Brands sign up to a new business model

Once the preserve of the marketing industry, subscription marketing is spreading into new territories as retailers and customers alike realise the benefits of making a commitment.

glossbox

Subscription services are no longer a business model used by magazines and newspapers alone. From lipsticks to groceries and even children’s clothing, unlikely sectors are attempting to get consumers to commit to regular deliveries of their products.

Tesco is one business that is attempting to take advantage of subscription marketing. The supermarket giant has recently rolled out a service nationwide, one part of a six-point plan to help turn the brand around.

It claims that shoppers – who pay a fixed fee in advance for delivery charges under the scheme – can save nearly £100 if they are regular shoppers.
According to Mandy Minichiello, senior marketing manager for Tesco.com, the scheme will help it to be “the best it can be for our UK customers” as part of its turnaround strategy and to “make shopping as convenient as it can be and give them choices in how they shop.”

Whether or not this will encourage more spending remains to be seen. But could this kind of service push people towards the web, rather than stores? “It will depend on people’s preferences, so it’s difficult to make predictions, but we would expect people to do more of their top-up shops with Tesco.com as the individual charges have been removed,” predicts Minichiello.

Delivery pass

The supermarket giant follows online shopping brand Ocado, which has launched several types of subscription service, one of which locks people into six months’ worth of deliveries. It has recently started offering a discount on this via sites like Groupon. The online grocery site also has a delivery pass, where a fixed fee will get a certain number of deliveries, and a product pass where people can pay £8.99 a year for discounts on groceries.

Its director of marketing and grocery retail Lawrence Hene claims that its delivery passes, where people pay upfront to get discounted delivery charges are to reward loyal customers, rather than secure people’s money upfront.

“That is not the product benefit for us, it was just a way to reward customer loyalty and we see the return on that for customers being more loyal,” he claims.

stack
Piling them high: Stack and Ocado (below) are using subscription services
ocado

Hene adds that the delivery pass is one of three main assets the brand has. “We don’t do much marketing above-the-line – our biggest assets are our website, the vans and the delivery pass, which is something we talk about hugely on the site and in emails.”

But it is sites like Groupon that has allowed it to recruit new customers, and lock them into a six-month deal. So earlier this month it ran a deal where for £45, people could get £50 worth of groceries and a free six-month delivery pass.

This will allow Ocado to get the attention of people who shop around and turn them into loyal customers. “Some shoppers are very promiscuous, which is partly why grocery is such a promotion-led business, but others are very loyal, knowing that there is a particular product they want to buy each week from a certain provider,” says Hene. It’s this type of shopper that Ocado wants to engage with.

Ocado is looking to expand its non-food offering and hired Simon Belsham – previously multichannel development director at Tesco – last year to take on this role. Hene says it will look to deliver non-food items along with groceries, and is likely to introduce a courier service.

He adds that its reserved service means that a delivery will arrive at the same time every week, but the twist is that it remembers through algorithms what someone needs. So, if a person orders bin bags every two months, the system will log this and deliver them automatically.

But subscribers don’t just want to order the same standard products every time they shop – in fact, not knowing what you are going to get is a selling point of several new delivery services.

Magazine service Stack sends people a different independent title each month. People do not know what they are going to get – they have to trust the choice of founder Steven Watson (see case study, below).

And for cosmetics service Glossybox, consumers pay £12.95 a month for a selection of high-end sample-size products, but again what they are going to get is a surprise. Founder Kate Cornell says this is a way of people treating themselves during the recession.

“Consumers are more likely to save on bigger purchases like cars, holidays and houses and treat themselves to small luxuries such as a haircut or a Glossybox each month,” she claims but says the company must make sure that it brings consumers new products to keep them interested.

“There are a number of things that ensure this model works for us. Keeping a close eye on costs is crucial as well as continuously ensuring the best products are in the boxes. Remaining innovative enables us to continue growing our subscriber base, and with this, our revenue.”

The US-based children’s clothing supplier Wittlebee launched this February, and within two months had raised $2.5m (£1.6m) of funding – proof that you do not have to be a large supermarket to make subscriptions work.

But all of these brands are after one thing: long-term commitment from customers. And in a world where many shoppers lurch from one deal to another, it will be a challenge to convince promiscuous shoppers to settle for one brand when it can have the pick of many.

Case study: Stack

steven watson

Steven Watson
Founder

“In the same way that I have my Abel & Cole vegetable [delivery] box – I don’t have to think about finding good vegetables – I’d love it if Stack could become a similar thing for people reading independent magazines,” says Steven Watson, the founder of independent magazine service Stack.

It is a subscriber service with a difference: people who sign up do not know which title they will receive each month. But this is all part of the appeal to its audience of designers and creatives who want to read an independent magazine that looks good and has interesting content, claims Watson.

“We are rethinking the way people discover magazines. The idea of it is that you are exposing yourself to things you wouldn’t otherwise have come across.”

The titles that are sent out to people might be about cycling, fashion or toys, for example. This month’s magazine is Port, a men’s title which is aimed at the more intelligent side of the market, with contributions from journalist and presenter Jon Snow and actress and director Samantha Morton among others.

Watson says the benefit to independent publishers is that it is a guaranteed way to shift 1,300 magazines each month, whereas with a high-street retailer, a publisher may risk unsold copies being sent back, which is a waste of paper and money.

Watson buys magazines from the publishers, although he says that advisers have suggested he shouldn’t be paying for them at all given that he is adding several hundred people to their circulation figures. But he says that publishers wouldn’t be able to afford to send that many magazines to Stack without being paid for it, so the business model does work.

While he admits it is a small-scale business, it is growing steadily and he has recently hired a subscription marketing agency to help it grow further.

But while Stack is using more marketing techniques – it ran research for the first time late last year – the business wants to remain firmly as ‘something that doesn’t care what your interests are’ as a kind of backlash to the algorithms of Amazon.

Watson warns: “Amazon has learned the things it thinks I like and will suggest more of the same – so you are in danger of the Amazon algorithm taking over, you end
up in this feedback loop where you only discover the things you are predisposed to like.”

Subscription services

The Thing Quarterly sends subscibers ‘a publication in the form of an object’ – where an artist has an everyday item that somehow incorporates text. Costing around $240 (£167) it isn’t cheap, but the artists include David Shrigley, who exhibited at London’s Hayward Gallery this year.

The website Stylistpick originally got people to take a fashion quiz to ascertain what kind of style they liked, then got them to sign up to a £39.95 monthly subscription where they would be sent a surprise item. However, the site has been overhauled and it is no longer offering this subscription model. Instead, it is a straightforward fashion retail site, with the option of having someone ascertain a consumer’s style and then recommend clothes to them.

Healthy food service Graze sends boxes of snacks to people for £3.89 including postage. It has got new customers through Groupon, where it was the third most popular deal on the site, after offers from Asos and The Body Shop.

Wittlebee is a US-based children’s clothing club, which parents subscribe to for $39.99 (£26) a month and are sent a box of six to eight items of clothing, chosen based on a questionnaire to ascertain the child’s age, sex, size and fashion preference. In April it raised $2.5m (£1.6m) of funding, following its launch in February.

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