“Will retail fare better or worse in 2018?” It’s the question on everyone’s lips. It’s a controversial topic to be sure, but everyone can agree that change is in the air.
One industry trend we’ve seen is retailers experimenting with physical subscriptions that allow them to ship products directly to consumers. Companies such as Ann Taylor, Gap, JCPenney and Under Armour have recently begun to test the waters with subscription services, and that trend will certainly continue this year.
It’s important to know that this isn’t an either-or situation: A subscription is not a retail competitor; it is simply an additional channel. Some people prefer to shop online rather than go to stores and spend time standing in line, while others prefer to head to the mall or the grocery store with a list in hand.
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In our increasingly digital world, a true omnichannel strategy centered on the customer appears to be in order for retailers.
Meeting Consumers Where They Are
It’s true that some consumers prefer to walk into a store to see, feel and even smell products before they buy. For them, brick-and-mortar retail is still the answer. But for many others, in-store shopping is overwhelming. In a recent study of a major U.S. company’s shoppers, just 20% of participants shopped only in-store. The majority of participants — 73% — reportedly shopped via multiple channels along their journeys.
We’ve seen so much product proliferation that simply too many choices exist. Aggressive pricing strategies have contributed to this overwhelming feeling, and relying on employees to truly advise customers is mostly a relic of the past. It’s no wonder that many shoppers are turning to other channels for their purchases.
In addition, the rise of technology, especially among the digital-native Millennials and Generation Zers, is helping shoppers research their purchases and shop around for bargains. An IBM and National Retail Federation study revealed that while many Gen Zers still shop in-store, the time they spend online inevitably influences their purchasing habits. And a report from First Insight shows that 82% of Millennials search for deals online. Store-only brands are clearly missing out on important audiences.
Why Omnichannel With Subscription Works
People who tend to prefer e-Commerce, of which subscriptions are a subset, enjoy the curated experience that interesting subscriptions can offer. That fact is most evident in the apparel sector: Until recently, the main argument against apparel subscriptions was that consumers needed to try on clothes before buying. But today, companies such as Stitch Fix are showing that through free returns and exchanges, partial rentals, personalized styling help, machine learning and self-styling technology, curated apparel subscriptions can thrive.
One of the key elements of subscription marketing involves connecting with consumers on a deep level. Retail is much more transactional in nature than subscriptions, which are based on passion and creating an emotional bridge between consumers and brands. A subscription relationship provides retailers with additional insights into consumers’ likes, dislikes, wants and needs. If marketers are better able to connect with consumers, they will help the consumers feel understood, boosting the brands’ goodwill and profits.
Apparel is a popular industry for subscription services, but many other obvious subscription relationships lie ahead as well. Many already exist, especially in the fresh food space, but almost any retailer can gain more insights and deeper customer relationships through subscriptions.
The limits to the subscription business model include cost and usage patterns, weight and usage patterns and low-value commodity items. So, brands that sell high-end jewelry, furniture or staples, for example, wouldn’t be ideal candidates for a subscription program, although some entrepreneurs see opportunity in testing the waters. But companies in most other verticals stand to benefit from subscriptions.
Starting A Successful Subscription
So how can a retailer get started with such an endeavor?
It’s important for brands and omnichannel retailers to understand the hurdles they will have to overcome in order to build successful subscription programs. While legacy retailers using a traditional model prepare distribution patterns seasons ahead, the same strategy doesn’t make sense for subscriptions. Seasonal and market-based price changes don’t apply, either. Subscriptions might include an introductory offer to entice customers to join, but no further discounts usually occur in this channel aside from perhaps customers switching to another offer, frequency or cadence.
Starting a subscription — especially one with elements of curation or frequent exchanges — can be difficult for large, established brands to execute. The channel demands a very different operational setup and specialized skills. It can be tough to find people with experience in this channel, but brands need to have someone in their corners to help set up and run their subscription programs. They need to think ahead, create inseparable product bundles and offer channel-exclusive products to boost consumer sentiment and loyalty.
Smaller companies or startups might find it easier to establish a subscription program parallel to their retail channels. Subscriptions can offer them increased customer reach and deeper customer relationships. And if retailers include incentives for members to shop in-store, they can even increase visitors to physical locations.
For an example of a masterful combination of a subscription program and a sophisticated store network, look no further than Sephora. Cosmetics are ideal sampling products, as interested consumers enjoy trying out new products and using several items at the same time. The products are also small and easy to ship. Sephora’s PLAY! program offers subscribers access to new products through home deliveries while also encouraging them to shop at their local stores to build up points they can redeem for exclusive prizes and experiences.
2017 saw many retailers entering the subscription space, and it’s clear that 2018 will see many more following suit. Fresh food, apparel and beauty subscriptions are abundant, and the pet product, medical supply, and arts and crafts industries are ripe for disruption via retailers’ subscriptions. The exact details of the future might be up in the air, but one thing is clear: Retailers’ increasingly omnichannel strategies represent a win for customers everywhere.
Georg Richter is founder and CEO of OceanX, which is reinventing the membership economy by transforming customer-brand interactions and providing a powerful engine for subscriptions. Richter specializes in implementing next-generation technologies and innovative technology solutions that transform commerce from transactions to relationships.