Insight
Consumer Trends

While newspaper and magazine subscriptions have been prevalent for years, customer-preferences are driving the business model into other industries. Convenient, mass-customised offerings delivered on the doorstep offer companies a strong lock-in effect, making it easier to predict revenue and plan inventory management.

Finding inspiration for tonight's dinner does not come easily as consumers walk up and down crowded supermarket aisles after a busy work day. Subscribing to one of the many meal kit delivery services that have sprouted in recent years could be one way of avoiding the hassle. The home chef will pick up a box on his doorstep filled with fresh produce and vegetables, and a step-by-step recipe will allow him to skip shopping and go straight to the cooking, saving time in a busy everyday life. 

 

Selling existing products in new ways

Newspaper and magazine subscriptions have been prevalent for years, but subscription models are now moving into other industries such as retail. The set-up is simple: by paying a regular fee, the consumer gets access to a product or service which is mass-customised by the use of big data and often includes a surprise element to retain interest. In a traditional pay-as-you-go model, consumers pay for the actual product or service. The shift to subscription services is paving the way for new business models with many new companies offering existing products and services on a subscription basis.

 

In the US, subscription-based businesses are growing their revenue five times faster than what is seen in US retail, while European consumers embrace the new subscription models with a 22% growth rate for European subscription companies, according to the Subscription Economy Index by Zuora.

 

Not least the media industry has accelerated the adoption of subscription services, with newcomers such as Netflix and Spotify replacing existing products. New go-to-market strategies are also seen in the service industry, with companies such as M-Room in Finland offering men's haircuts and grooming for an annual fee. Subscription models are no longer restricted to the servicing industries, however, as an increasing number of consumer products are being offered in subscription packages. Take Adidas' launch of their fitness equipment box 'Avenue by Adidas' which is delivered on a quarterly basis. The box contains the latest fitness gear and a minimum of three items per delivery. The athletic wear company is currently rethinking the concept. Razor blades delivered on the doorstep is another example of one less thing to remember for the occupied consumer going about his daily chores.

 

Consumers want personalised shopping

Customer preferences are increasingly driving the shift towards subscription services, according to Forbes. The ability to personalise the shopping experience is key. It enables consumers to reap the full benefits from the services without having to worry about asset management as the services are continuously updated and improved. Many subscription services also include personalised recommendations for the subscribers, triggering their curiosity and allowing them to try something new in a convenient way. By applying consumer data, subscription providers are able to customize their offerings and cater to the needs of the individual subscriber.

 

Subscription models booming in the food industry

With everyday lives constantly picking up the pace and less and less time to plan, the food industry is one of the industries in which subscription services have really started to kick in.  Here, a growing number of companies are offering meal kits on a subscription basis, and the industry is estimated to be worth USD 3-5 billion on a global scale, according to ReviewChatter. Nordic consumers have adopted the trend too, and it is estimated that digital food retailers account for 1-2.5% of the total grocery trade across the Nordic countries, including subscriptions and pay-as-you-go services, according to ehandel.com. Consumers in the Nordics are not afraid to let others decide the menu and pick out their groceries, with a long list of meal kit options now available to Nordic households. As an example, Ret Nemt, which is the Danish subsidiary of Carolinas Matkasse, reported a 33% growth in meals sold from 2015 till 2016 (Berlingske Business).

 

 

Fig. 1 % of 35-44 year olds in the Nordics have subscribed to grocery services (DIBS Nordic eCom report 2017)

 

 

Retainment still a challenge

Businesses wishing to offer customers subscription services should keep in mind that the key to success is not the number of customers in the book, but rather the ability to nurture long-term relations. One of the challenges is to retain customers, and a 2016 study by CNBC revealed that only 29% of the respondents subscribing to a meal kit service still subscribed 12 months on. On the other hand, subscription models tend to have a strong lock-in effect as subscribers are less motivated to change or terminate a subscription once it has been set up. A subscription-based business model thus makes it easier for companies to predict revenue and plan inventory management.

 

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Sources:


Berlingske Business: ‘Måltidsleverandører spinder guld på danskernes trang til bekvemmelighed’
Forbes: A new business trend shifting from a service model to a subscription-based model’
ReviewChatter: https://www.reviewchatter.com/statistics-facts-history/meal-kits
ehandel.com: ‘Natmatshandeln i Norden’
CNBC: ‘Meal kit subscriptions don’t stand the test of time’
Zuora: https://www.zuora.com/wp-content/uploads/2017/06/Zuora-2017-Subscription-Economy-Index.pdf  

Convenience and costs are key factors when applying a subscription model.

"If you want to succeed as a company in the subscription business, a cost-effective delivery model is key, and so is employing a user-friendly electronic payment system and a strong user interface across platforms," says Rafael Grill, Senior Marketing Manager, Corporate Services at Nets, who will launch a study in 2018 to provide Nets with data and a better understanding of the market for subscription services, including consumer drivers in the Nordics.