Tuesday Mar 31, 2015

The Next Steps for Subscription Commerce

I recall a few years back when flash sales were all the rage, probably peaking when Nordstrom acquired HauteLook. The model readily captures the excitement of discovery, and draws on the competitive nature of deal-hunters.  This cue-routine-reward formula has only one flaw -- as competition enters the market, differentiation dwindles.  Obviously flash sales are very different from traditional online retailing, but there isn't much difference between flash sale sites.  A typical customer is a member of several sites without much loyalty to any particular one.  Then the pressure to watch several sites and pounce on deals becomes exhausting.

Subscription commerce, from sites like Birchbox and Stitch Fix, maintain the excitement of discovery plus add the regularity of a subscription with a rewards program that garners loyalty.  You get a box of curated stuff every month and points awarded for purchases.  Over time the company develops a profile of you so that the box can be better curated for your tastes and style.  The model seems to be working well enough for Nordstrom to buy Trunk Club.

Now here are three next steps that retailers should consider:

1. Smarter Subscriptions

Just as the basics are replenished in a store, the same needs to happen in homes. This starts with the dry basics like toilet paper, cereal, and makeup.  Retailers should know a customer's preferences and consumption level, and help replenish products just-in-time. This takes historical data and forecasting, or possibly the use of in-home sensors (i.e. Internet of Things).  Nobody enjoys shopping for toothpaste, so just figure out when I need more and have it delivered before I run out.

2. Better Personalization

Customers are members of many segments, and its the intersection of those segments that makes them unique.  To cull out segment membership requires a mix of soliciting preferences (e.g. what heel height do you prefer?), collecting available psychographic data (what heel heights did you like on Facebook or pin on Pinterest?), and analyzing historical sales (what heel heights have you purchased?).  Even so, a healthy amount of A/B testing is required to stay on top of emerging trends as tastes tend to be dynamic.  Use the data to make the product selections more tailored and relevant.

3. Inclusive Store Experience

To date, subscription commerce has been a solely digital activity, but many customers still require more physical interaction.  For style-sensitive products like fashion, why not provide monthly, personalized suggestions with an opportunity to schedule a try-on appointment in the store?  Or perhaps an in-store tasting for the jelly-of-the-month club?  Driving customers to the store should increase basket size, and also provide customers with the flexibility to tweak their personalized product recommendation.

I'm watching the market to see if these ideas gain traction.  Use the comments to express your own opinions as well.

Thursday Jul 12, 2012

Three Ways Retailers Are Impacting My Household

July 1st was a dark day at my house because that's when Amazon started charging sales tax to Texas residents.  Now instead of automatically knowing that the Amazon price was likely lower, I have to consider tax in my comparisons.  I'm not hitting that "add to cart" button quite so fast.  Why would Amazon surrender in its well publicized battle with states to collect tax?  Farhad Manjoo over at Slate wrote an article that provides a logical explanation.

It seems that Amazon gave in on taxes in order to build more warehouses closer to their customers.  They may lose their tax advantage, but they will gain the ability to offer next day shipping.  I'm often impressed how fast Netflix delivers DVDs using local warehouses, so I guess Amazon is planning the same strategy, complete with Kiva robots to keep the warehouses efficient.  The big advantage for physical stores has always been instant gratification, but that may be changing.

The second change at my house stems from my wife.  A few months back I gave her a subscription to BirchBox and she loves it.  For $10 a month, they ship her a monthly sample of high-end beauty products.  The cost basically covers shipping and she gets lots of free samples.  This morning my usual soap was replaced by a delicious smelling orange sphere which I assume was soap since it was in the soap dish.  By itself that's fine, but the problem is she really likes some of the items, and of course she orders more.  Well played, BirchBox.

Lastly, the HEB grocery store down the street decided to remodel.  That meant that everything was a mess and my wife couldn't find the things she usually buys.  As punishment for complaining about the lack of ice cream in the house, I got to accompany her to a HEB Plus (think warehouse) to finish her list.  Not being the shopper in the family, I was quite overwhelmed.  To help ensure this form of torture would not be repeated, I pointed out all the marketing tricks throughout the store.  My wife could care less why flowers are at the entrance, why certain brands are on endcaps, and why the milk is always at the back of the store.  Mission accomplished.

Have your own tales of retail?  Share stories in the comments.


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