The concept is fresh, young, seemingly unnecessary, but universally beneficial if done right.
Let me begin by lending myself some credence on the matter. I was once a bonafide subscription box subscriber with FiveFour Club based in Los Angeles. I was 22 years old and had just moved to the circus land that is Venice Beach, and I needed some new threads. Now, I participate as a manufacturer of a product I am looking to market at PlayHard GiveBack.
Unfortunately, it didn’t work out. I needed button up shirts (not my style forte, believe it or not) and so I elected to receive the business casual monthly box at a cost of $60/month. In the end, I was not into the style they curated, they sent me the same clothes multiple times, and discouraged returns with brutal ferocity. Additionally, they seemed to sell out to partnerships by adding other company’s logos to the clothes for a sponsorship fee I am sure – not my jam.
My unsuccessful experience with my subscription box was because 1 of the 3 necessities for a successful subscription business model was not fulfilled: a product enjoyed by the customer. I will explain the 3 necessities below, starting with an explanation of the fundamental structure of a subscription box company
Who is the manufacturer?
First, understand that subscription box company is simply a broker between a consumer and a manufacturer. The idea is that a company is able to bulk-buy products at a large discount (typically 20% of MSRP or at cost to the manufacturer) and subsequently resell those products in a box at a significantly reduced price than if a consumer purchased the products individually.
How does the company purchase the products at such a low cost? The reason is twofold. First, the company provides the manufacturer, which is often a small company looking for brand exposure, with fabulous marketing. Imagine, a small company has low volume distribution and now has the opportunity get in the hands of 10,000 consumers (subscribers) that are interested in the industry the manufacturer is engaging with – tremendous value from a marketing perspective. Second, subscription box subscribers are a very engaged community of consumers. I do not have hard numbers (remind me to research this later), but the commonality of posts, shares, and reviews from subscribers is unusually high. My theory is that the monthly boxes act as a self gift, which in turn creates more stoke in the subscriber than a standard in-store purchase. Akin to how people at pre-paid all-inclusive resorts are more relaxed.
How do the finances work out?
Second, understand that, as I mentioned above, the manufacturer is likely a small company looking for marketing. Subscription box companies are very adept at finding growing companies that are searching for immediate exposure to the extent that they are willing to give away product at no profit.
Once the product is purchased by the subscription box company at a 1/5 cost, they will sell the products at 2/5 or 3/5 of the cost. This way, they are still providing the subscribers a 2/5 to 3/5 reduction off the original price, meanwhile they are making 100% to 200% on the resale (incredible margins!). It should also be said that often the MSRP prices are inflated, which allow the manufacturer to get more money for their products and the subscription box company to reach a higher MSRP for their products, which will show greater built-in discounts to the subscriber when they resell the boxes.
Who is the customer?
Third, the most important requisite for a subscription box company to be successful is to obtain and retain customers. This is contingent on 1) sales and marketing to get customers, which I don’t need to elaborate on here, 2) providing awesome products to retain customers, which I will elaborate on here.
To keep a subscriber, the subscription box company must repeatedly provide impressive products that add value to the customer. This is, undoubtedly, a tough task. In my example, Five Four Club didn’t provide enough value to me in order to retain my business because I was not impressed with the clothing provided and it did not fit my need.
If the subscriber has the financial means to continue and is pleased each and every month, the perfect recipe is made. At this point, value is added to all three participants in the business model: 1) The manufacturer receives valuable marketing, 2) the box company resells at large margins, 3) the subscriber gets awesome products that they are excited about each month.
At first, I was a skeptic, removing myself from a subscription that I was not fulfilled by. However, after reevaluating my decision to leave and participating as a manufacturer, I see the potential simplicity and value of the model to all involved.
Subscription boxes, defended.