Online subscriptions – over half of customers favour curation model
In November 2017, McKinsey & Company surveyed over 4,000 e-commerce consumers on the topic of subscription services. Here are some of the headline statistics they uncovered:
- The curation subscription model was by far the most popular, claiming 55% of all subscriptions (compared to 32% for replenishment services and just 13% for access services).
- Subscription services were most popular with consumers who were already regular users of e-commerce sites. In fact, the majority of subscribers also had a pre-existing digital subscription to streaming subscription services (e.g. Netflix).
- Customers tended to be between 25 and 44 years of age.
- 60% of subscribers are women (although men were the more likely to have three or more ongoing subscriptions).
- Churn was a significant issue with over 40% of subscribers cancelling. Of those, a third dropped out within three months while less than half made it past six months. Reasons for cancellation included poor quality products and a limited assortment of items, harming the perceived value of the deal.
- Meal kit subscriptions were particularly at risk of churn with more than 60% of members cancelling.
- Conversion rates are low across the board with only 55% of those considering a membership actually following through. Replenishment services fared a bit better than other models with a 65% conversion rate.
Understanding subscription service models
Subscription services can be broadly divided into three models as follows:
These specialise in replacing regularly used items such as razors, toothpaste, washing up liquid, toiletries, etc. Examples include Amazon Subscribe & Save and Dollar Shave Club.
These provide a novel selection of items each month. For example, Birchbox provides five surprise beauty products and Blue Apron delivers original recipes and the ingredients needed to make them.
These subscription services provide access to credits or discounts off products as well as VIP perks. JustFab shoes and NatureBox snacks are typical examples.
The challenges ahead
For a business model which relies on strong acquisition and 'sticky' customers, the McKinsey Report makes for sober reading. Businesses will need to come up with a strategy for increasing the value of their products and overcoming barriers to the sign-up process. For example:
- Improving weak conversion rates through a focus on social proof. Brands featuring positive online reviews and strong word-of-mouth support are likely to convert the best.
- Being wary of giving too much away in terms of free trials and initial discounts due to the high level of early cancellations.
- For replenishment services, managing supply and demand. Although customers can usually skip orders if they need to, it is easy for them to accidentally end up with a backlog of unwanted products.
- Retaining loyal customers. Without that reliable customer base, subscription services will quickly find their cash reserves stretched and their growth potential limited.
In light of the McKinsey report, subscription service providers will need to work hard to build and maintain their market share. Delivering fantastic customer experience will need to be at the top of your priority list.
A strong digital platform is crucial for acquisition and retention of subscription customers and at Eyes Down we'd love to discuss how we can create the flexible platform your subscription business needs.