If you’re a big fan of subscription boxes, join the club. According to recent research from Clutch, more than half of online buyers currently use one or more versions of this highly convenient purchasing model.
But with tremendous growth comes tremendous challenges, especially on the subscription box fulfillment side.
We recently sat down with Amware’s Rob Hartley, a longtime logistics professional who’s worked closely with many subscription companies, to learn more.
The last time we spoke the subscription industry was a booming. Has anything changed?
It’s only gotten bigger.
According to a recent Subscription Commerce Index, as many as 41 million adults now participate in at least one retail subscription service, and according to Fast Company there were 3,500 subscription companies as of October 2018, which was a 40% increase over the previous year.
That’s good news, right?
Absolutely, in that the consumer has more choices. But now there’s considerably more competition for consumers’ subscription dollars – and more places for those customers to take their business if they begin to suffer from “subscription box déjà vu.”
Subscription box déjà vu?
It’s that “been there/received that already” effect that often applies to subscription customers (also known as members) who have been doing business with the same subscription company for a long time.
For example, a member who’s hugely enthusiastic about receiving an assortment of pet products for Fido during the initial months of a subscription may not be nearly as excited if she’s receiving all-too-familiar variations of that same assortment a year later. In fact, she’s probably at risk to churn – aka turn her business over to a different subscription company.
How common is subscription customer churn?
Very. According to one McKinsey and Company report, about 40% of people who purchase any kind of subscription will cancel it, including many who do so within the first few months.
So curating unique product mixes and inserts is a critical success factor for much of the subscription industry. . . .
Definitely. In order to retain members, subscription companies that specialize in curated products can’t rest on their laurels. They constantly have to find and creatively present fresh selections of products that are well-suited to their target audience, because it really is imperative that each month’s delivery feels new and different.
What implications does this have for subscription box fulfillment?
When a major part of your value proposition is that no two month’s boxes will ever have exactly the same items, it tends to make fulfillment and shipping costs more volatile.
Since fulfillment expenses are based on the number of touches required to get each shipment out the door and each month’s product selection is different, it’s inevitable that some product configurations are probably going to require considerably more of those touches (and expense) than others.
Plus, when you change the kinds of products you ship, you’re probably altering a shipment’s weight and dimensions. If the kinds of products featured in one month’s assortment require a larger box or create a heavier shipment, it could substantially increase that month’s parcel delivery expenses .
Both of these phenomena can pose a problem for margin-challenged subscription businesses because, regardless of shipment size and weight, members pay the same flat fee.
Of course, not every subscription business focuses on providing different assortments.
You’re right. Many of the most popular ones specialize in helping people conveniently replenish necessities like razors, nutraceuticals, and cosmetics.
In the case of these companies, one of the most important retention factors is delivery reliability. Regardless of whether these subscription companies have a pre-established monthly delivery date or allow customers to select their own, it’s important that they stick to that delivery date as closely as possible, even if they occasionally have to cover the cost of expedited shipping to ensure things arrive on time. After all, when people agree to pay a monthly fee that will be collected just like clockwork, they expect their subscription provider to be just as diligent about keeping its end of the bargain.
Do those monthly delivery dates get more difficult to hit as subscription companies grow?
It’s usually not a major issue during the early phase of a subscription company’s growth.
But as memberships grow, it’s not uncommon for the company to hit a point when growing order volumes – and the additional inventory, packaging materials, storage, and labor requirements – make subscription fulfillment too overwhelming to handle without help. That’s usually when they decide to look for a 3PL partner.
What’s the advantage of outsourcing fulfillment?
For one thing, many 3PLs are highly proficient at finding painless ways for subscription companies to cut costs without sacrificing quality. Among other things, we can usually negotiate better rates for parcel delivery and packaging materials simply because we have multiple clients and locations and can use that aggregate purchasing power as leverage.
Another advantage is the ability to use a 3PL’s facilities and workforce on an as-needed basis. This flexibility is huge, because many subscription companies’ fulfillment needs are highly concentrated into a couple of busy times each month if they send members’ shipments out during the same couple of days.
What about the ability to re-engineer subscription box fulfillment processes? Is that also a plus of working with a 3PL?
It certainly can be. In fact, we always advise clients that the start of a new 3PL relationship is a great opportunity to explore the possibility of change – because any 3PL that has served a lot of business-to-consumer companies is likely to have at least a few game-changing techniques or tactics that companies can use to their advantage, including those that relate to: package integrity (including investigating ways to reduce damage), more efficient shipping methods, and optimizing warehousing layouts and picking.
We’ve talked about what’s hard about subscription box fulfillment. Are there aspects of fulfillment that are easier for this type of business?
I don’t even have to think about this one. For subscription companies, shipping volumes and delivery dates are generally more predictable from month to month, resulting in a couple of advantages:
- Labor planning. Predictability means more planning time. With that time, an experienced 3PL can more easily optimize staffing. That includes scheduling the best and brightest associates to get boxes accurately picked, packed, and out the door, as well as mapping out a more cost-effective workflow to minimize travel time. Don’t underestimate the value of this advantage. Labor costs continue to be the largest component of warehousing costs, so it pays to work with 3PLs that understand subscription box fulfillment and how to use some of the unique characteristics of this business to minimize labor costs.
- Parcel transportation planning. Predictable deliveries make subscription companies highly appealing customers for parcel carriers, who welcome the opportunity to service a piece of consistent business with guaranteed volumes and schedules.