• October 20, 2014

Subscription services offer new possibilities for consumers, stores

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Posted: Thursday, April 10, 2014 4:30 am

Hoping to spice up her cooking, Nancy Lorenz signed up last summer for Blue Apron, a weekly meal-planning service that delivers a box of ingredients to her home. She enjoyed the food samples so much she went online to write a review, but instead she stumbled deeper into the growing and quirky world of subscription boxes.

Now, Lorenz, who lives in Ohio, receives more than a dozen packages every month, with samples of food, beauty supplies and handmade jewelry. She spends almost $300 on boxes some months.

These curated goody bags exploded in popularity during the past few years, and now even major retailers, including Target, see there may be money to be made. Much of the appeal for retailers is the personal data they collect from customers — from their food and fragrance preferences to their income — while collecting feedback on untested products.

New York-based startup Birchbox kicked off the trend in 2010 by sending women tailored cosmetics samples. Now subscribers can choose from boxes of pet food, baby products, fishing tackle, video games, adult toys and even marijuana-smoking accessories.

The subscription can cost as little as $10 or top $100 a month for luxury items. The collective value of products — if you buy them at full price — is often higher than the monthly cost. Subscribers, a vocal and social-media-savvy bunch, have set up blogs and online forums to review the best boxes or swap goodies to fit their tastes.

For many, the real attraction is not the convenience of home delivery but the element of surprise.

“It’s like Christmas — you never know what you’re getting,” said Lina Belosky, 27, a product manager in Hoboken, N.J., who subscribes to about 15 boxes.

Little data

There is little data on this nascent industry, but by some estimates there are 400 to 600 kinds of box services in the United States and even more overseas. Many are startups that have yet to turn a profit, industry experts said, though they receive products at a discount or free from companies hoping to be introduced to new customers.

Some have already fizzled out. In 2012, Wal-Mart’s tech center @WalmartLabs piloted a subscription snack-box service called the Goodies Co. At $7 a month, the box offered subscribers healthy snacks. Wal-Mart discontinued Goodies in October, but said it will apply the lessons from that experience toward other subscription services.

There are downsides to subscription boxes. The quality of new, untested brands is not always top-notch. Not everything will suit shoppers’ tastes. And consumers may lose interest but be too harried to take the extra step of canceling their membership.

“By the time people realize they don’t want (a service) anymore, it takes time for them to cancel it,” said Larry Chiagouris, a marketing professor at Pace University’s Lubin School of Business. “The real money is in the inertia.”

Offer appetizers

Liz Cadman, 29, who runs the review blog “My Subscription Addiction,” describes her affection for monthly deliveries as a gamble that does not always pay off. “If I end up liking the whole box, then I’ve hit the jackpot,” she said.

Lorenz’s husband — who subscribes to a men’s lifestyle box — kept receiving hair products even though he is bald, she said. She complained repeatedly before the company caught on, said Lorenz, 55.

For retailers, monthly boxes are like offering shoppers a plate of appetizers: Sample what you like, come back for more — and if you don’t like something, give it to your friends.

But there is something beyond money in it for them, too.

Subscribers share tons of personal data to customize their boxes. They also provide retailers valuable feedback on products before they hit store shelves.

For retailers nervous about the growing popularity of online shopping, the boxes can be a way to reach consumers who have disappeared from the shopping aisles.

“If you no longer visit the store for diapers, what other things are you not going to buy?” said Amy Koo, senior analyst at Kantar Retail, a consulting group. “Subscription boxes gives retailers an opportunity to get (people) interested in a category they weren’t in the first place.”

The subscription model is as old as the newspaper industry, but the rise of services such as Netflix and Amazon Prime sparked a renaissance, analysts say. Retailers — especially brick-and-mortar stores — want to replicate that success to retain customers.

Last year, Target introduced a $5 Beauty Box on Facebook, to see how customers would respond on social media.

Last month, it relaunched a limited supply of beauty boxes on its website.

For now, the popularity of subscription boxes is likely to keep growing, experts said. The next challenge facing many of these companies is how to turn a loyal customer into a profit.

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