Subscriptions for Consumer Goods
The market for consumer goods subscriptions is growing rapidly and inspires more and more companies to offer their goods on a subscription basis; think food, skincare, clothes, laptops and washing machines.
Four major subscription models for consumer goods exist. Curation models, replenishment models, access models, and rental models.
Curation subscription models
Curated subscriptions are a specific type of subscription services that selects (curates) a group of products for a customer within or across product categories. This is done using previous sales data or by asking consumers to take a quiz or questionnaire outlining their preferences.
In this model, consumers effectively pay a brand to personalise their offer and conduct product discovery on their behalf. From beauty and wellness to books and educational content, curation can appear in a variety of contexts. If you are interested in buying a product online, it's likely you will find hundreds of websites selling very similar versions of it across the globe. Curated offerings are a powerful brand differentiator in the eyes of consumers – it helps increase the added value to the purchase.
Curated subscriptions offer customers real value. They recommend products or brands based on information provided directly to them by customers, which creates a feeling of uniqueness and exclusivity for the consumer. This helps foster trust between consumers and providers.
Examples: Birchbox, HelloFresh, Winc, Brussels beer Project, Firstleaf, Fresheo.
Replenishment subscription models
As the name suggests, a replenishment subscription allows customers to purchase the same items on a recurring basis. Generally, these subscription services involve basic products or those that are used frequently. Popular deals include coffee bean subscriptions, cleaning supplies, razors, and diapers – but the options are limitless.
Replenishment services are becoming increasingly popular with consumers because of their convenience and value, making up 32% of the subscription economy. Also known as “subscribe & save”, replenishment boxes often offer their customers discounts in exchange for a recurring commitment.
In addition to the attractive prices offered by many subscription-based businesses, their convenience is also a major attraction. Since many replenishment subscription products are usually consumables, customers can offload any of their usual tasks by taking advantage of these options. They can “set and forget” the task and never worry about it again without having to leave the house.
This last factor makes this model especially appealing to customers who want to purchase heavier items, such as drinks or bags of pet food.
Examples: Amazon Subscribe & Save, Dollar Shave Club, PetPlate, Get Nourished, Nespresso, Gilette, Bottomless.
Access subscription models
Paid loyalty programs, aka access subscriptions offer an attractive option for businesses to both attract new customers and build long-term customer value amid changing demographics, consumer preferences, and loyalty.
A 2020 McKinsey survey on loyalty programs found that members of paid loyalty programs are 60% more likely to spend more on brands after signing up, while free loyalty programs only increase this probability by 30%.
Additionally, paid loyalty programs lead to increased purchase frequency, cart size, and brand relationship compared to free loyalty programs. As a result, paid members can be worth many times more than non-paid members, even setting aside revenue from the membership fees themselves.
When done well, paid loyalty enhances the overall consumer experience, delivers high-value relevant rewards, and draws consumers into an exclusive community that is defined and oriented around a shared brand promise or offer. However, since they are paid, they have a much higher burden of proof to acquire customers, which will be offset by the much higher value derived from those clients.
Loyalty programs have proven to be one of the most effective tactics to increase sales and retain customers. A whopping 84% of consumers say they are more likely to stick with a brand that offers a loyalty program. While 66% of consumers say the opportunity to earn rewards actually changes their consumption behaviour.
Examples: Amazon Prime, Grove, Kazidomi, Bol Select, Wantable.
Rental subscription models
More than any other demographic, millennials care less about ownership and more about on-demand access to what they want – the best products and brands, or the most personalised/sustainable/socially conscious products and brands – that help them have the experiences they want at a lower cost. Sportswear retailer REI revealed consumer research shows that more than a third of Millenials say they would rather rent than own a product, making it a viable subscription model in the modern market.
With nearly two-thirds of Millenials reporting that they live paycheck-to-paycheck, subscriptions allow them to have the nicest things they want at a lower short-term cost.
Rentals also help manage the risk of owning something that will be obsolete or replaced by new technology soon – it’s easy to upgrade or rebrand if they discover something better.
In addition, renting allows for a more flexible lifestyle, such as living somewhere exotic short-term or moving for a job opportunity. Or, a more fashionable lifestyle – never wear the same outfit twice!
Examples: Deacthlon, Grover, Ikea, Rent the Runway, Swapfiets, Blue Movement.
Customers love Subscriptions
High quality product without paying a high purchase price.
Always a modern or up-to-date product or service.
Convenience: perfect for time-poor customers.
No risk of maintenance or repair costs.
Personalised experience: tailored to customers' needs and wants.
Exploration and discoverability of new and unique products and services.
Planet Earth loves Subscriptions
Incentive to prolong lifetime of products.
Incentive to implement end-of-life strategies (reduce, reuse, recycle).
Incentive to increase product utilisation.
Reduced raw material and energy consumption.
Incentive to design easily repairable products.
Compliance with policy makers' regulations (e.g. European Commission's Green Deal).
B2C companies love Subscriptions
New, recurring, predictable, revenue streams.
Strategic differentiation and restrained competition.
Deeper customer relationships and more customer insights.
Bypassing intermediaries in the supply chain (higher margins).
Increased customer loyalty (lock-in effect), cross- and add-on sales.
Sustainability and second hand market potential (+ improved corporate image).
Higher company valuation
Complementary to traditional product-selling model.