more attractive, or simply because online sales are growing, and subscriptions benefit from a halo effect? Over the past 10 years I have seen e-commerce companies launch subscription services. Every time it was going to “revolutionize” the marketplace – and most of the times results were disappointing. In most cases consumers want to decide when to receive their products, which contradicts traditional subscription models. The pandemic hasn’t changed this basic need.

wpDiscuz
Braintrust
"Yes. Full stop... With consumers facing many complex issues, they want product solutions that make their lives easier."
"Subscriptions give financially-strapped consumers a way to make ethical purchasing decisions without ever leaving their homes."
"Maybe I’m missing something here, but I don’t see this as a good long-term strategy for retailers or brands."

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