The model of committed consumption, on which subscription services are based, is a rapidly growing portion of our spending. Retail is headed in a frictionless direction, and auto replenishment contributes greatly to that, making the concept of committed consumption and subscription spending more of a reality than once expected. Done right, subscription is an evolved form of auto replenishment. As things currently stand, however, according to NPD’s Checkout e-commerce data, apparel subscription buyers currently comprise only four percent of overall online apparel buyers, a ratio that hasn’t changed in the last year.
To me, subscription’s success is best measured by the year-over-year retention rate of its customers—that is, how many of last year’s customers returned to make a purchase this year. As our NPD Checkout e-commerce data found, an average of only 49 percent of subscribers stayed on as active users from one year to the next. Whether big or small, if a company is not retaining their customers, they’re not going to be able to survive for long.
So how can subscription services move the needle on their retention rates? How do they increase their consumer base beyond four percent of the online apparel base, and then retain that new customer?
The systematic committed consumption model is based on sending the customer something on an acceptance basis. By sending that one box per month, they’re not getting the customer to shop more—she’s merely waiting for the latest mystery box to arrive. By definition, this process can’t lead to growth among core customers—growth can only come from adding new customers. If you’re a retailer with broad apparel offerings, you can use a subscription service to develop a stickiness that enables you to cross-sell and upsell other items, whether or not on a subscription basis. And in this case, you can think of the subscription box as your learning lab or loss leader, and an entry point to other purchases.
The key factors sustaining subscription services are convenience, the element of surprise, and the self-gifting or reward factor. For every consumer, each of those factors carries a different weight. And for the customer who lives outside a densely stored area, the subscription service represents access to a perceived level of style that might not otherwise be available locally.
In my view, if any retailer isn’t looking at a subscription model as part of their strategy, they’re making a mistake. But they need to look at it principally as an opportunity to up their customer service game, and access to comparative data is best way to truly get a leg up and succeed in this area. Key questions to evaluate the efficacy of the subscription model in this data-intensive industry might include:
- Who are your direct subscription model competitors?
- How big are Amazon’s Prime Wardrobe, Macy’s My Stylist, Nordstrom’s Trunk Club, Old Navy’s Superbox or GAP’s baby clothing subscription services, compared to one another, and to your offering?
- Are these services gaining or losing market share?
It’s absolutely essential to understand your competitive position vis à vis other businesses in order to grow your own. And once you analyze the data, you then have to merchandise the heck out of it, differentiating yourself and delivering exactly what each of your customers expects—or hopes for.