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GUEST COMMENT Thinking within the box

Focus on disruptive retail models: from the Co-op to Birchbox and beyond

The subscription ecommerce market has seen 65% global growth year-on-year1 as time-strapped consumers enjoy the convenient, hassle-free method of receiving regular goods delivered directly to their door. In the US alone, the market has grown by 100% a year over the past five years2 with retailers and retailers offering everything from beauty products, to clothes, to groceries, in a regular bundle at a cost-effective price.

In Europe, recipe box company Hello Fresh revealed a 52% jump in sales in 2017. In the US, Rockets of Awesome is transforming the way parents buy their children’s clothes, with a quarterly subscription box based on individual preferences. StitchFix markets itself as personal styling for men, women and children, with five hand-selected items chosen and shipped every month; Quip markets premium dental products, and Dollar Shave Club grooming products.

There are subscription boxes for baking products, cheese clubs, sports kits, tea, socks – in fact, in the US alone over 600 subscription box services are running3, with huge global retailers such as Walmart and Amazon also joining the club. There’s no doubt that subscription boxes are the new go-to trend for retailers driving loyalty. But what are the drivers behind the success of these services, and what does the future look like for these services?

Two critical success factors

As a retailer or etailer, designing and delivering a successful and compelling subscription package is a long and collaborative process, but there are two elements which are crucial to its success: data and shipping. Innovation, transformation and technological advances in both these areas lit the touch paper for the subscription explosion. Businesses need to know who they’re selling to, where they are and what they’re likely to buy. And they need to be able to get their purchases to their customers, at a price they’re happy with, in the timescale and at a frequency they choose. With retailers facing the challenge of building a brand on just a few digital touchpoints rather than physical interactions, box subscription services provide perfect opportunities for engagement, retention and growth.

Accurate data – a springboard for revenue generation

Acceleration in Customer Information Management and Customer Engagement software, applications and systems now enables us to collect, cleanse, enrich and connect more data than ever before. Businesses are using this ability to improve the customer experience and drive revenues, bring together external data sources, such as demographics, location and market data, with internally held customer data, such as transaction histories and loyalty status. Once these sources have been identified—and the data has been checked for accuracy—retailers can reach a more detailed understanding of their customers. They can then use this data to deliver a hyper personalised customer experience – designing a unique subscription box offer which incorporates a buyer’s preferences. Stitch Fix, for example, has more than seventy data scientists, who analyse the many data points shared by their clients to boost personalisation.

The significance of this ability to personalise shouldn’t be underestimated: 86% of consumers4 see personalisation as necessary when they make a purchase. 72% of consumers5expect companies to understand their unique needs and expectations, and 93% of consumers6 say they would provide retailers with detailed information if it means they’d receive meaningful and personalised offers.

With Rockets of Awesome, when parents sign up a style quiz allows children to pick their favourite and least favourite colours and patterns, decide whether they love or hate zips and buttons, and specify the types of clothes they just won’t ever wear. The company then curates a selection of clothes that are meant to match the child’s preferences. Parents still have control: they get an online preview of the clothes that have been selected for each box before it is shipped, so they have the chance to veto and replace selections if, for example, they already have enough jeans.

Ultimately, the quiz helps build excitement around the brand. As the subscription continues, buyers are encouraged to share details of their preferences, so the retailer collects more data, and the offering more refined.

Accurate data also enables the optimum use of personalisation engines, for businesses to make relevant recommendations to their customers, boosting retention and generating revenue: Amazon’s recommendation engines, for example, have generated around 35% of their revenues7.

Data leads to smarter shipping

As well as data improving retailers’ understanding of customer preferences, it has also paved the way for consumers to feel confident they will receive their subscription box. Accurate addressing data makes this happen. This doesn’t just mean knowing the customer’s address – it means identifying, visualising and recording his or her exact coordinates; locating their ‘safe place’ to leave their box; uncovering other subscription members that live nearby, so retailers can achieve efficiencies; discovering insights which might help upselling –the consumer’s distance to a store, for example, so you can invite them for an exclusive event.

The other key driver influencing the subscription market is technological innovation in shipping. Ecommerce has had a seismic effect on the shipping industry. In the past decade the industry has transformed, with the pace of change accelerated by global players shifting consumer expectations – why not have this item delivered today, tracked, within a one-hour window tomorrow, or in a couple of days’ time with free shipping? Latest figures8 show that:

• The global parcel shipping industry has reached $279 billion in revenue
• Over 2,300 parcels shipped in the 13 key global markets every second in 2017
• In the UK alone, we ship over 6000 parcels every minute
• Japan tops the leader board for parcels shipped per person at 76 parcels; the UK comes in second, at 48

These numbers show no sign of abating. In fact, the study forecasts global shipping volume to surpass 100 billion parcels in 2020. With online shopping now a universal behaviour, the shipping industry has gone through major disruption as a necessity. AI, driverless vehicles, UAVs and crowd delivery services are already in use. Physical shipping platforms are built on powerful software engines, which automate and accelerate processes, improve accuracy and visibility, minimize risk and drive down costs. Never before has there been such precision, reliability and innovation within the industry – creating the perfect condition for subscription box companies to thrive.

Boxing clever: the future of box subscriptions

As more and more retailers and retailers enter the subscription box market, businesses will need to identify new ways to stand out from the competition – already, global businesses are buying companies to extend their subscription capabilities, Unilever being one example, now owning Dollar Shave Club. Smaller companies must differentiate from offering and experience.

Extending reach across particular demographics will be placed high on the agenda, as research9 has found that 51% of Millennials purchase subscription box services, but fewer across other age groups. When averaged across all age groups, a higher proportion of men than women choose subscription box services, presenting an opportunity for businesses targeting this demographic.

Businesses will identify and deploy cost-effective ways of extending their reach beyond major towns and cities, potentially cross-border, too, as the popularity of subscription box services is just beginning to take off outside the US. The sheer volume of boxes being shipped will demand faster, more automated parcel sorting technologies, and organisations will look to carriers to help them achieve economies of scale and drive down the cost of last-mile delivery.

Web user experiences are likely to improve and become more intelligent and intuitive, with chatbots and recommendation engines. Relevancy will become everything, both regarding product offering and engagement – customer retention is an issue subscription box provides constantly facing.

Finally, accurate data will become increasingly important, as more and more data points are linked to deliver hyper-personalised subscriptions. Those companies which can collate and manage their data in the best way possible will steal a march on their rivals.

Author: Andy Berry, vice president EMEA Software Solutions, Pitney Bowes

Image credit: Fotolia

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