From our June Newsletter – Subscribe Today!
Over 25% of consumers are signed up for subscription box services. The industry now contains over 3,500 established box services worth roughly $10 billion. And, according to MultiChannelMerchant, 75% of DTC (Direct to Consumer) brands will offer subscription services by 2023.
As the subscription model becomes more popular, many businesses are wondering if they should ride this wave with their own subscription boxes or supply their products to mixed or mystery boxes to attract new customers.
Subscription boxes are beneficial to everyone, which is one of the reasons they have become so popular across the board. Here are some of the benefits to consumers and businesses.
Consumers
• Save money
• Try new products
The benefits to consumers are simple. Not only can they avoid running out of products that they use regularly and count on, they also save money on these products. Plus, they can discover new products in the samples included in the boxes.
Sometimes the boxes are random selections, while other times boxes are selected entirely by the consumer. Each has its own benefits.
Businesses
• Better order forecasting
• Enhance customer loyalty
• Improve bottom line
Order Forecasting
One of the challenges of retail in general is the predictability of order flow. Some businesses experience a very regular pattern throughout the year, with peak season activity predictably raising revenue. But most struggle to anticipate the order volume. Forecasting isn’t easy, especially when it’s about the future.
The subscription box model helps regulate the order flow by grouping orders and standardizing the activity among subscribed customers. Although some will cancel their subscriptions, the overall pattern will be more regular than businesses without subscription options, evening out cash flow and helping predict revenues month over month.
In the early days of e-commerce, a business would need to manually create reorder logic to ship to a customer each month. Today there are numerous services that provide this capability within existing e-commerce platforms, communicating with fulfillment partners as well as the customer and fully automating the process.
Customer Engagement and Loyalty
Subscribing to a box is an act of loyalty. This model helps build a relationship between the customer and the business. The consumer is more likely to purchase from the business that they deal with so regularly and the business has an easier time creating engagement for promotions or new items and cross-selling.
Building this level of trust paves the way for potential up-sells. Familiarity enhances customer loyalty in this case. And it’s worth noting that many of these businesses would not have encountered or attracted the customers without the exposure to product trials that subscription boxes create.
Bottom Line Benefits
Subscription boxes can also save the business money. By regulating order flow, there is more predictability in inventory, which prompts a leaner supply chain and reduces carrying costs. At the same time, the business gains new customers and a more predictable order flow.
Fulfillment Partners
• Better forecasting
• Fill niche services
Similarly, a fulfillment partner that processes subscription boxes may be able to move inventory through more quickly, cutting down on stagnant inventory. Storage costs are rarely a significant source of revenue for a fulfillment house, but they can impact a business’ bottom line.
By filling orders and utilizing inventory in a more efficient manner, a brand can achieve JIT inventory (just-in-time inventory) and smooth the supply chain so there are less stuck-in-storage costs. This is good for everyone.
Shipping large volume for a client once per month helps a 3PL better predict staffing needs. 3PLs are accustomed to ramping up staff for peak holiday seasons, but when a client has a very successful sales promotion without warning, this can create a strain on the fulfillment operation.
Subscription boxes help regulate this flow and make the peaks more predictable. Not only does the fulfillment partner benefit from more regular peak order volumes, but this improves efficiency which impacts the 3PL’s bottom line.
Much like the businesses themselves, fulfillment partners can forecast revenue more easily with the more regulated pattern lent by subscriptions.
Fulfillment services who are adept at serving the subscription box market are prepared to handle the relevant logistics. Medallion Fulfillment & Logistics and Sprocket Express have successfully worked out the kinks and are set up to provide service to this niche, which is growing rapidly. This expertise helps us provide quality service to our clients across a variety of fulfillment scenarios.
Conclusion
The subscription box model works well for all parties in the transaction.
• Predictability (of delivery, order flow, revenue)
• Efficiency
• Relationships
• Saves money (retail prices, inventory, supply chain, preparation)
If your business is not involved in subscription service, this may be a good time to research your options. Almost every brand has a product that fits in one or more of these boxes. Contact us today to see how we can help with your subscription box service needs.