Dollar Shave Club, HelloFresh, Ipsy’s Glam Bag — it seems like everyone has at least one niche subscription box.
Torontonians have long subscribed to home delivery of everything from milk to magazines, but the rise of e-commerce means today’s consumers are accustomed to buying just about anything online – and at an unprecedented rate. “People are now also much more used to paying a regular fee for an online service, like Netflix or Apple Music,” says David Soberman, a marketing professor at the Rotman School of Management.
This combination of consumer acceptance and increased convenience has created a massive business opportunity: entrepreneurs are packaging a vastly multiplying array of goods in countless subscription boxes. And the list of subscription-based companies has only grown during the pandemic — industry experts are predicting e-commerce subscription boxes could become a U.S.$478-billion market by 2025.
There are countless local examples. To help make ends meets during last year’s interminable lockdowns, an Ontario collective of First Nations craft makers started the Offering Box, which delivers items created by a seasonally rotating roster of Indigenous artists. This past winter, an 11-year-old in Etobicoke even got in on the trend with Cucina Kids, a subscription box with recipes and activities designed to get kids more involved in cooking at home. And then there’s the recently launched Box of 6ix, offering subscribers a monthly curated selection of goods sourced from local Toronto businesses.
“Many companies using the subscription-box model were experiencing double-digit growth right until the end of 2019,” says Soberman, who believes this growth trend will persist long after the pandemic.
Subscription boxes provide durability and feasibility to your niche business
In March 2020, Toronto-based entrepreneur Michelle Donnelly founded Lark, a beverage company geared to supply restaurants and hotels. Just three days after Lark’s launch, Ontario went into its first lockdown. Donnelly quickly transformed Lark into a consumer-based subscription service, delivering bottles of spring water, ginger ale and oat milk directly to customers’ homes. “Our subscription service allowed us to keep our brand relevant and our business afloat,” says Donnelly.
For businesses like Donnelly’s Lark, having a loyal subscriber base gave them a consistent income to weather the pandemic’s volatile ebbs and flows.
But the advantages extend far beyond the pandemic and other economic downturns. Subscription boxes also allow entrepreneurs to specialize in a niche field that might be more difficult to operate as a traditional shop. There’s Toronto’s 2Peonies, which sends minimalist bouquets to subscribers’ homes, and Vancouver’s Better Basics, focused on delivering cleaning products in reusable containers. Much like Better Basics, Lark’s key differentiator is its environmentally conscious mission within its product category.
Lark deploys a closed-loop system, picking up empties when they drop off new bottles. The empties are then washed and repackaged for future deliveries. “About 99% of our subscribers return their empties because they believe in and support our mission,” says Donnelly, who has already sold about 70,000 beverages across the GTA. “We’ve tapped into a community that agrees with us that you don't have to compromise on aesthetics or experience to be eco-friendly.”
No location = unmatched flexibility
The traditional bricks-and-mortar model comes with significant rent, staffing and inventory replenishment costs. But with an online model, subscriptions can be filled to order from a warehouse. This reduced footprint allows entrepreneurs to more easily experiment with their offerings and quickly implement smaller test runs of new products. Depending on customer interest, their subscription boxes can then be rapidly changed or scaled up.
A subscription box model also eliminates the uncertainty that comes with the need to stimulate a new in-store sale with the same customer multiple times a year via targeted ads, promotions or sales. “With a subscription, you only have to convince the customer to make a transaction once,” says Soberman. Oftentimes, companies will apply an auto-renewal model where customers can choose to opt-out at any time, making it easier to retain customers without convincing.
Without a store for customers to try one of her Lark beverages, Donnelly knew she’d face some hurdles in growing her customer base. Consumers can be hesitant when it comes to making larger purchases: buying a single bottle of Lark’s “Bubba” sparkling water in a retail location requires far less of a financial and emotional investment than paying $54 every month for an 18-pack. That’s why Donnelly ensured her subscriptions are flexible. They range from weekly to monthly, and from $20.50 to $76.50 in price.
Know what need your product is fulfilling
According to Soberman, the best kind of product for the subscription box model is what marketing experts call a fast-moving consumer good (FMCG). Any product that is used frequently and needs replacing on a regular basis (think diapers and toothpaste) would be considered an FMCG.
In this category, there are two main kinds of subscription boxes to consider. The first is regularly consumed products that need constant replenishing. In Toronto, there are plenty of examples that lean into this model, like Naturolly’s bamboo toilet paper, Pilot coffee and for some, General Assembly’s frozen pizzas.
The second is curated selections of a changing variety of items that allow customers to have new experiences with each box. This could take form as a casual stay-at-home crafting night or could encourage subscribers to branch out from their usual cocktail of choice.
“If you can't put your business into either of those two categories, your product might be a harder sell,” he says.
You can learn a lot from all customers — even ones that leave
Feedback from happy customers can be invaluable, but the fatal error that dooms many subscription businesses is forgetting about lost customers. Former subscribers can explain why they left, and from a marketing perspective, what’s not working.
That’s why Soberman recommends implementing a customer service plan that prioritizes contacting former subscribers to figure out why they left. “How companies manage lost customers and utilize the information they provide can be the goose that lays the golden egg,” he says.
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