Should all retailers offer subscription services?
Through a special arrangement, presented here for discussion is a summary of a current article from the IMS Results Count blog.
I met my best friend Mike about 10 years ago. He did not own a smartphone or have any orders from Amazon.com. On my last visit, I found a very large heavy box on Mike’s porch. When I asked what was inside, Mike replied, “Oh that’s just my dog food subscription. I can get it $4 a bag cheaper online than in the store, and I don’t have to carry a heavy 40-pound sack to my car. Plus, it shows up the week when I need it.”
It’s not just my friend Mike — consumers worldwide are turning to the convenience of subscriptions across many categories. Well beyond the changes caused by music and video streaming, shaving blades, ink cartridges, diapers and a host of routine consumable products from dog food to toilet paper can be delivered to your door on schedule. Indeed, the very core of Amazon Prime is set up to appeal to your increasing preference for “subscription consumption.”
No, not everything will be purchased via a subscription model. But with each subscription, another sale transfers from the store to online. More importantly, a subscription eliminates store visits for that item.
Three key ways retailers must adapt to subscription consumption:
- Understand that the store is not bricks and mortar. Retailing today must transcend time and place. Retailers must find ways to offer their own “subscriptions,” especially services that differentiate.
- Customer relationships are the foundation of future success. Individual sales transactions at the cash register are still important, but it is relationships that bring customers back to purchase. Subscriptions are the new core building blocks of relationships and repeated customer contacts with the brand.
- Customers want personalization and choice. Smaller local retailers have the advantage of knowing their customers more intimately. They should be able to personalize subscriptions and services in ways that Amazon and Walmart can’t. Subscription deliveries are not based on speed of one-day delivery — subscription success requires reliability and accuracy within the reach of most any retailer.
DISCUSSION QUESTIONS: To what degree are subscriptions becoming a drag on store traffic? Should the majority of retailers offer subscription services? Can most retailers compete effectively in the space?
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25 Comments on "Should all retailers offer subscription services?"
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SVP, Strategy & Insight, Profitero
Digital commerce has certainly played a role in elevating competition beyond everyday transactions.
Along with subscription boxes, membership models and delivery passes, item-level subscriptions, and even the lock-in effects of devices like the Echo, are eroding traffic and baskets in brick-and-mortar retail.
I agree with the guidance to retailers above. Traditional loyalty programs are losing relevance compared to the convenience and comparatively greater value of membership, auto-replenishment and easy re-ordering programs.
Cofounder and President, StorePower
For select categories (high frequency items, heavy items, etc.) subscription makes sense. Now is the time for retailers to try to claim their benefit from subscriptions or manufacturers will beat them to it.
President, Max Goldberg & Associates
Subscriptions cut into store traffic, making it easier for consumers to get products they regularly buy, saving time and often saving money. It’s easier said than done for a retailer to set up a subscription service. The ability to monitor consumer requests, set up a pick, pack and ship operation, and provide online customer service is vital to creating a successful subscription service. This will potentially eliminate many small retailers from starting this type of service. That said, medium and large retailers should be considering which products consumers regularly visit their stores to buy and how to get those customers into subscriptions.
Global Retail & CPG Sales Strategist, IBM
“Should all retailers offer subscription services?” Why not? This is another way for smaller retailers to punch above their weight against the big ones. And I don’t think this has significantly impacted in-store traffic by any means. It will be a while before that happens.
Managing Partner, Advanced Simulations
This is a tiny part of the shopping universe. It depends on a regularity of usage that many of us do not achieve, as well as systems for delivering items correctly (Walgreens take note: your system is particularly plagued by this and CVS is not far ahead of mediocre fulfillment on prescriptions). It doesn’t take many misses or substitutions (like feeding my dog hamburger occasionally) to throw the timing off. Retailers have better things to do.
Chief Executive Officer, The TSi Company
There is no doubt that more customers are using subscription services because of the convenience. More retailers would be wise to offer this service to their customers. However, brick-and-mortar retailers have other opportunities they need to take advantage of because many items still need to be seen, touched and felt before purchase.
Retailers need to decide who they wish to be, what their strengths are and what appeal they have to customers. They can’t be everything to everyone and need to find their niche and focus on that. Moreover retailers need to look at their customer as one group and not the online customer vs. the in-store customer.
It’s the experience that matters. When the customer wants to shop online they will and if they need to come into the store they will. The focus has to be on giving them an outstanding customer experience no matter where they shop. When that happens they remain loyal, and that’s how to compete with other retailers.
President, The Ian Percy Corporation
Precisely and well said Art. Retailers need to decide what game they want to play and which they are most capable of winning … and stay with it.
VP of Strategic Growth, Deck Commerce
While subscription services may result in a slight drag on in-store traffic, it should effectively increase online sales. The fact is that retailers must be able to offer these types of differentiated experiences in order to compete into today’s competitive environment. Retailers must take a step back and look at sales from an overarching unified commerce perspective (rather than looking at online vs. in-store). They will see that the subscription model provides a beneficial lift not only to sales but to overall customer satisfaction. Regardless of the channel being shopped: convenience + happy customers = increased sales.
Founder and CEO, CrunchGrowth Revenue Acceleration Agency
President, The Ian Percy Corporation
You’ve hit on a critical point Phil, and one I forgot to mention. The biggest weakness in subscription models is the curse of “auto-ship.” Multi-level marketing companies are the biggest schemers behind this approach and, frankly, it prevents a lot of people from signing up.
What I like about our dog food subscription is that I can easily go online and delay or speed up a shipment. It takes maybe 30 seconds.
Principal, Retail Technology Group
Whether or not they are a drag on store traffic today, subscription services will become a significant drag or specific segments of the retail industry. Specific product categories, such as pet food and personal care products, are natural fits for subscription. This is especially true of established brands where the consumer already knows what they’re getting. The service can be enhanced by allowing the consumer to adjust the frequency by product, depending on personal experience and/or by the retailer’s use of predictive analysis to determine the optimal replenishment frequency for each consumer.
Founder and CEO at Orkiv.com
It’s unclear why stores have not introduced more subscriptions. After all, the store is simply an open warehouse if used correctly. Why would stores not embrace the idea behind subscriptions realizing this gains them loyalty, more stable income and an amazing opportunity to keep product moving without the added cost of acquiring a customer over and over?
Subscriptions have been a hot topic for a while now, it’s about time retailers catch up.
President, The Ian Percy Corporation
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
I sure like Jackie Breen’s equation. Every retailer, especially the CEOs, should hang it on their wall: “Regardless of the channel being shopped: convenience + happy customers = increased sales.”
There used to be a subscription model, way back when. Remember the milkman?
The real answer of course is, why not? For those out there who have their life together this makes huge sense. I wish I had my life together.
President, The Ian Percy Corporation
What do you mean “way back when?” Heck Gene, I wasn’t the milkman, but I was the bread man! Now I’ll be depressed and feel old for the entire day! Thanks a lot! 🙂
President/CEO, The Retail Doctor
There’s a subscription service now for sneakers. I don’t get it and doubt, outside of a small core, that it is very useful to many consumers. I don’t see how jewelry stores could do a subscription either. Like most have noted, for high volume consumables it can make sense. While dogs won’t protest the same food week after week — outside of commodities like toilet paper and razors, how many consumers want the exact same thing every month?
SVP Marketing, Theatro
We’re taking about channels again. Of course more services that are offered online are going to shift spend from stores to web. Some of the other comments also resonate — even though each delivery is a touchpoint for the retailer to optimize, consumers don’t stick with subscriptions (because they don’t see the value). This info combined leads to the following obvious guidance. Don’t think channels. Instead focus on the customer. Offer subscriptions that stick … primarily in consumable products that have a predictable usage pattern. If you go the Birchbox route (a curated box), expect high acquisition and churn. And finally use the info and data you are gathering to offer services in a local store. Buyer of dog food? Offer dog training classes or free grooming with the purchase of 10 bags of food. Drive the channel engagement and use subscriptions as a reason to communicate and engage.
Managing Director, GlobalData
Subscriptions have already had an impact on store traffic, especially for grocery and household goods. Admittedly the magnitude is currently small, but it is noticeable and is also increasing. Our research shows that visits to the center of grocery stores — and in particular aisles like laundry detergent, pet food, household cleaning and paper products — have dropped. One of the reasons for this is the rise of subscription services. This has enormous implications for in-store brand marketing, space requirements, layouts and configurations, and the ways in which shops can elevate other areas of the proposition.
Strategy & Operations Delivery Leader
Subscription services are the Holy Grail for any retailer who is evolving into an increasingly digital-first footprint. Any positive interaction with a retail brand, regardless of which channel it originates or ends with, is a net benefit for the retailers. Therefore the majority of retailers should pursue opportunities to have a subscription model in place whenever possible.
The products best offered via a subscription model will not be the fashion-forward, trendy items, but could most likely be commoditized, repeatedly used items, which would help remove friction and an extra few trips to the store.
If executed properly, a subscription model can evolve into an exclusive, “members only” offering and an enhancement of a retailer’s loyalty program. There are a multitude of ways this could work, and it may take some experimentation to get it right. All-in-all, if anything this would increase the engagement with the retailer and lead to additional store traffic.
President, Protonik
Retail Industry Executive, Genesys
“Future retail success is not a selling model, but a mosaic of customer services.”
Above from the IMS article link listed prior to the discussion question … I agree with this and retailers should be taking a close look their “art of the possible” around a subscription model to help them deliver that present and future-forward “mosaic of customer services,” etc.
Challenge: Not all retailers are positioned to even do a good—never mind a great—job executing a subscription model. But, if a given retail brand can 1) differentiate a subscription value proposition; 2) meet (preferably exceed) the expectations of their member base in terms of executing the delivery of a subscription model, that is a nice way—for starters—to recognize and stay in touch with your most-valuable customers.
What does “Great job” mean? Well the bar is high in terms of offering the “robust” value and execution management of Amazon Prime (originally modeled on Costco’s membership (subscription) model where customer satisfaction in quite high and renewal rates run in the mid 90%).
Chief Amazement Officer, Shepard Presentations, LLC
The subscription model can be powerfully successful and should be considered by every retailer (actually every business). Any time you can automate a service that is beneficial to the customer (and the retailer), you have the opportunity to create a steady revenue source with possible customer loyalty. It needs to be convenient, simple and bring value to the customer.
Just in the past few years online retail subscriptions companies are popping up with more frequency. The traditional retailer can’t sit on the sidelines and watch this. They must decide if it is right to get into this model, and if so, do it. The retailer must not only balance their in-store offerings with online offerings, they must now consider getting into another version of online, which is the subscription model. The best retailers will find the balance between these models, bringing the best of each to their customers.
Director of Marketing, OceanX
Retail Transformation Thought Leader, Advisor, & Strategist
There are number of issues hinted at in this set of questions about subscription services. One being brand erosion — for high frequency consumable goods, many consumers do not care about the brand, they only care about the category. At the same time, there are highly consumable items where brand loyalty is everything to the consumer. Both of these in my mind are great candidates for subscription services where the shopper knows what they want and the subscription box isn’t about discovery of new items. Retailers selling merchandise in these categories should offer subscription services. It will be the new version of loyalty programs for many consumers.
Other categories (jewelry, electronics) don’t lend themselves to this purchasing model so they don’t make sense for those retailers. I also see this as something smaller retailers should be able to exploit better than Amazon or Walmart to help retain their customers. They should be able to offer a better level of personalization. This may even give these smaller retailers a better competitive leg to stand on!
Marketing, Dor
The successful implementation of a subscription service depends so much on the brand. Do customers already trust your products? Do you have a loyal group of repeat customers who would find this service valuable and who would be willing to be a trial group? Do you have the in-house marketing, operations and customer service capabilities to design a start-to-finish online/BOPIS experience that increases customer loyalty instead of hurting it in the long run? I’d say build those internal capabilities before taking the leap.