Category Archives: Business Strategy
A lot has been said and researched about millennials. We millennials (yes, I guess I’m voluntarily disclosing my age bracket here), have been called a number of things, mostly not very flattering. Time Magazine has called us “lazy, narcissistic, and entitled”, but in the same article, also calls us “Saviors”. Such constant contradictions are also what make us unique. Our phones are an extension of us, and yet – we’d rather keep a phone conversation one-dimensional, and would much rather just text someone than call them. We love to buy online, but do not want to be “sold” to. We don’t want to commit to a product in an as-is condition, we’d much rather pick and choose what we want.
As a millennial and a marketer myself, I too, am self-contradictory in many ways. I would love to try out new brands and products, but I hate the act of actually setting foot into a store and shopping. So, the idea of having an option to just subscribe to a smorgasbord of products that I would like to try, and have them sent to my doorstep, is very appealing. And I know that I am not an exception – there are many other millennials who are just as mall-averse as I am. And then, there are also many of us that are tempted by the idea of having access to a variety of options to choose from, because what if, heavens forbid, we end up missing out on something?!
There is more to this phenomenon than the emergence of the ‘subscription economy‘, and this is more than an evolution of a business model. This is about the shift in purchasing power to millennials, and a fundamental cultural shift in consumption, driven by the way that this generation buys. Now remember, we are the generation that not only legitimized and achronymized the fear of missing out, but we are also the same generation that is admittedly so narcissistic and often self-serving that we genuinely believe that we deserve the best, and more of the best, and as often as we like.
Which is why, the landscape for brands is now completely altered. While customer loyalty was never a given, it is more of an earned privilege now than it ever was. That said, brand loyalty is not quite dead yet. The real development here, is the emergence of the ‘Curation’ economy – when your shopping basket and your wishlist are essentially like a Pinterest board. We’ve all witnessed the end of the ‘one size fits all’ approach, and watched it evolve into the era of customization. But we have now even moved beyond just plain customization, to the era of handing over the control to consumers, knowing fully well that they may not necessarily want to “commit” exclusively to your brand.
Yes – this commitment-aversion too, is yet another millennial-ism. Unlike our parents, the baby boomers, many of us think that “marriage” in the social context as well as the business context is a nice-to-have, at best. Which is why, we don’t see the need to be “married” to a brand, even if we’re really happy with it. We’re fondly nostalgic about the brands that we grew up with (case in point: AOL Instant Messenger), but the nostalgia has not necessarily translated to active usage/consumption in our adulthood – except, of course, in the case of cult brands like Google, Apple that have maintained their relevance over the years. We want to test everything that’s out there, in the quest of figuring out what works best for us. We want variety, but on our own terms.
Such millennial-isms of ours are being enabled by the ever-increasing plethora of subscription services that provide an assortment of products across categories like beauty, home cooking, personal grooming, fashion, d-i-y crafts, healthy meals, fitness, etc. to name a few. Luxury concept subscription boxes are in a league of their own – with services like ‘Quarterly‘, you can even get assorted subscription boxes curated by your favorite celebrities – so not only are you signing up for the variety, but you are sign up for the unique, curated experience. ‘Try the World‘ lets you try gourmet food from across different countries, every month. All you have to do is choose your assortment, sign up for a delivery frequency of your choice (usually monthly), set up a recurring payment, and then wait for your subscription box to get to your doorstep. And before you start to think that this is getting predictable – there is even a ‘care package’ subscription for women to help with premenstrual blues “to fulfill your cravings, feminine care, and pampering needs that will help you feel better and lift your spirits.” In conclusion, whichever product category you want to try out, chances are – there’s a monthly subscription box for that, just a click away.
We may have already reached the peak of the subscription economy boom. Unsurprisingly enough, a pure curated subscription-driven model alone is not a sustainable model that can be expected to bring profits in the long run. The numbers simply don’t add up in the long run, and economies of scale (especially on eclectic, niche assorted boxes) are an elusive target. So the question that remains is – is the subscription economy a bubble that is about to burst?
The subscription economy does not necessarily have to be a bubble. There is a way for it to achieve its true purpose – which is, to provide millennials the variety that they are seeking and the control that they desire, and still manage to make money from the endeavor – this really is an opportunity for every brand to leverage. In fact, the subscription economy enjoys a very unique advantage in this context – it is only in this unique ecosystem that variety-seeking behavior and brand loyalty can peacefully co-exist (potentially).
Imagine the possibilities if other brands too found a way to engage us attention-deficit-struck millennials via monthly sample-sized subscription boxes that we don’t mind paying a little premium for. Subscription-driven businesses like Birchbox, have found an additional way to keep its audience engaged via brick-and-mortar stores where members can “BYOB” (build your own box). And non-subscription driven business have also begun to catch on. For instance, in a genius move that both squashed competition and added a steady stream of additional revenue, Unilever bought over the blue-eyed baby of the subscription economy – Dollar Shave Club in 2016. Allure magazine offers a monthly “beauty box” containing beauty and makeup items. Starbucks offers two subscription options: One, a subscription service where you can BYOB (as referred above), and pick the coffee, tea & syrup products that you’d like to subscribe to, and the second, to the “Starbucks Reserve Roastery Subscriptions” which are exclusive “micro-roasted” blends that coffee connoisseurs can access. Free-of-cost, self-reported intelligence on customer preferences, and opportunities to cross-sell are among the many other reasons why this is a brilliant move. Amazon has a “Subscribe and Save” option for products that they know are likely not one-time purchases , as well as a “Prime wardrobe” clothing rental/subscription service – which are win-wins for both Amazon and its customers. Customers end up saving money on products if they subscribe, and Amazon gets a steady stream of revenue from these subscribers.
My favorite subscription economy success story though – is Rent the Runway (RTR). The fashion startup, often touted as the “Netflix for designer dresses” eventually realized that as fun as subscription boxes are, the steady revenue needs to come from a steady premium source. In May 2016, they launched an ‘unlimited package’ for a $139 a month, letting customers rent three items at a time with unlimited exchanges. The intended audience for this program, was obviously the ‘power users’ of the RTR website – the frequent renters. While this higher price point took a little longer for customers to swallow – it is also now the reason that RTR was able to enjoy profitability (and a $60 million investment from Fidelity) for the first time since its inception in 2009. This program that was originally the ‘bitter pill’, went on to account for more than 20% of RTR’s revenues, a proportion that we can expect to only increase. (Update: Beginning October 16, 2017, RTR has launched a new clothing rental subscription service for everyday clothing items, at a flat rate of $89. Translation: The fashion subscription space just got even more interesting. Let’s wait and watch!)
This is not very different from the good old 80-20 principle logic. This is what keeps airlines afloat – most of their revenues on a full flight come from the first class passengers, not the economy class. Is this not the reason that customer loyalty programs exist – to engage, nurture, and reward your best customers?
These possibilities in no way signal the death of brand loyalty – but rather, they are a sign of the changed times, of how ‘loyalty’ has radically evolved – and how it can in fact, be more profitable and sustainable. Millennials often get a bad rap for being fickle, but the truth is that we are in fact, the most brand loyal generation. In fact, despite the millions of options that we have around us to choose from, we are actually becoming increasingly more loyal (yet another millennial contradiction!) – if the price is right, and if we get to exercise control, and if we actually want to ‘subscribe’ to what your brand offers, and what it stands for.
The jury is still out on whether subscription box services are here to stay as a trend, or they are merely a passing fad. But if these companies think outside the box (pun intended), they may just be able to firmly clinch that much-coveted spot in millennials’ wallets and minds. After all, if a curated, customized and unique experience can be nicely boxed up and sent to a customer’s doorstep at the right price point – now that is an offer a millennial worth his/her salt may not be able to refuse.