Historically, a traditional retail shopper learns about a product, considers whether to buy it, decides to do so, and goes to a shop to get it. If he likes the product, he might decide to return to the store to buy it. Data geeks in corporate cubicles everywhere run spreadsheets and formulas attempting to dive deeper into customer behaviour – seeking analytics to better understand how to get a buyer to make a repeat purchase. As retailers claw at one another in an attempt to gain more market share, and perhaps a repeat purchaser in the process, a new phase of e-tailing is on the rise. Progressive retailers are betting on a future in which shopping for any product or service becomes fully automated.
What do Netflix, Spotify, Amazon, IPSY and Dollar Shave Club have in common? They are all pioneers in this changing world of electronic and new age digital commerce, where customers are not just one-time buyers; they are subscribers.
Netflix is the global leader in the world of video-on-demand, with over 125 million members across 190 countries. All of its customers are loyal, recurring revenue generating, subscribers.
An Amazon Prime membership, which includes unlimited free 2 day shipping on over 100 million items, access to unlimited instant streaming of movies and TV episodes, Alexa voice shopping, Amazon Fresh, and more, is helping Amazon crush retail competition. And, with membership count at over 100 million, Amazon Prime seems unstoppable.
While Pandora, Apple Music, and Google Play make some waves, Spotify sits on top of the music streaming industry today. The company has over 160 million active monthly users, about half of which are paid subscribers; double that of rival Apple Music.
IPSY is widely considered to be one of the biggest start-up subscription success stories in the past decade. The glamour-bag cosmetics company has over 3 million loyal subscribers, and was recently valued at $500 million by Forbes.
The Dollar Shave Club is propelling the men’s grooming space to new heights, putting legacy firms like Gillette and Schick on their heels. The company grew its subscriber count exponentially in just 4 years before selling to Unilever for $1 Billion in 2016.
The bet on subscription has paid off for not just the aforementioned, but other major players as well. The likes of Salesforce, Blue Apron, Hulu, Stitch Fix, Birchbox, Starbucks, Sephora, Barkbox, DropBox, Skype, The Honest Company, and others have all grown revenue through subscriptions.
The trend is looking up. The subscription e-commerce market alone has grown more than 100% a year over the past five years according to McKinsey & Company. The strong growth has attracted more established consumer brands and retailers. P&G's Gillette on Demand, Sephora's Play!, and Walmart's Beauty Box show a defensive response to a fast moving space in the hopes they can keep up! In addition, there is some good M&A activity—in particular, Unilever’s $1 billion acquisition of Dollar Shave Club (2016), Nordstrom’s $350 million acquisition of Trunk Club (2014) and Albertsons $200 million-plus deal for meal-kit company Plated.
The future outlook for the next phase of subscription is inching closer, thanks to Amazon. While meal kit subscriptions like Blue Apron and Chef's Plate seem novel, Amazon's ability to leverage Prime and its distribution channels (thanks to its recent acquisition of Whole Foods) will force many of these meal box fighters out of the ring. Mix in a little Alexa with some Amazon Fresh, and we’re heading for a time when all groceries will be replenished by the touch of a smartphone button: “Yes Alexa, you’re right – I’m out of broccoli, eggs, and 2% milk. Send them ASAP.”