It seems like there’s a subscription box for everything these days. This business model built on product sampling is the hottest thing in e-commerce today. The question is: How can you break into this lucrative industry? Just because people are excited about it doesn’t mean that it’s easy to convert the novelty into a profitable enterprise. Here is a breakdown of what it takes to build a successful subscription box startup.
From the consumer point of view, subscription boxes are a fun and exciting way to shop. For a modest price, you get a package every month or so with niche goods that you might not be able to find elsewhere. After the first one, you can tell whether or not you’re going to like it and you either cancel or suggest the box to all of your friends.
There is very little risk and – because the boxes are carefully curated for specific target audiences – there’s a high probability of a gratifying experience. Another important component, the key to why this model is taking off, is the human penchant for reward. You order the box and know when it’s coming, but the actual components are usually a mystery until the glorious moment that you open the package. It’s like receiving a gift every month.
A McKinsey survey found that 15 percent of American consumers subscribe to one or more product boxes. The subscription box market has doubled every year since 2011, growing from $57 million to more than $2.6 billion.
Also read: 5 reasons why subscription models can be a double-edged sword for e-commerce retail
Business Owner Viewpoint
From the business owner’s point of view, it’s a bit more complicated. The predictable cash flow from recurring payments makes it easier to forecast demand and source premium goods in bulk. But your profits will hinge on how well you negotiate with suppliers to get a great deal, and how efficiently you handle inventory turnover and order fulfillment. Subscription box consumers are looking for an experience as much as a product. It’s important to have top-notch service and continually surprise and delight your customers, or they’ll cancel their subscriptions. Churn is a common problem with the subscription model, so merchants must work hard to retain existing customers and acquire new ones.
How to Start a Subscription Box Business
Step 1. Start with a great idea, the more niche the better.
Common themes for boxes are fitness, fashion, cosmetics, food, and pet supplies, but to succeed in an increasingly competitive space it’s best to narrow your focus to a segment of those audiences. For example – yoga enthusiasts, vintage-inspired fashion in larger sizes, cosmetics for people with allergies and sensitive skin, gluten-free or Paleo baked goods, and accessories for small dogs.
Step 2. Research your potential customers.
Who are they? What are their interests, preferences, pet peeves? How much do they typically spend on goods like yours? What do they say about your competitors? Social listening is a great strategy for businesses looking to succeed in the subscription box economy.
Step 3. Put together a prototype box.
You need a sample that represents what you think your product can look like. It should feature thoughtful packaging that communicates your brand identity. Think about your aesthetic and stick to a consistent color palette. This prototype should be something your customers would want to receive on a recurring basis.
Step 4. During the pre-launch phase, build buzz, collect emails and get to know your target market.
Show your prototype box to potential customers and get feedback. Offer discounts to early subscribers.
Step 5. Market your box and start selling.
This is when you collect your first paying subscribers. Congratulations, you’re making money! Give yourself a pat on the back, but don’t think you’re done just yet. You’ve persuaded people to try your service, but they won’t stick around unless you make good on the hype.
Step 6. Use the revenue from pre-sales to build and ship your first boxes, as well as continue your marketing efforts.
Be sure to focus on your customers’ experience and personalize every step of their journey with your brand.
Step 7. By now you have recurring business from regular customers.
It feels good, and you can actually plan the next phase of business. You may even start to have a life again.
Step 8. Engage with your customers online, encourage them to share “unboxing” videos on Facebook and other social media outlets, and offer referral bonuses if they get their friends to subscribe.
Customer-generated content is one of the most valuable (and inexpensive) forms of advertising. Referrals are the fastest way to grow your business.
Subscription services can be difficult to promote to current customers of an established business. If you already have a traditional sales relationship with consumers, you may have to start a separate brand and attract new customers, but it’s worth the risk if you can grow quickly enough.
Establishing a price point depends on whether your product is limited to a predetermined amount every month. Gwynnie Bee offers plus-size clothes for a set fee, but customers can select one to 10 items to try on and return the ones they don’t want.
Also read: Activity-based learning startup Flintobox raises US$875K from InnoVen to expand into Southeast Asia
Will you offer limited access to products for free, then enable customers to pay a larger premium a wider selection? This so-called freemium is used by CreateHER Stock, which offers free images when you give them your email address. After you download a few freebies, you’re invited to get unlimited access for a monthly subscription.
How to Succeed as a Subscription Box Entrepreneur
In order to succeed with this business model, you have to secure market share and attract customers fast. Find and woo customers you want your product and are willing to pay a monthly fee for it. Then, stalk your competitors by examining their packaging, their consistency, and their products. Take notes on what you can do better.
In rare cases, there might not be a subscription-based service for your product range. If you are the first to create a subscription box service in that market space, there’s a very good chance you can dominate the demographic before copycats steal your clients.
As with a non-subscription business model, quality, consistency and customer service will help you keep a loyal customer base. After all, the idea of a subscription business model is to transform a one-time transaction into an ongoing relationship.
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