You’ve heard of Dollar Shave Club?
The scrappy startup which started marketing by putting ironic videos on social media which spoke directly to the burgeoning millennial male who just had to shave every day? Sick and tired of the Gillette/Shick cabal, which comes out with a new razor every few years or so, and charges an arm and a leg for the razor and the blades. What a pain in the ass to keep buying blades when they ran out every few weeks or months?
Dollar Shave Club promised better shaves, and a better price, delivered on a regular basis. All you had to do was to go onto the website and sign up, and then the product would just show up automatically. The charges would happen automatically and you never needed to worry about having blades in whenever you needed them.
I think it launched, and exploded with users in a few years, and was then purchased by Unilever for $1B. That’s right. A blade delivery service that specialized in delivering a single product to a specific market when from $0 valuation to $1B in a few years.
While the success of Dollar Shave Club can be linked to timing – and product – and price – the real innovation here is the automatic replenishment. Since then, many many beauty brands are offering this kind of auto-replenishment service, hoping to lock customers into a subscription service that will continue to deliver the product on a regular basis to customers.
Where the subscription model used to only pertain to printed materials, the model has now exploded far beyond that – almost everything can now be sold by subscription. Software, which used to be packaged, is not more likely sold as a subscription – why not pay Microsoft $99 a year to have the full suite of Office products on your desktop which are automatically updated whenever bugs and security patches are found instead of spending $600 on a set of DVDs which sit on your desk after they are installed?
The subscription model is everywhere and growing – subscription businesses have grown over 100% a year for the last 5 years, with no end in sight. If you don’t already have a subscription service for whatever you are selling, you should seriously look into it now – if you haven’t already. However, even though the subscription model is quite lucrative – there is still a fairly high attrition rate – over 25-30% in some cases. Most of the reasons that customers cancel their subscriptions are because they either decide that the frequency that the product is replenished is incorrect – or that the customer would like to try something else.
The biggest downside of the subscription model is that it assumes a certain amount of usage – and the business makes money based on the lack of use – if all customers used the services all the time, then the business would likely crash from overuse. These companies are only profitable when customers use the product less.
However, there is a medium between the timed subscription model and the on-demand model. the auto-replenishment model, first pioneered by printer and copier manufacturers. Once these machines became network capable, it was a very simple task for the printer to send the ink or toner levels over the internet to the printer manufacturer, who could then proactively inform the customer that the printer or copier needed ink. From there, it was a simple step to get the customer to agree to auto-replenishment – just before the printer needs toner – it automatically orders toner – and it simply appears in the office more or less around the time that the toner will need to be replaced.
This is a signal for the future of retail – at least retail for consumables. Amazon, through its Dash Replacement Service (DRS), already provides an API for enterprising developers to connect their consumable using internet-connected devices to automatically reorder supplies as required. To date, fridges, coffee machines, washer/dryers, and pet feeders have leveraged DRS to auto-replenish their supplies. This is just the start – in the near future, almost every device which requires supplies can leverage services like this to resupply – changing the nature of retail for these products. Imagine diaper boxes, toilet paper rolls, tissue boxes, groceries, light bulbs, and many other household items simply appearing exactly when you need them.
While the biggest disruption seems to hit retail – it’s across the board – how can YOU implement subscription business models in your organization?