How Analytics and AI Are Driving the Subscription E-Commerce Phenomenon
Box subscription companies are reinventing retail using personalization and artificial intelligence.
In recent years, amid a lackluster shopping environment, an unheralded retail phenomenon has taken off quite dramatically — with growth rates exceeding 1,000%. The startups representing this evolving segment are collectively grouped under the label of subscription e-commerce. With such evocative names as BarkBox, Birchbox, Blue Apron, Harry’s, OwlCrate, Trunk Club, and Winc, these online companies mail monthly boxes containing specially curated items in beauty, fashion, food, personal grooming, and pet products priced between $10 and $80 per box right to their subscribers’ doorsteps. Attention was brought to this category when consumer giant Unilever snapped up one of the best-known startups — Dollar Shave Club — in July 2016 for an eye-popping $1 billion — five times its annual revenue. That acquisition has drawn considerable interest to these companies, the reasons for their burgeoning popularity, and the tactics underlying their business practices.
A number of supply-side and demand-side reasons account for the success of box subscription companies. They have low startup costs, a direct-to-consumer framework, a lack of middlemen, a recurring revenue stream, and the potential to ramp up very quickly. For the time-pressed and budget-constrained consumer of today, these companies can provide tremendous convenience. Because the boxes are delivered directly to subscribers’ homes, they save the time and effort related to having to shop in stores. The added bonus is that subscribing to these boxes results in actual monetary savings for them: The monthly subscription fee is much less than what the items in each box are collectively worth. For the buyers there is an added element of mystery or delight in receiving boxes that are tailored to their individual tastes, and whose contents are not known beforehand — akin to a “Christmas every month” experience. For example, the most successful box subscription company, ipsy, founded by popular YouTube beauty guru Michelle Phan, sends its members personalized beauty boxes called Glam Bags for a monthly fee of only $10. These bags are very popular with the subscribers. Each one contains five deluxe makeup items from a wide range of brands, allowing them to try out different options every month at low risk and cost.
The role of data analytics is absolutely crucial to the success of the subscription e-commerce model. The biggest challenge that these companies face on a recurring basis is having to manage the rate of “churn,” or membership cancellations.