There are four perky bamboo toothbrushes sitting in my bathroom sink — twice the number of people who use them on a regular basis. I’m not sure if everyone hoards toothbrushes or if it’s just a household quirk. Then again, I never felt the need to ask. Nor have I made any attempts to get to the bottom of the mystery or simply throw the old brushes away. And so there they remain, day after day, their colorful nylon bristles saluting me as I hurry to get to work.

All four of them arrived the same way, through the mail, in a recycled brown envelope, if only to broadcast the eco-friendly nature of the object it contained. On the back of the package, next to a gently smiling emoticon, there is a message scribbled in red ink: “thank you for helping the planet.” I’m not sure who wrote it — but I believe them.

Toothbrushes have become my latest subscription obsession, joining my all-natural deodorant, my cruelty-free eyebrow gel, various magazines and publications, and the usual Netflix and Spotify accounts. It might seem like a lot when I start listing them — but my favorites represent a mere fraction of the services that millions of other consumers subscribe to and use on a daily basis.

There are subscription services for personalized vitamin regimens, ketogenic meal kits, high-end washing machines, the gym you never go to. And the boxes. Don’t get me started on the boxes. All sorts of wines and coffee, skincare samples, Japanese snacks, gourmet foods from all around the world — pistachio cream from small farming towns in Sicily, spreads made from freshly pitted Argentinian olives, “premium couscous,” whatever that is, from Casablanca.

There’s a subscription service for every flavor, every quirk, every desire. But how did it all start?

From periodicals to luxury coconut-flavored dental floss

Before we were puzzling over which flavor of dental floss to treat ourselves to (I’m intrigued by any dental hygiene product resembling sugary treats), there was BMG and Columbia House’s mail order music club in the 90s, a service which sent a hodgepodge of CDs to your house for mere pennies. It probably sounds too good to be true, and it was, although you were likely to realize that only after finding yourself “owing $47 for unwanted Sir Mix-a-Lot CDs,” wondering what the hell the negative option billing was.

But subscription business models can be traced back even further, to book and periodical delivery services in the 17th century. At the time, subscription was an agreement of sorts. The author or bookseller agreed to produce a certain book, and the subscribers financed that publication, receiving a copy in return. Publishing was a pretty expensive business back then, so the patronage was mainly for the lavishly wealthy, and it was highly appreciated. In older editions, it’s still possible to find “a list of nobility and gentry, subscribers promoting this work.”

Things eventually got cheaper, with technological advances in the printing press, and newspapers and magazines have been using subscription business models ever since. But it was only 30 years ago, with the advent of the World Wide Web, that subscriptions exploded. Success from online media and music outlets such as Netflix, Spotify, and the New York Times have inspired similar subscriptions models for consumer goods, their success largely driven by negligible marginal costs per extra user, instant access to personalized products, and massive amounts of prized customer data.

Over the last few years, the subscription economy has grown by over 100% per year, from $57 million in 2011 to $2.6 billion in 2016, a 2018 McKinsey report found. A total of 15% of online shoppers have signed up for one or more subscriptions to receive products on a recurring basis, with the most popular websites being Amazon Subscribe & Save, and Dollar Shave Club. I never realized there was such appetite for ordering one’s grooming products by mail. But as I stare at the four bamboo toothbrushes, the all-natural deodorant and cruelty-free eyebrow gel sitting in my bathroom, I recognize I’m hardly in a position to pass judgment.

Surprisingly enough, media subscriptions aren’t the most popular kind. It’s the curation-based boxes of pistachio cream, olive spread, and premium couscous that make up 55% of all subscription services, suggesting a strong desire for personalization and a taste for the unexpected.

Although the subscription economy still represents a small part of the whole e-commerce market, that “niche” has captured the hearts and wallets of a segment of consumers now entering prime of their earning and spending years.

Is it a millennial thing?

In the same McKinsey report, they note that e-commerce subscribers tend to be younger and more affluent than the average consumer. It’s somewhat ironic that the generation that came of age in the digital era is the one driving the subscription economy. Faced with the daily task of taming the slavering wildebeests that are our inboxes, with their 3000 unread emails, there’s a certain appeal to getting stuff in our literal mailboxes. Maybe it reminds us of simpler times, or maybe it’s just the novelty.

Whatever it is, it’s not that we have an inherent love of subscriptions that is nefariously spoon-fed to us the more we binge watch shows on Netflix. According to a ING Economics Department study, when it comes to the goods, the convenience of subscribing to these services is pretty hard to beat.

But there’s another important point here, and I can’t stress this enough. More often than not, subscription services offer pretty significant savings. While our (and by our, I mean millennials’) disposable income is higher than previous generations, we have far lower wealth, which has absolutely nothing to do with our fondness, or lack thereof, for avocados. I can also guarantee that we don’t “prefer” — as I’ve seen it written elsewhere — to be sharing an apartment with 4 random strangers in our late 20s and early 30s, while increasingly higher rents consume half our income, if not more, and our savings, if any, are decreasing faster than our faith in future.

This inability to leverage wealth means that we approach our consumer habits differently. We tend to defer ownership, especially when we can have access to high-quality, up-to-date products without the pains of maintenance or prohibitive purchasing costs. Subscriptions offer manageable pricing options, giving us a better, and much needed, control of our finances.

What’s in it for businesses?

What first got me into consumer goods subscriptions in the first place was the fact that I was buying eco-friendly products. The sustainable production, CO2-neutral distribution, and biodegradable packaging somehow make up for all the times I buy vegetables wrapped in various and useless layers of plastic, all the times I don’t recycle out of sheer idleness, indulge in longer showers, or ride an Uber instead of taking public transportation.

It’s not that any one business will automatically become environmentally friendly as it makes the decision to offer subscription options, as is evidenced by the hoards of wasteful boxes of samples that will most likely be forgotten in your nightstand drawer until they are discarded in a particularly effective Spring cleaning marathon. But there is certainly a potential for sustainable services, through the better utilization and repeated use of products.

Still, for companies, the most obvious advantage for offering a subscription business model, as opposed to a one off sale, is the smooth, sweet, continuously-flowing recurring revenue. Not only does this help attract investors, lowering overall financial cost, but its predictability also makes it easier to manage inventory and reduce logistics costs, something that must sound like a dream for all employees dealing with the headaches of peak seasons.

Also valuable are the massive amounts of customer data and insights businesses are able to gather, data that can be employed towards improving the product in the long run. But the advantages of employing subscription models don’t stop here. Given that their nature implies, or at least hopes for, a long-term relationship, companies offering these services have the “excuse” to get to know customers better, to understand, and meet, their expectations, something that will come in handy particularly when we consider the biggest downside of subscriptions — the dreaded churn.

Till churn do us part

Since subscription based businesses depend on nurturing, long-term relationships to provide a predictable source of revenue, churn is their biggest source of anxiety. Churn can dramatically decrease the financial viability of these businesses, since replacing lost subscribers can quickly drain their cash reserves.

According to the McKinsey study, nearly 40 percent of e-commerce subscribers have canceled their subscriptions. The silver lining in this, and there is one, is that once we find a service we like, we tend to stick with it. It all comes back to convenience, something that is easily lost if we spend all of our free time searching for a perfect product that may or may not exist, to replace a perfectly good one. We might as well be back among infinite supermarket isles, deciding which of the ten perfectly functional laundry detergents we’ll wash our clothes with.

Traumatic shopping experiences aside, what you can take from this, is that if you provide a great customer experience, if you nurture the relationship, listen to your customers’ needs and challenges and ensure those are reflected throughout the customer journey, you can avoid high churn rates.

When you put your customers front and center, you can focus on building those long term relationships and brand ambassadors, instead of focusing all your energy on the expensive red herring that is customer acquisition.

Speaking for myself, I’m entirely convinced. As I debate whether I can afford half the subscription services I found while I was writing this article, I’ll keep waving back at those four bamboo toothbrushes, thinking of the various scenarios that might possibly explain those two extra ones. Because if you don’t find small ways to amuse yourself, no one will.

Source: https://unbabel.com/blog/subscription-products-services/