Subscription and direct-to-consumer (DTC) e-commerce is booming, fueled by the social-driven economy, consumer demand for convenience, and a culture of "I want it now."
Between April 2014 to April 2018, the industry underwent 890% growth, surging over 200% annually, on average. That growth has translated to big money: Subscription sales skyrocketed 4,461% from 2011 to 2016, with the biggest brands in the business raking in over $2.6 billion in sales, up from just $57 million at the beginning of the five-year period.
Although the subscription and DTC models are distinct—a DTC brand doesn't have to be subscription-based—both benefit from the same advantages of technological and cultural developments:
- Widespread social media use by consumers, and as a result easy, direct, and often inexpensive access to those consumers via rich targeting
- Access to unprecedented consumer behavioral data that was once lost in the traditional, third-party distribution models
- Consumers' willingness to pay a premium for "right now" delivery, convenience, and curation
- A general culture of laziness that has consumers unwilling to actually leave the house and stroll through stores (DTC and subscription services simplify the surplus of choice and take the decision-making out of shopping.)
Market conditions certainly favor DTC and subscription services, but with new entrants popping up every day—including big brands like Nike getting in on the action—the industry is evolving quickly.
What will that mean for the market heading into 2020? Here are five trends to watch.
1. More Brands, More Products
More than half (54%) of online shoppers have subscribed to a subscription box service, so there's little doubt we'll see more items and brands shifting toward that model. There's already a wide selection, including personalized vitamins, razors, pet toys, toothpaste, and even athletic apparel and shoes.
In reality, virtually any product or service can become subscribed, and I expect we'll see some fun and creative new entrants.
2. Emphasis on Exclusivity and Unique Experience
Subscription or DTC companies must focus on surprising and delighting their customers if they are to compete with their respective category's traditional offers.
Casper Mattress is a great example: Though not a subscription service, the company has upset an entire industry known to be shrouded in mystery, high margins, and convoluted pricing. Casper customers not only enjoy convenience but also simplicity, transparency, and a far superior experience with a lengthy in-home trial, as opposed to a high-pressure sales environment with minutes to make a decision.
3. Customization and Personal Touch
Consumers also know that companies have access to their personal and behavioral data, so they've come to expect a personalized experience. They want a truly individualized service with a personal touch.
Stitchfix, with its personal stylists, and Curology, a custom skincare service that connects subscribers to a healthcare provider to make product recommendations, are two companies leading this trend.
As consumer expectations grow, companies will need to find a way to deliver on the desired experiences.
4. Focus on Data
In the age of personalization, customer data reigns supreme. Subscription and DTC companies have a strong advantage over conventional distribution models by cutting out the middleman to get direct access to the who, what, when, and why consumers purchase.
Data about frequency of engagement and add-on products or services is key to leveraging predictive analytics and machine-learning to serve up "just-right" suggestions to surprise and delight customers (it's a virtuous circle).
5. Discovery Drives Loyalty
Consumers are looking for products and experiences they can't get elsewhere—and, to some degree, status among their peer groups for being on the cutting-edge of new product discovery. That, combined with the need to cater to personalized tastes, and consumers' desire to try new experiences they wouldn't have otherwise, is why (55% of subscription services are curation experiences.
Companies like Stitchfix, Vinyl Me, Please, BirchBox, and FabFitFun let consumers discover new items and trends in the comfort of their own home to stay on-trend.
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The subscription and DTC market are enjoying a perfect storm of consumer trends: consistently shifting interests, short attention spans, demand for convenience and ultra-personalization, and sheer laziness.
By catering to those needs and desires, upstart DTC/subscription companies and traditional retailers that launch DTC/subscription services, can capitalize on the opportunity to delight customers with unique experiences and personalized service that drives loyalty and retention in the coming year.
