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How To Know If Your Business Should Start A Subscription Service

The new membership economy isn't for all companies

8May

Venture capital investors eagerly invested more than $1.6 billion on companies joining the new membership economy by starting subscriptions. Blue Apron, BarkBox, and Ipsy, to name a few, have all benefited from these funds, enticing investors with the promise of repeat customers making recurring purchases.

But as the new membership economy becomes more established, investors are now realizing that not every business is cut out for subscriptions. A well-executed subscription program is more than just selling products online. 

When done correctly, it should connect with customers on an emotional level by understanding and even anticipating their wants and needs. True subscriptions involve bundles, inspirations, personalization, and curation of exclusive products for consumers to discover — not every business is equipped for that experience, but some industries are perfect fits.

The Limits of the New Membership Economy

While the new membership economy is booming, it's not the ideal model for all businesses for a couple of reasons. First, not every business can tap into the most important criteria for subscription success: emotion. Without an emotional component to the products, it's hard to build a successful relationship in this space. A profitable box business relies on purchases of a certain volume and frequency, which is why many brands can't rely on a subscription service.

Product assortment is another necessity for this model. A single item, even if that item comes in different shapes and sizes, doesn’t lend itself to a successful long-term subscription experience. There should be a variety of at least 10 products available to create a truly inspiring and long-lasting subscription.

On top of that, there are physical limitations to the assortment of products, such as weight and size, because products must be easily shippable. Because so many companies offer free shipping and handling, only reasonable package weights and sizes can thrive via subscriptions.

Businesses Joining the New Membership Economy

Numerous business categories have products with the right qualities to succeed in the new membership economy. Specialty retailers and manufacturers that offer products ranging from pet goods to toys are great candidates. And specialty food, personal care, and apparel services already have thousands of subscription offerings.

If you're planning to enter the new membership economy with your business, you'll need to know which categories are best suited for subscriptions. Here are four categories to consider:

1. Sampling Businesses

Ipsy, a beauty sampling service comparable to Birchbox or PLAY! by Sephora, has come out as the biggest company in the sampling space through great management, a focus on capital and well-executed and organic influencer marketing campaigns. It charges $10 a month to send a 'Glam Bag' of sample-sized beauty products. The business now has more than 3 million subscribers and credits its success to organic growth and a focus on execution.

Sampling businesses combine the fun of a customized and curated box centered on one of the customer's interests (cosmetics, in Ipsy's case) with the thrill of getting a surprise in the mail every month.

2. Specialty Boxes

This category focuses on the assembly of specific items for a targeted and oftentimes niche audience. Two of the most notable specialty boxes are BarkBox and Loot Crate. BarkBox, which provides dog owners with dog-centric toys, content, and events, is one of the most popular because people's emotional connections with their pets fuel subscriber growth and retention. Loot Crate, on the other hand, capitalizes on an emotional connection to pop 'geek' culture and the element of surprise by sending themed boxes full of cool pop culture-inspired products for customers to peruse when the box arrives.

Specialty boxes like these deliver carefully selected — and often exclusive — merchandise to their audience. Cultivating an emotional connection with customers in this arena can do wonders for increasing the lifetime value of a client.

3. Curation

Curated boxes provide customers with an appropriate selection of items they really want while giving them a chance to sample new items, too. Food services such as Blue Apron and Plated and apparel services like StitchFix and Le Tote are up-and-coming subscription sectors that are gaining popularity for their convenience as well as their focus on data that improves the experience with every interaction.

A successful food subscription like Blue Apron provides familiar recipes as well as exposure to new spices, meats, and vegetables. Plus, home delivery eliminates the need for grocery shopping, which makes customers' lives easier. Similarly, shopping for clothes often is a time-consuming process, so busy professionals can eliminate it by simply having clothes of their preferred sizes and styles delivered right to their doors based on a mix of expert curation and personalization.

4. Replenishment 'Plus'

As the leader in this category, Dollar Shave Club’s subscription model goes well beyond the pure replenishment of a single product by introducing 'portioning,' offering four cartridges per month. They also use headlines, jokes, and slapstick videos to keep customers interested in the content they will produce next and connect on an emotional level.

Companies whose products fit this model — personal care and home goods items, for example, which consumers use and replace regularly — have an opportunity to win customers by making the replacement of these products no longer require a tedious trip to the supermarket.

The new membership economy isn’t a good fit for all businesses, but for the right kind of company, there are innumerable benefits like increased profits and an invaluable database of client information. Opening a direct channel can also help established brands and retailers compete with more customer-centric retailers like Amazon and create a direct connection between a brand and its customers.

For companies able to establish the emotional connection needed to sustain a subscription service, the channel is worth the investment.

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