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Jul 31, 2018

SMITH BRAIN TRUST – If it’s starting to seem like every consumer category now has a subscription services you could belong to, that’s no illusion.

The subscription slice of the e-commerce market has more than doubled every year in recent years in the United States, generating more than $2.6 billion in sales in 2016, up from $57 million in 2011.

The services, which may have started in tech with entertainment services such as Netflix and cloud-based software subscription services such as Adobe Creative Cloud, has now sprawled across consumer segments, even to some unlikely places.

There are monthly curated services for clothes, accessories, lipsticks, neckties and workout gear. You can subscribe as a bride for pre-wedding whatnot. You can get a monthly subscription that satisfies your love of wine, beer, experimental cocktails, even root beers. You can subscribe to any one of an array of meal-prep kits, (there’s even one from Chick-fil-A) or subscribe only to the pastrami offerings from a single, beloved deli

There’s at least one monthly box that caters to geeks and nerds, plus others for fans of Pokemon, readers of comic books, and people who are into cryptozoology. (That is very specific, niche-wise.)

You can subscribe to drive – Volvo and BMW are just two of the automakers that now offer a monthly vehicle subscription service. And Kirmani says those offerings are likely to hold particular appeal among consumers who prefer not to negotiate. “It’s just one price and it’s all inclusive – no haggling,” Kirmani says. Or you subscribe to see movies, with the growing range of monthly services.

Where there’s consumer product, the Smith School’s Amna Kirmani says, there’s probably already a subscription service. And if there’s not, she says, just wait. “Someone is probably working on bringing it to market right now.”

Earlier this year, McKinsey & Company released the results of an in-depth survey aimed at understanding the subscription e-commerce market and where it’s headed.

They segmented the market into three subscription categories, each with different aims. One aim is convenience, a subscription service that will replenish the products you regularly use. Another is variety seeking, subscription services that will curate a collection of products to suit your tastes. And lastly, there’s access, subscription services that give you insider-only members’ perks.

“Birchbox is very much about variety seeking. It gives you different brands of makeup every month with your fairly cheap subscription,” says Kirmani. And there are literally dozens of other cosmetics subscriptions. 

Subscription services for men’s and women’s clothing are perhaps the epitome of variety-seeking services, delivering boxes packed with different designers’ goods. To survive in a subscription era, Kirmani says, designers increasingly are working with popular box services to make sure their labels are included in the assortment.

Variety-seeking services particularly resonate with millennials, who are typically not brand loyal and who don’t like shopping in traditional brick-and-mortar stores, Kirmani says. 

“These are the opposite of loyalty programs. These are for people who are younger, into fashion and into trying new things. And it’s a relatively cheap way for them to do it,” she says. “And it makes trying new things easy. They get variety delivered in a box.”

About 15 percent of people who shop online belong to at least one subscription service, McKinsey found. More than half – some 55 percent – of all subscriptions are curation based, according to the report, reflecting strong demand for that curation aspect.

“A lot of people are not going into retail outlets, so how do you get the retail outlet into their home? These services are a way to do that,” Kirmani says. “And I think underlying all of these services is convenience.”

Replenishment-based subscriptions, like the segment-leading Subscribe-and-Save service from Amazon, accounted for about 32 percent of all subscriptions, according to the McKinsey survey. And access subscriptions accounted for the rest, about 13 percent.

Kirmani anticipates that the strongest subscription services will continue to gain in popularity, even as the market shakes out some of the least viable. Blue Apron, a subscription-based meal-prep service, for example, has struggled to maintain a steady revenue stream, with members dropping the service after just a few months.

“Many of these services get a lot of people sign up for a trial, especially if there is an incentivized introductory period, but often they don’t get as much repeat,” Kirmani says. And that will spell the downfall for some services, even as others come along.

The long-term prospects of the industry, Kirmani says, is less easy to predict.

“When these millennials become 40 to 50 years old, presumably they will have settled into some preferences. It will be interesting to see what becomes of these variety-seeking subscription services then,” she says. “Maybe they will be popular with the new generation or maybe not.”




About the Expert(s)


Amna Kirmani is the Ralph J. Tyser Professor of Marketing at the Robert H. Smith School of Business at the University of Maryland. Her research interests include ​morality, persuasion knowledge, ​online communication, ​and branding. Her work has been published in several journals, including the Journal of Consumer Research, Journal of Marketing Research, Journal of Marketing, and Journal of Consumer Psychology. Her papers have won the Paul Green Award in the Journal of Marketing Research, the Maynard Award in the Journal of Marketing, and the Best Paper Award in the Journal of Advertising. She is ​Editor-in-Chief of the Journal of Consumer Psychology​ and forthcoming Co-Editor of the Journal of Consumer Research.

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