3 mindset shifts for retailers and Consumer Packaged Goods companies to embrace subscription models
From having your dinner ingredients delivered weekly to binging your favorite series, subscriptions are a part of our daily lives. On average, consumers in the Netherlands have 14 subscriptions. They offer diversity and convenience, but subscriptions are also a chance to experiment with less commitment. Nowadays consumers are less brand-loyal, but they aren’t the only ones whose loyalty and dependency have shifted...
Retailers have become less brand-loyal to their suppliers. In addition, due to the consolidation of retailers, Consumer Packaged Goods companies (CPGs) are more dependent on fewer retailers than before. But retailers are struggling too. Their margins are relatively slim, customers are more price-conscious and retailers are losing market share to online players. To top it off, startup companies are entering the market with delightfully disruptive ideas - and subscriptions. The result? CPGs are beginning to explore direct-to-consumer (D2C) strategies, especially subscription models.
Subscription-based companies have grown 3.7x faster than the companies in the S&P 500. Subscriptions create a closer bond with consumers. However, the strength of this bond depends on how well a business keeps its promises. CPGs suddenly need a customer service desk and must be able to receive returns or send replacement products. Additionally, companies must have all the products that they promised to deliver in stock, making planning more difficult. A subscription makes demand more predictable compared to regular e-commerce. For CPGs and retailers, the subscription is still somewhat unfamiliar territory. How can these companies use this model to create more intimate customer relationships?
Learn from startups
A subscription is an adventure that allows you to see how consumers react. Startup companies often turn to subscription models. With a few hundred subscribers and the accompanying data, they can create a compelling case for scalability. Startups are data-hungry and gather input to refine their offering. In contrast, retailers often revisit their offerings and subscription models less frequently, or never. Subscriptions are most common in food and beverage, personal care products, household products and clothing. Following closely are toys, games, books and, slightly surprisingly, pet products. The options seem endless. Retailers and CPGs must claim their subscription space, otherwise a startup will gladly take it.
Your consumers are subscribed to you – and you are subscribed to continuous learning
Retailers and CPGs have one goal: happy consumers who return. A data-driven relationship brings you closer to the consumer through continuous refinement. With a subscription, you have a tie with your consumer and can better understand what they need. The number of subscriptions with retailers and CPGs is growing fast. This rise should be matched with quantitative insights such as A/B testing. Ideally, you also gain qualitative insights into the motivation for a subscription. For instance, what is the relative importance of cost, convenience, exclusivity, inspiration, variety and co.?
Subscriptions enable hyper-personalization with Generative AI
Startups aren’t afraid to experiment. With data and the right tech, marketing, personalization, segmentation, upselling, product development, more accurate forecasting, etc. become easier. For example, Heineken uses Artificial Intelligence to generate product recommendations. Generative AI can also come in handy: You may have 10,000 data points and prompt GenAI to create a typical consumer or composite buyer persona to test your new propositions. GenAI can further support you in creating variations of content for more personas.
From the gym and personalized wardrobe boxes to washing machines and toilet paper – there is a subscription to scratch every itch and cater to every niche. Subscriptions offer retailers and CPGs a unique way to connect with – and learn from consumers. Although we are at the beginning of the curve, startups are the players with the leg up. For retailers and CPGs, it’s time to wake up, experiment and have fun! Always be learning because subscription success is built with a startup mentality.
3 tips to achieve the startup mindset shift
1) Create a ‘startup company’ within your organization
A subscription model is a play garden, not another operational item/cost center within your company.
2) Have patience
Launching a new proposition and all the collateral will take time. Fast companies can have their first subscription live in approximately two months. Build the first business model or first proposition and test, test, test again. Small tweaks and changes eventually add up.
3) Collect data intentionally
Leverage contact moments to improve the subscription, for personalization and for product development. For example, a pet food subscription can ask about the dog’s birthday and send the good boy an extra treat.
Ready to refresh your customer focus? Get in touch:
Cazijn Langeler
Director Retail
T: +31610545518
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