Last week I spoke on a panel about subscription commerce at the Biztech@Wharton conference. First Round has eCommerce in our blood and we are always looking for innovation in the space. Online subscriptions are an emerging trend and we have some great companies in our portfolio who are innovating around subscription commerce.
These businesses are much more than putting things in a box once a month. On the panel we talked about paid and organic customer acquisition, the complex operational requirements of the business and the value of original content as an engagement mechanism.
The most interesting piece of the conversation for me was around the question “how do subscription commerce companies create value and are there industries or subscription models that are more or less attractive for entrepreneurs and investors?”
Across all the “Birchbox of X” companies I have seen in the past 12 months, I think there are two things required to create maximum value in the subscription commerce space:
- Opt-out economics
- Brand voice
Value Driver #1: Opt-Out Economics
One of the great things about the subscription model is consumer commitment. When they subscribe, the consumer makes the purchase decision one time, but they buy every month. The best services completely separate the pain of the purchase from the reward of the product. The consumer gets a ton of distance from the pain of paying and may even think of the service as a gift. Big eCommerce businesses can be built by making compelling offers to your membership on a regular basis, but if the decision not to make a purchase in a given month is not equivalent to canceling your membership, then you are a building push commerce and might be closer to a flash sale site than a subscription business.
Value Driver #2: Brand Voice
Subscription commerce is most valuable when it fundamentally changes a consumer’s consideration and buying process. These companies need a powerful brand voice because the conversation with the consumer is on-going. It is this voice that builds an unfair advantage when it comes to curation and personalization in a cluttered market. It is this voice that helps the consumer discover what they want, shows them why they need it and delivers the surprise and delight to generate loyalty, motivate engagement and drive incremental purchases.
Because of these two must have value drivers, subscription businesses work best in categories of consumer goods that are overwhelmed with choice from infinite brands; categories where the consumer understands quality in a qualitative rather than quantitative way and where experimentation with a new product is both low risk and delivers immediate results.
When you have all these things working for you, you have built a service that moves people. You have the chance to change the way people shop.
The conversation covered a ton more than this and I really enjoyed it. Thanks to the other guys up there with me, including moderator, Anand Sanwal from CB Insights, Greg Alvo from OrderGoove, Rob Lafave from our portfolio company Foodzie, Matthew Smith from Shutterstock and Todd Smith from Stunner of the month