Online Clubs: Fad or Trend?
In 2020, the IMARC Group estimated the worldwide subscription box market to be valued at $18.8 Billion USD. Looking forward, the market is expected to develop at a compound annual growth rate (CAGR) of 20.1% between 2021 and 2026. Given the uncertainty surrounding the COVID-19 crisis, we can expect that the impact on the online subscriptions market will be to accelerate its acceptance and widespread use.
Even before the pandemic, the subscription box industry had grown an astounding 890% from 2014 to2018. According to a McKinsey study in Feb 2018, 46% of consumers using online streaming services (Netflix, Spotify, Apple Music, Apple TV, YouTube Premium, Disney+, etc.) are more likely to sign up to online clubs for a subscription box service.
Subscription History
Subscription services are not a new concept. Remember Columbia House sending club members new music CDs every month? Then, in the early 2010s, Dollar Shave Club, Stitch Fix, Blue Apron meals, and others started promoting online subscription services. It grew from a few million-dollar market size to today's multi-billion-dollar industry. In fact, in 2020, 70% of US consumers reported as being club members to more than one online subscription box service.
An interesting anecdote is that over 60% of online subscription box services are associated with beauty and food products. Also interesting is that over 20% of online club members claim they chose online subscription boxes because someone had recommended it. So, word of mouth marketing is still a key part of this industry, and a merchant's success at this business.
Why Online Subscriptions?
In an earlier post about the 3 Reasons Consumers Love Subscription Services, we investigated the driving desire among shoppers for club membership.
Consumers are gravitating toward clubs because they want:
- Convenience
- Value
- Curated Goods
For goods regularly purchased by households, makes it convenient for them. Take away the chore of having to think about buying more detergent, soap, or ink cartridges—before they run out. Regular shipments of these standard goods, just before the household needs it, take one more task off the to-do list.
All shoppers love a good bargain. They are looking for value. With recurring orders, merchants can often offer an incentive to sign up for higher volumes (spread out over time).
Finally, curation is another important topic for shoppers. A brand that curates matching styles of shoes, socks, belts, and jackets to complement their slacks, shirts, and sweater collection is providing excellent value to their consumer base. Complementary items from partners can make subscription boxes even more enticing.
Many companies consider the option of opening their own online marketplace to complement their direct-to-consumer offering. Consider easy to use, core systems like TealKart marketplace if you are considering this direction.
ROI for Merchants
Understanding the consumer's perspective is one thing. But is this new business model good for the merchant?
Let us consider a merchant who decides to start their online subscription service. Imaging they are a consumer-packaged goods (CPG) company deciding that clubs are a great way to provide their high-quality goods to their consumers. It is a monthly subscription service, providing a box filled with goods that are popular with their customer base. It is meant to make life easier for consumers, as a custom service providing items that customers regularly purchase.
This merchant purchased Smart Order Refill to provide the subscription box service, starting in January. Our merchant started signing up several subscriptions for their themed boxes and started with 10 signups. Our box of goodies refills monthly, at a selling price of $25. Setting aside free trial promotions, the merchant recruits 20 more clients for February 30 in March, and another 30 in April. Presuming that the products and services offer consumers high quality, high-value goods—we assume no attrition for this initial period.
Our example Excel spreadsheet shows this simple analysis. Online club membership signups are shown on the left, whereas standard monthly orders are shown on the right. The beauty of online subscriptions is that they have an additive effect, growing the merchant's volume of business. Initial subscriptions in January provide recurring orders through February, March, and April.
Altogether, the volume of purchases for the online club members is 190 units, compared to the single monthly purchases of the standard ecommerce clients of 90 units. That is a total revenue of $4,750 for the initial four months, compared to the standard ecommerce sales of $2,250. This is an additional $2,500 of revenue or growth of over 100%.
Although this ROI is quite a simple case, it exemplifies the opportunities that online subscriptions can drive for a merchant.
Fad or Trend?
Right from the opening discussion, online subscription and online club services offered by retailers and merchants are now part of the consumer landscape. Given their historical presence, and growing portion of shopper purchases, it is more than a fad. Even with a simple ROI case, this trend is not only growing but is expected to be part of the consumer landscape for the near future. Consider your options carefully as a retailer and give us a call to discuss how best to get started.
Getting Started
Not yet offering your customers subscriptions? Not a problem. OSF Digital can get you started fast, with an easy start add-on to Salesforce Commerce Cloud. Smart Order Refill is the easiest way to jump-start your online club and subscription service today. Connect with us for a quick discussion to figure out whether it is the right option for your business.
