What is Going on in Last Mile Delivery, Omnichannel Retail and Transportation and Logistics?2019 Update on the Latest Trends in Omnichannel Retail Part 2: Subscription Boxes
In our last blog in this series, we took a look at some of the trends and issues involved in omnichannel retail for the past year. Consumers today love personalization and convenience. This may be fueling interest in both subscription services and subscription boxes. The subscription box industry has evolved and now is focused on three major areas, replenishment, curation and access. Hordes of competitors volley for the attention of consumers. It is not just Blue Apron, Hello Fresh and Dollar Shave Club anymore!
The industry has dramatically expanded and now includes apparel subscription services such as Gwynnie Bee and Stitch Fix (“personal styling for everybody”) as well as personal styling subscription offerings by fashion expert and pop culture favorite Rachel Zoe (Box of Style). Have a craving? Pick a snack box and it will be at your door. Need to engage your kids in fun activities? Subscribe to Kiwi Crate. It has actually become difficult to think of an interest or need that is not served by a subscription box provider.
Subscription box services have exploded with growth, fueled by technology and the rocket fuel of millennial-aged consumers who cherish convenience, excellent customer experience and personalization to their tastes. Retail tastes have certainly changed, and the supply chain must adjust accordingly. Third party logistics providers are stepping up to facilitate this change and support subscription box providers. With their increased use of technology, specialized expertise in kitting and assembly, inventory management, order fulfillment, transportation and logistics, 3PLs are the perfect solution to the need for fast, accurate fulfillment. Using a 3PL for order fulfillment can help to streamline costs and ensure an exceptional customer experience, key to building loyalty.
Personalized E-Commerce Subscription Purchases
Rapidly expanding, the concept of the subscription box has boomeranged into an entirely new trend, ideal for millennials with money to spend. Why shop in a physical store when you can have a box of products tailored to your taste and needs automatically delivered to your door? Consumers love the blend of personalization, convenience and the dash of surprise.
Consumers first became acclimated to the concept of purchasing by subscription with Netflix. In a survey conducted by McKinsey in February 2018, 15 percent of the 5000 online shoppers reported that they had subscribed to an e-commerce service such as subscription box or media subscriptions. Comparatively, e-commerce subscription box consumers tend to live in urban areas, are 25-44 years old and have incomes from $50,000 to $100, 000. 60 percent of consumers who purchase e-commerce subscriptions are women. Although women, as a whole, have more subscriptions, on an individual basis, men tend to have three or more active subscriptions.
The ultimate in convenience and ease, the subscription e-commerce industry has grown exponentially from $57 million in 2010 to $2.6 billion by 2016. Flooded with venture capital, the subscription box industry has really taken off and now provides regular delivery of products such as child and baby goods, pet food and treats, underwear, razors, health and beauty products, contact lenses, feminine products, apparel, video games, vitamins, jewelry, tech goods and beer and wine. Initially delivered monthly, now subscription boxes offer a range of delivery interval options to meet consumer needs and preferences. Options vary tremendously from trial size to fullsize products. Some providers even post subscription box coupons online to attract budget-conscious shoppers.
Highly successful, subscriptions “delivered to your door” are a major hit with consumers. Both major consumer brands and retailers have launched subscription businesses. The subscription box industry has also experienced notable M&A activity including Albertsons’ acquisition of meal kit company Plated and Unilever’s billion-dollar acquisition of Dollar Shave Club in 2016.
The three basic types of subscription boxes or services:
A replenishment subscription enables consumers to automatically purchase commodity goods including razors, diapers or feminine products.
Subscription boxes that are curated tend to provide an array of goods such as health and beauty products, food or apparel. Typically, consumers do not individually select the goods. Curated subscription boxes facilitate the element of surprise for consumers and expose them to products that they may otherwise have overlooked or to which they may not have access.
Of the three different types of e-commerce subscriptions, curation is the most popular. This is most likely due to the appeal of personalization and the potential element of surprise.
Consumers pay a monthly fee to reduce prices or take advantage of members-only benefits. This is commonly used for food and apparel goods.
10 Popular Subscription Box Products
This meal kit subscription box service provides a variety of meal options using high-quality ingredients and easy-to-use recipes to create restaurant-quality meals at home. Meals starting at $7.99 per serving.
3PLs Deal with the Complexity of Providing a Superior Customer Experience
To meet the challenges of dealing with ecommerce subscription boxes, companies have been turning to third party logistics providers. After all, it is one thing to ship a small volume of one-off orders sold through an online store and quite another to handle the inventory management, kitting, assembly and shipment of up to hundreds of thousands of similar orders within a short period of time.
Often subscription box companies start off as entrepreneurs fulfilling small monthly orders in garages or small workspaces. Usually by the time subscriptions reach 2000-5000 a month, most entrepreneurs seek the professional help of a 3PL. Subscription businesses that deal with regulated goods have more complex handling, storage and shipping requirements that may initially too expensive to outsource. One of the major values of using a third party logistics provider for the fulfillment of subscription boxes is the access to technology.
Most 3PLs use warehouse management systems in addition to technology including cartonization and shipping manifest systems with integrated rate shopping, to meet the complex demands of subscription box fulfillment. Using these technologies enables companies to leverage 3PLs to gain access to real time business intelligence and the capabilities for fast, accurate handling with flexible requirements. Relying on technology also is essential for ensuring an exceptional customer experience. After all, consumers are oh so fickle… One late delivery, one improperly packed box can cost you a customer. If the customer voices dissatisfaction on social media, the news may spread, costing more customers, diminishing brand loyalty and potentially resulting in more returns.
Giving a Great CX
From Stitch Fix to Dollar Shave Club and beyond, consumers love saving time. Yes, consumers are willing to sign up for recurring payments if the subscription service provides excellent service and value, but they tend to quickly pull the plug if problems occur. Dissatisfaction with the subscription service or product is clearly a trigger for cancellation, according to the McKinsey study. In contrast, positive online reviews and word of mouth recommendations are an identifiable trigger for consumers to sign up for a subscription service.
To provide that superior service, ecommerce subscription service companies need to closely match supply and demand. Here, business intelligence plays a vital role. The value of data, used with or without predictive analytics can help to forecast monthly volume and aid in the selection of consumer selections for a given subscription box.
Consumers want the flexibility to pause service or product deliveries if they are on vacation or when they already have an adequate supply of products that are due to be replenished, for example. As with purchases made with online retailers, consumers want an easy-to-use payment gateway and ecommerce platforms.
3PLs Excel at Complex Operations
Subscription service companies frequently ship on a shared drop date so that subscription boxes reach consumers on the same date. This is important as consumers communicate about their experience on social media. The alternative is shipment on the subscriber’s order anniversary date every month. Additional complications include subscription box delivery frequency and the variability of fees and payments. As with online retailers, subscription service companies find dealing with reverse logistics to be challenging. This is especially true when dealing with goods that have a near 100 percent return rate, such as clothing, jewelry and accessories and toys.
With all these expectations and consumer demands, outsourcing to a 3PL makes perfect sense. Inventory management for subscription boxes is often far from simple. It is not simply about the selection of products that need to be assembled in each box. For that to happen, all the necessary goods have to arrive on time and in the correct quantities so that the kits can be assembled. Goods may be delayed in customs or face other supply chain delays.
To be successful in subscription kit fulfillment, the logistics provider must have proper staffing as well as flexibility in staffing. This may require adding shifts, working longer hours or making other accommodations. Having technology that can ensure proper labor management can also be instrumental in ensuring excellence in order fulfillment. Subscription box assembly is easier on a warehouse workforce when boxes are shipped on the consumer’s anniversary date as orders can be filled throughout the month as needed rather than all within a short time period.
For subscription boxes that are more personalized, there often are one or two products that are included in every subscription box. These subscription boxes can be built first using the base products then personalized with other products based on each consumer’s profile closer to the drop date.
Third party logistics providers often rely on temporary labor, the cost of which can be spread across multiple clients. This is another advantage of outsourcing. For subscription boxes that require a high level of detailed attention, the 3PL usually utilizes experienced warehouse workers rather than temporary labor. This effort extends to returns processing. In the case of subscription services that loan apparel, the goods must be carefully inspected, cleaned and repaired as needed before it can be returned to inventory. This entire process must be completed quickly to avoid inventory carrying costs.
With returns as high as 30 to 40 percent on subscription services, it is essential that the goods be returned to inventory expeditiously. To keep consumers happy, the returns process must be fast, easy and seamless otherwise the consumer may cancel the subscription service. Inventory assortment is a key issue for consumers, one directly impacting the level of customer satisfaction.
The subscription kit industry continues to grow, thrive and evolve. As time has progressed, retailers have started to enter the market, easy enough as they already have inventory. Already volatile, the subscription box industry faces a threat from online direct to consumer retailers.
Subscription box companies often outsource order fulfillment to third party logistics providers. Specialists in warehouse operations, 3PLs have trained, experienced workers to ensure that each box delivered is packed, sealed and shipped according to client guidelines. After all, providing a superior customer experience is key.
Book subscriptions, food subscriptions, clothing subscriptions, coffee subscriptions, wine club, boxes for women, kids subscriptions….it’s enough to make your head spin!
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