The rise of the subscription commerce startup
There’s an interesting phenomenon occurring in startup land, with a number of companies emerging that are all seeking to build businesses with recurring revenue streams based on serving up monthly packages of food, beauty, clothing and other products. The so-called subscription commerce market is expanding rapidly — but what’s behind the trend and why are so many consumers signing up?
Subscription services are nothing new, of course: there have been beer, wine and coffee of the month clubs operating for decades, as well as subscription food services like Omaha Steaks or local community-supported agriculture (CSA) programs. But this new range of startups promising subscription offerings of physical goods are a different breed — while each is more or less focused on a specific vertical, the goal is to introduce consumers to products that they may have been unaware of previously. (Wittlebee CEO Sean Percival did a good job of summarizing this space, which is already several months old, in this blog post.)
The importance of curation
Birchbox made its name for providing samples of makeup and beauty products that its subscribers may have never discovered or bought for themselves. Foodzie and Love With Food were launched with the hope of introducing specialty food brands that aren’t available on store shelves to consumers.
In each case, what’s at the center of the service is the act of curation. For the services themselves, that means creating a level of trust and loyalty with subscribers, of offering up thoughtful packages of products that they might not have known about. And for the consumer, there’s an element of discovery with each new monthly shipment.
Love With Food founder Aihui Ong said that for her subscribers, the service is sort of like getting a birthday present every month. "Our main demographic is foodies, who want to discover what’s out there. Most of our products are in the category of, ‘You don’t know what you don’t know.’ We want to increase people’s choices,” she said.
That means sourcing items that probably aren’t available in the stores that consumers shop in. Love With Food, for instance, actually turned down a major brand of snack chips because they were too mainstream, knowing that its subscribers probably already knew and had tried them.
For other subscription-based startups, curation means sourcing materials and creating a new experience around them. Mountain View-based Kiwi Crate aims to make science fun, with monthly "crates” priced at $19.99 that include experiments and crafts designed to appeal to school-age children. Those activities have been designed by parents and vetted by a group of kid testers before being arranged and shipped.
Most of the stuff found in a Kiwi Crate can be bought at the local craft store; what makes its service unique is that it has designed activities around those materials and provides everything that a parent might need, without having to hunt them down herself.
Making subscriptions personal
With more data on what consumers like, subscription commerce companies can also better target their customers and align the products they send with a consumer’s interests. Peter Pham, one of the founders of Los Angeles-based incubator Science, which now has not one, but two startups operating in the subscription commerce space, said that better data and better analytics provide a more personal experience around what they receive.
Take Wittlebee, for example. The subscription service, which was incubated by Science and launched yesterday, offers up boxes of children’s clothing for $39.99 a month. But kids can be notoriously difficult to shop for — they grow quickly and have quirky tastes in clothes. The key to keeping parents — and kids — happy is ensuring that clothes not only fit and grow with the little ones, but that they’re also the kinds of things that parents would choose themselves.
Wittlebee CEO Sean Percival says the startup accomplishes this by asking parents to create profiles of their kids, and to create boxes based on kid "personas.” That enables the company to offer up packages that its subscribers are more likely to like, and more likely to keep them on board.
Letting subscribers be evangelists
Perhaps the biggest driver of consumer interest in subscription-based commerce is how fast and easy it is for these new companies to attract customers through social and viral channels. By connecting directly with consumers, these startups are able to create stronger relationships and actually get users to build their brands for them through word-of-mouth.
"Because we live in a world with direct-to-consumer conversations, we can spend all our money on the quality of the product instead of on distribution,” Pham told me. Thanks to social channels, consumer-facing startups have a lower barrier-to-entry and lower cost of reaching new customers. That is, as long as the product is good. "When you build a quality product, you get natural virality. Because of social channels, all of a sudden, with every person you get in the door, the cost of acquisition goes down,” Pham said.
The social aspect of today’s environment also enables these startups to leverage their own customers as marketing channels for them. Kiwi Crate, for example, encourages its subscribers to share photos and videos of their children unboxing items and taking part in activities. Wittlebee is also building brand loyalty, with many of its subscribers sharing the contents of their boxes. In doing so, they can share the excitement of being part of the community.
One thing’s for certain — the subscription commerce craze is far from over, and we’re likely to see more startups announce plans to tackle new market niches as time goes on. With a mix of smart curation, personalization and social sharing, the phenomenon is likely to see more consumers interested in being surprised by monthly packages delivered to their doors.