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Subscription Box Retail: Match Supply with Growing Demand

There are an overwhelming amount of decisions that go into making a purchase.

Karl Siebrecht, Co-founder & CEO, FLEXE

There are an overwhelming amount of decisions that go into making a purchase. Whether the reason to buy something is based on “need” or “want,” we’re inundated with options. In the last couple of years, a new kind of commerce has taken center stage to help curate a better, more convenient shopping experience: subscription boxes.

The model is simple. A user signs up for a particular kind of subscription box, creates a custom profile, and each month a new box of products is delivered to their door. From women’s and men’s fashion, to beauty products, to razors, socks, snacks, dog toys, you name it—there’s something for everyone.

And the industry isn’t insignificant. In 2017, subscription boxes are on track to generate $40 billion in revenue.

Clearly, something is working. But the subscription box industry is unique. Once a member subscribes, customer retention and competitive differentiation come down to product quality and delivery. To the consumer, the former should be worth talking about; the latter should go undetected.

In this article, we explore why subscription boxes are so successful and how logistics and pop-up fulfillment services can further that success by increasing delivery coverage and decreasing shipping costs. With an outsourced, on-demand distribution network, subscription box retailers can save money on logistics and invest more time and money into marketing, customer engagement, and quality of products and packaging.

What’s the big deal?

Between in-store and online shopping, billboards and banner ads, coupons and email promotions, consumers have never been more bombarded with information.

The solution is to keep buying decisions as simple as possible—reducing the number of decisions we, as consumers, have to make. In fact, a recent Harvard Business Review article, it states that brand loyalty is less about brilliant marketing and more about managing choice: “the mind loves automaticity more than just about anything else…Given a choice, it would like to do the same thing over and over again.”

Subscription commerce makes shopping simple by taking a lot of the decisions out of the equation. It makes it extremely easy for customers to indulge a little and test new products without ever leaving the house… and it’s personalized.

Consumer responsibility is low. The only real requirement, other than payment, is setting up a profile to help determine which products are sent. After that, automated and curated packages are sent directly to members. It’s simple to sign up, members can cancel at any time, and it’s easy to reorder, replace, and return items—all of which tie directly to the logistics.

Logistics: The difference between subscription boxes and … everyone else

For subscription box retailers, the value proposition is strong.

As disruptive as the industry has been, subscription box retailers face unique operational challenges that other eCommerce retailers don’t. Namely, its reliance on the supply chain.

How you manage your logistics has the power to make or break your business. You have to solve for a handful of supply chain challenges that many eCommerce retailers don’t have to think about:

  • Product and order variability is high and specific to member profile preferences
  • Customer satisfaction relies on accuracy and timeliness of delivery
  • Shipping times vary depending on member sign-up
  • The market is new, which means it’s more difficult to predict seasonality

In the world of subscription boxes, logistics can directly impact customer satisfaction. When the foundation of your business is based on customized packages and automated delivery, it becomes quickly apparent when one of the two is lacking. According to the Baymard Institute, 69% of shoppers will abandon a purchase if shipping costs are too high. Once a customer buys in, inconsistent shipping affects retention.

Clearly, for subscription box retailers, customer attrition can have as much to do with the supply chain as it does the quality of the product. Dissatisfaction of any kind is bad for business.

With a strong logistics strategy, the above challenges can easily be solved. But most subscription box retailers are startups with a strong focus on customer acquisition and entering new markets. Managing the supply chain is important, but keeping customers happy takes precedence.

To keep the focus on customers, many startups seek out alternative solutions for managing the supply chain.

On-demand warehousing: An old idea with a new twist

Retailers have been popping-up distribution space to add capacity for years, but it has been a clunky and expensive process.

Adding extra capacity to supplement a short, three-month peak, usually meant committing to a full-year lease and sometimes a service contract costing upwards of $250K. That fixed-cost model typically left retailers with too much space—the opposite problem from when they started.

Most new business—no matter how reliant on logistics—don’t have the excess capital to build an in-house distribution network. And for many, that strategy isn’t ideal anyway. Some startups have had to learn the hard way that investing in facilities can hurt a business more than help it. Investing in your own facilities is capital that could be used to grow your customer base, not your square footage.

Today, technology exists that makes the process of finding and procuring capacity on-demand—making it a lot easier to scale operations and grow your business. You can add fulfillment centers when, where, and for however long you need it. It takes less time to set up (three weeks vs. three months) and costs a fraction of the price because there are no long-term commitments or service fees. With an on-demand solution, you can approach fulfillment with more agility—creating a stronger, more nimble distribution network.

When there’s zero risk, it’s easier to build your network and dynamically make changes along the way. For example, if the manufacturing strategy changes or customer demand patterns shift, you can make real-time adjustments to the distribution network by popping-up and popping-down capacity.

The name of the game is “get closer to your customers”

Logistics plays a significant role in customer acquisition. You could lose 69% of shoppers if shipping costs them too much. And another 60% of consumers say slow delivery will stop them from purchasing, according to a national survey on consumer expectations from Dropoff.

Customers expect a great deal more from retailers when it comes to the cost and speed of delivery. But not every retailer can afford to absorb the steep financials of fast shipping.

To stay competitive, subscription box retailers can use on-demand fulfillment solutions to introduce speed and responsiveness into the supply chain and meet customers’ demands for fast, low-cost delivery. In subscription commerce, this is everything.

By locating pop-up fulfillment centers closer to customers, subscription box retailers can:

  • Run market promotions for same- and next-day shipping
  • Cut transportation costs by positioning inventory closer to customers
  • Solve reverse logistics challenges by putting return centers close to high-density areas
  • Deliver orders faster and for less to decrease shopping cart abandonment rates

Building your network

Your business relies on fulfillment. Implementing a stronger strategy not only supports customer satisfaction, it also supports retention.

If you’re considering how to improve distribution and grow your business, then it’s time for a network analysis. With a network analysis, you can quickly find out where to add fulfillment centers at the optimal cost for your business.

The key variables that influence fulfillment strategies are:

  • Customer promises
  • Manufacturing locations
  • How much you want shipping costs to be
  • How much inventory you want to carry

Using a network modeling tool, each variable is run through the system to calculate the optimal solution, including how many fulfillment centers you should have and where they should be located.

Outsourcing fulfillment could be the smartest decision you make. With the right strategy, you can get orders to your customers faster, reduce shipping costs, better prepare for peak seasons, and stay ahead of your competition. It’s a no-risk investment that lowers direct-to-consumer shipping costs and makes you look good.