In 2011, subscription box services created approximately $57 million in revenue, McKinsey found after analyzing raw data from Internet Retailer. By 2016, that figure had grown to $2.6 billion. The subscription box market is exploding, leaving consumers and businesses scrambling to make sense of the industry.
The good news for businesses in the sector is consumers are making their expectations clear. The bad news is the obvious profitability of the e-commerce model is leading to increased competition from major consumer brands, making it much more difficult for startups to disrupt the space.
The growing subscription box market
McKinsey's study put subscription boxes beside similar services to showcase a general trend toward consumers signing up for ongoing services in place of one-time services.
This is particularly evident when it comes to media subscriptions, as 35 percent of those surveyed by McKinsey said they had used a media subscription within the past 12 months, but 11 percent of those polled took advantage of both subscription boxes and media, while 4 percent were exclusive to boxes. These figures point to almost half of the consumer population look to subscriptions as a key part of their purchasing patterns.
Specific segments within the subscription box industry stand out. In particular, the meal-kit subscription box segment is poised for rapid growth moving forward. A Visiongain study projected that the meal-kit market expanded to achieve revenues of $1.71 billion in 2017. What's more, subscription box companies have begun exploring omni-channel experiences in the form of pop-up retail stores and similar strategies.
With subscription lifestyles becoming common and many brands blending their box services with other retail models, it's clear that the industry has become mainstream.
Handling fulfillment at volume
As subscription boxes become more common, brands must develop strategies to optimize the customer experience and ensure a stable, reliable order fulfillment process.
"Brands must develop strategies to optimize the customer experience."
Failing to get boxes to customers on time can hurt the relationship and delivering across borders or in regions with complicated last-mile delivery requirements – such as urban areas with many multi-household dwellings – often requires specialized strategies that logistics firms can help you handle.
Putting the customer first
With competition heating up in the subscription box sector, organizations must work to not only garner customer attention, but offer the kinds of experiences that sustain that engagement.
An Econsultancy report highlighted marketing strategies that have helped subscription box companies stand out. Some of the best brands have used their services to consistently surprise customers, maintaining a degree of novelty that turns the typical instant gratification of e-commerce on its head.
Because of this, subscription boxes are standing out because they help consumers discover new goods. To do this, brands are also focusing heavily on personalization to ensure they have relevant information about users before trying to surprise them.
While these insights from Econsultancy focused on how subscription boxes market to their customers, they also point to a shifting focus on customer experiences. A more personalized, relational and incentivized marketing structure starts the customer experience off on the right foot.
Packaging, accurate order fulfillment and similar processes sustain the positive customer experience once users are on board. It is vital that brands don't skimp in these areas. The McKinsey study explained that consumers are incredibly quick to cancel a subscription service if they aren't happy with the entire experience, leading to a high rate of client churn in the sector.
With these issues in mind, brands must understand who their customers are in order to ensure they offer the experiences users need.
Makeup of the subscription box customer base
In a general sense, the subscription box market is dominated by young millennials in urban areas, the McKinsey report found. However, a closer look at the data points to a few nuanced trends:
- Women are more likely to have signed up for a subscription box.
- Men are more likely to have three or more subscriptions.
- Fifty-five percent of respondents who use subscription boxes take advantage of curation services in which a personalized collection of goods is sent to them periodically.
- Subscription boxes focused on replenishing customer supply of an item are also popular, with 32 percent of respondents engaging in such services.
Keeping up with growth
Subscription box companies are facing rapid growth and escalating challenges. Developing strategies to streamline shipping and fulfillment processes while offering a fully branded, personalized experience is critical moving forward. Logistics specialists can help.