Fighting Off Subscription Models from Leading Retailers: Q&A with Digital Remedy

subscription

With traditional brands turning to subscription businesses, this piece sees Tiffany Coletti Kaiser (pictured below), EVP of marketing, Digital Remedy, examine how, with subscription e-commerce services soaring (over 100% growth each year for the past five years), strictly DTC companies like Casper, Dollar Shave Club and Birch Box, compete with traditional, trusted retail brands like Nike?

How is the direct-to-consumer business model forcing traditional brands to re-think their own business models?

The true competitive analysis is between direct-to-consumer companies versus traditional brands whose business models are largely based on brick and mortar, and/or third-party distributors. Traditional brands who already have an owned e-commerce platform could be likely to add-on a subscription model as they attempt to compete with a direct-to-consumer economy (see Nike), whereas direct-to-consumer companies are likely less worried about their category’s traditional offering and more invested in surprising and delighting their current customer base in an effort to expand it, naturally upsetting the traditional brand/company as a consequence. As we’ve seen with Nike’s recent launch of their subscription service, it is not a matter of can your brand do it, it’s how are you going to do it in a way that remains true to your brand, engages consumers, and benefits the bottom line. We already know consumers are shopping (for everything) differently—brands of all types need to continue to try different things to maintain and grow their customer sets.

Why is subscription commerce such an attractive proposition to traditional brands? 

With 2.7b people on Facebook, a social-driven economy has more than arrived. This model provides businesses with immediate, inexpensive, and direct access to consumers with rich targeting opportunities to ensure positive ROI on their digital advertising. It also affords businesses access to data that is rich on user behaviour and isn’t scrubbed based on intricate or complex distribution models (including traditional brick and mortar models). How frequently customers purchase, and what they add on to their orders in subsequent purchases, is key data to determine a subscription-based business’ validity.

Tiffany Coletti Kaiser, EVP of marketing, Digital Remedy

Part of this access to data has produced new business models delivering goods and services—and in many cases, new products or services—to consumers in real-time. “I want it, and I want it now” seems to be the slogan, with distributors like Amazon, Postmates, DoorDash, and TaskRabbit bending to the needs of consumers who are willing to pay for “right now.”

The rise of behaviour has fueled a culture of laziness (“I don’t want to decide what I want,” and “I don’t want to go get it”) is directly impacting buying habits and behaviours. If consumers are no longer strolling through the aisles at a department store, or spending time in a mall, and conversely actively participating in FOMO (for moments, new apparel, gadgets, etc.), companies have the opportunity to surface their offering to take advantage of this casual yet demanding approach to the market.

While traditional models of distribution will be/have been uprooted in this new reality, companies of all shapes and size may turn to subscription-based models to benefit their business and keep them relevant in a changing economy.

Can every big, consumer-facing brand adopt a subscription model? What are the challenges for traditional brands looking to adopt this approach?

Sure. Any company that sells a product or a service has the potential to adopt a subscription model if they can find ways to support it in its infancy, and sustain their current models while building the new. But, every direct-to-consumer (DTC) company does not necessarily have to be subscription-based, think Casper Mattress—which means many DTC offers will be upsetting the traditional companies, subscription or not. In a mass-produced work, the challenge for traditional brands is to determine how to provide a unique experience/product/service that can’t be attained somewhere else. If that means subscription, great. Building up the infrastructure, resources, and the data needed for this to happen smoothly, can be daunting.

For a subscription to succeed it needs to:

– Make sense for the brand and the business.

– Be simple enough for the consumer to understand the offering THEN make the transition from traditional means to subscription.

– Provide an optimal user experience.

– Offer customisation for individual preferences—especially if it’s a retailer specialising in a vast catalog of offerings.

As more traditional brands shift to a DTC business model, how can the original DTC brands ensure they continue to compete against these larger companies?

What DTC doesn’t have is scale and volume. So, while the original DTC companies have a leg-up on traditional/larger companies by nature of their being: they likely exist because an experience wasn’t enough for them as consumers any longer (see shaving/grooming: Harry’s, food: Soylent or Blue Apron, framing: Framebridge, socks: Bonobos, glasses: Warby Parker), as a result, their user base isn’t as large. Many DTC companies have interrupted not just the staid distribution models of the 20th century, but the experience of interacting with products and services that humans need: which can’t always be replicated in mass without losing some of the preciousness in which it was founded. Scale aside, DTC wins with the data.

A DTC company has a direct relationship with their customer base, it’s 1:1. They know the who, the what, the when, and the why. They have trend data on their products and services. i.e.—if customer Persona 3 purchases Products 1 and 8 they are likely to add on Service 5.  Use the data. Continue to take risks (which may include adopting some traditional business models like B&M—see Warby Parker and Harry’s), and continue listening to customers.

Will pure subscription brands (the likes of Birchbox and Dollar Shave Club) always have an early-adopter advantage over traditional brands turning to a subscription model later in the day?

No. Global brand value of tried-and-true companies will supersede new DTC brands due to time in market, and total investment.

But, let’s define what “advantage” means. Value equations are important to “winning” with consumers. Premium experience for a non-premium price seems to win out in the short term but doesn’t always hold true in the long run. As an example: In 2018, Gillette was valued at USD$16.6bn with sales of men’s razors were USD$6.2bn, with an additional USD$1.28bn of women’s razors. Dollar Shave Club sold to Unilever for $1b in 2016. In this instance, the value of the userbase didn’t upset the market in a meaningful or substantial way except to create an opportunity for a larger, more traditional organisation (Unilever) to make an acquisition and get into the razor business. At the time of that acquisition, Dollar Shave Club represented 16% of the market. Gillette, with a herculean margin, maintains market share today and offers a DTC subscription offering, complete with an environmental offering to recycle old blades for free. And of course, Gillette is available through Amazon subscription services.

In this instance, one could argue that Dollar Shave Club did stay ahead of the game by being willing to change their business structure, and evolve beyond their tried and true offering.

The two examples epitomise the laziness culture defined earlier, and yet they are very different offerings. Dollar Shave is about convenience (distribution) and price of a consumable. Whereas Birchbox is about exploration, trends, and creating new routines.