By Lisa Wirthman
From cosmetics to software, subscription-based sales are a rising e-commerce trend to watch in 2014. Digital products like music, video, games, and other nonphysical products that can be fulfilled over the Web are a natural fit for subscription-based e-commerce, according to Gartner Inc. Research Director Chris Fletcher. “Products that are digital go to subscription models earliest because you can obviously deliver the product,” he adds.
Consumers’ increasing expectations of instant gratification -- and the growing proliferation of mobile devices -- are further driving demand for subscription-based digital products and services, says Fletcher. Subscription-based sales of physical goods, however, from Dollar Shave Club’s razors to BarkBox's dog toys to Skoshbox's Japanese snacks, are more experimental, he says.
Companies such as Birchbox -- a cosmetics service with 400,000 subscribers -- are leading the charge for subscription-based e-commerce for physical goods. Customers are sent samples with their subscriptions that often lead to sales of full-size products.
And Los Angeles-based JustFab has convinced investors that its fashion-based brand of personalized subscriptions merited $55 million in its two latest funding rounds in November and December 2013. The online retailer also acquired rival ShoeDazzle in 2013, predicting over $400 million in total sales as a combined company in 2014.
“I think we’re seeing retailers trying a number of business models to try to be innovative and find out what really works for consumer,” Fletcher says. “They’re all terrified of Amazon and eBay.”
Subscription-based e-commerce gives companies regular income, a greater ability to upsell, and deeper relationships with customers -- which also can create more customer loyalty. Customers benefit from typically lower costs and more efficient purchases.
But the advantage is mostly for the retailers at this point, according to Fletcher. Consumers may see some conveniences, such as not having to cart heavy bulk items home from stores. But the trade-off is that consumers lose the ability to make product choices or to take advantage of current deals.
Subscriptions also come with challenges. In most cases, companies that provide monthly subscriptions also have to renew or justify their relationships with customers every month, which catches some businesses by surprise, Fletcher says.
Another difficulty is the need for subscription management software to handle the business end of taking and fulfilling orders. Although it’s on the rise, mainstream adoption for subscription management software -- often specifically matched to companies’ needs -- is still 5 to 10 years out, Fletcher adds.
While subscription-based services for digital products are taking off, Fletcher believes it’s too soon to tell how the corresponding market for physical goods will do over time.
“I’m not sure if we’re going to see a huge change in things like buying diapers online or not,” Fletcher says. “But I do think that this whole proliferation of devices, always-on computing, and the Internet of Everything is nothing but good news when it comes to spurring demand.”
Lisa Wirthman is a freelance journalist who writes about business, sustainability, public policy, and women’s issues. Her work has been published in The Atlantic, USA Today, U.S. News & World Report, Fast Company, Investor’s Business Daily, the Denver Post and the Denver Business Journal.
