Subscription: Products and Services

Subscriptions for products and services are increasing in popularity. The subscription e-commerce market has grown by more than 100 percent a year over the past five years. The largest such retailers generated more than $2.6 billion in sales in 2016, up from a mere $57.0 million in 2011. Fueled by venture-capital investments, start-ups have launched these businesses in a wide range of consumer staples and discretionary categories.

15 percent of online shoppers have signed up for one or more subscriptions to receive recurring product services in forms of boxes. The customers of these services are the more affluent (incomes from $50,000 to $100,000) of the Millennials, a highly desirable market. Women make up 60 percent of subscription service customers. However, the attractive market comes at a cost –  churn rates remain high as consumers are quick to cancel services.

This development did not go unnoticed by major manufacturers and retailers. Companies such as P&G and Walmart launched subscription businesses and Unilever acquired Dollar Shave Club with a $1 billion acquisition in 2016.

Perhaps unsurprisingly, research has shown that consumers subscribed to streaming-media services are pioneering the use of subscription services for consumer goods. The deliverable products and services are categorized into three types: Replenishment (daily use items, consumer stables), Curation (luxury products, consumer discretionary), access (price and member perks). Curation makes up roughly 55% of the subscription market, with replenishment and access accounting for only 32% and 13% respectively.

Yet, subscription services continue to struggle with general adversity towards subscription. Consumers have shown the requirement to sign up for recurring payments drastically affects demand and therefore feeds into struggles with customer acquisitions. The churn rate should be a concern for companies with high customer acquisition costs. An overinvest in incentives such as free trials or heavy discounts can severely backfire in this market.