In a survey done by McKinsey in February 2018 for the US market, they found that 15 percent of online shoppers have signed up for a subscription box on a recurring basis. While there are no similar surveys specifically for the Asian market, the US adoption rate is quite telling of the opportunities. The same study found that a majority of subscribers tend to prefer curation services, suggesting a preference toward personalized goods or services
Our consulting business has been working closely with a few subscription e-commerce start-ups in creating sustainable business models. With our foot in the market, we saw a few key challenges which give rise to opportunities that subscription e-commerce start-ups should leverage.
While ease of purchase is the idea of a subscription e-commerce business, consumers are not immediately comfortable with committing to a subscription.
We noticed that it usually takes a lot of effort to woo consumers and convert them into subscribers. This also means having a high customer acquisition cost (see point two below). But we also noticed that there are cheaper ways that can minimize costs.
De-risking your customer is one of the easiest and most cost-effective ways to do this. De-risking means to remove the risk that customers will pay for what they don’t want about the subscription.
An example of this is what Philippine start-up StyleGenie has been doing with their curated styling boxes. When customers are not satisfied with their orders, they can just throw it back in and a replacement will be made. It’s as simple as that.
Most subscription start-ups invest too much in acquiring their customers who end up not subscribing anyway. Typically, these investments include providing massive discounts or lengthy free periods that reduce the perceived value of their
subscriptions.
While we cannot ignore the importance of customer acquisition, customer retention is a much more important metric for subscription e-commerce start-ups.
Most subscribing customers leave subscription plans not because of a competing product, but because the value of the subscription diminishes for them. One way of addressing this is through personalization—the timing of and the items included in the subscription. Let me illustrate this with an example.
I used to have a subscription of single-origin cocoa bars when I was living in the United Kingdom. It was great to be surprised every month with top-notch dark chocolate bars, except when I spent most of my time overseas (which was more than 75 percent of the time).
What made the experience exceptional was that I could just use my personal dashboard to reschedule the subscription from monthly to bi-monthly (or even quarterly, depending on when I wanted to receive the bars).
This way, instead of me unsubscribing and/or becoming a one-time customer, my cocoa subscription ran throughout my stay in the UK.
Another core weakness in the subscription market is the continuous drive to get more money from customers upfront. Yes, it’s good for cash flow and helps you extend your runway, but on the flip side, your customer thinks the same way.
Because of poor banking rails and a lack of payment services, it’s still difficult for customers to pay in subscription-basis (versus in advance) here in the Philippines (maybe our Asian neighbors have it easier).
While there is usually an auto-debit arrangement, setting that up is definitely not a walk in the park, and using third-party payment services can also be expensive.
There’s a massive opportunity out there for both subscription e-commerce and fintech start-ups to leverage this gap in the market.
While I’m looking at subscription e-commerce optimistically, there’s a lot more failures than successes in the business.
So, if you want an advice, proceed with caution. If you’re more of a risk taker, then “the higher the risk, the higher the reward.” Take your pick.
Filbert Tsai is the chief strategy officer of continu.ee, a membership-based e-learning platform for professionals that provides quality continuing professional education courses. He is also the chief strategist at UpSmart Strategy Consulting Inc.
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