Subscription e-commerce as a category has had a rocky history, with funding falling in 2016 but deal count up in Q2’16. Amidst the ups and downs, at least five subscription companies died in 2015, including Beachmint which focused on celebrity-curated products.
However, with Unilever’s acquisition of subscription razor startup Dollar Shave Club for $1B in July 2016, the category may have regained some momentum. The space still includes well-funded startups in various verticals, including Harry’s in razors ($287M in disclosed funding), Ipsy in makeup ($103M), BarkBox in pet items ($82M), and more.
Weirdly, the rather large, and fast growing, meal-kit segment is absent from that overview.
As we go more and more towards a services oriented economy, retail will follow the same path the rest of the economy is already starting to go down. Like with SaaS, the customer lifetime value over the long run is tremendous but the upfront costs when starting up are high.
In a way, it also makes more sense to think of this branch of online retail as ‘e-commerce as a service’, analogue to SaaS, rather than ‘subscription e-commerce‘.
It’s the service component that matters to customers, and it is the subscription part that is the hardest to sell.
Amazon’s Dash Buttons and Dash Replenishment Service are the clearest manifestations of what I mean by that: Customers don’t decide upfront to get one package of, say, Tide laundry detergent once a month and pay accordingly. They rather order one by just hitting the Dash Button every time they run out of stock. The end result may be the same, most of the times. This model is more unpredictable. But customer loyalty is the same; or, more accurately, loyalty is through the roof once a customer is on board with the Dash Button model.
Focusing on the service component and the additional value one can generate for one’s customers is what sets online retail apart from brick-and-mortar retail: There are far more ways to organize transactions online than there are offline. By an order of magnitude more.
This, very plainly, is also why classic brick-and-mortar retail alone and also in unison with a multichannel approach has no chance of winning against online pure players. (Cost structures at scale are also more favorable for online pure plays as well as a wider range of b2b cooperations. But those are icing on the cake compared to the reason stated above. (They would matter far less if the opposite regarding the service component were true.))
Having a set delivery frequency can be a part of that ‘e-commerce as a service’ model. It’s attractive for the online retailer, for sure. But this is just a means to an end for the customers themselves. They want more convenience and other benefits.
Thinking about it from that perspective shows how relatively primitive today’s subscription/service e-commerce models still are.
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