The e-commerce subscription business model is booming. Consumers crave the convenience and dependability of receiving products and services on a recurring basis, while brands gain predictable revenue and greater opportunity to build customer loyalty.
As industry verticals go, personal care and beauty, in particular, are poised to benefit from subscriptions in a post-pandemic world, with many CPG brands seeing growth even before the pandemic.
Shifting consumer buying habits, the rise of online shopping and restrictions around traditional product sampling are just a few reasons why it is the perfect time for brands to dive into subscription selling.
E-commerce is driving a beauty landscape makeover
Months of pandemic quarantine and lockdown catalyzed e-commerce growth, especially in the beauty industry. In fact, an eMarketer study projects that the health, personal care and beauty verticals will grow by 32.4 percent in 2020, totaling $72.1 billion in e-commerce sales. Another recent study from PYMNTS.com and sticky.io shows consumers who bought beauty and cosmetic products made 34.9 percent of their purchases through online channels.
What’s clear is that consumers today are navigating the web to get beauty products instead of visiting brick-and-mortar stores. They are seeking contactless methods for discovering and sampling beauty products. But even though shoppers are using more direct-to-consumer (DTC) channels to purchase products, they still want the personalized and curated experiences physical stores provide — i.e., insights from makeup associates about product ingredients or hair care advice from a store employee. There is value in these types of connections, and the subscription business model replicates — and even strengthens — these desired moments of engagement between beauty brands and consumers.
The benefits of DTC subscription commerce
With some retailers permanently closing and others reducing store hours, delivering subscriptions through DTC channels is a smart strategy for beauty brands.
The subscription business model delivers sustainable, long-term customer value. A study by Rakuten Intelligence highlights the dynamic: “Amongst the (mostly) pure subscription merchants (Birchbox, Dollar Shave Club and Ipsy), we see very high repeat customer rates, with 68, 82 and 81 percent, respectively, of customers’ purchasing more than three times.” Since it costs more money to retain a customer than to acquire a new one, beauty brands can save money and reinvest those dollars by focusing on DTC subscriptions.
The subscription business model also empowers beauty brands to better understand their customers, uncovering valuable consumer behavior data, and giving shoppers access to essential items regularly, allowing them to save money through “subscribe and save” deals. Plus, beauty brands that allow customers to self-manage their subscriptions give customers control while reducing internal teams’ workload.
Key considerations when offering beauty subscription services
Many brands launch a subscription business model without a holistic plan. While it is important for beauty brands to seize this opportunity before the holiday shopping season, marketers should consider these three essential steps before starting.
1. Subscription types: First, brands must identify a subscription category, along with a billing cadence, that works best for their business model and customers’ needs. There are generally four types of subscription business models. Replenishment means customers automatically receive certain purchases or commodity items; curation is the selection of personalized items intended to surprise or delight; membership is a recurring fee in exchange for lower prices, or member-only perks and service is a recurring fee for an ongoing opportunity or benefit, like Netflix or Hulu. Many beauty brands mix elements of these subscription types or offer more than one kind.
2. Plan for personalization: From makeup companies offering a variety of foundation shades to hair care companies providing shampoo for a range of manes, the beauty industry is no stranger to personalization. And subscriptions allow a more customized connection with consumers than ever before. Beauty brands should actively learn from customers by sending them quizzes and surveys, digging into data points to tailor customer experiences, and then providing unique offers they cannot resist.
3. Testing and reporting: Data is most valuable when it empowers brands to act on findings. After launching a subscription service, brands should turn to the data created to identify and analyze which products customers are using most often and what customer segment spends the most. It’s also critical to pinpoint moments when churn begins and spotlight which product bundles are selling most.
Beauty brands serious about starting or scaling subscription offerings should leverage a flexible e-commerce platform that provides precise and actionable data. With the holiday shopping season rapidly approaching, a reliable snapshot of the brand’s health will enable teams to maximize revenue and retain customers for the holidays and beyond.
Beauty brands that fail to find innovative ways to reach new customers and retain existing ones risk becoming obsolete. The pandemic has forced many industries to reimagine business, and beauty leaders can now take advantage of this renaissance period with subscription commerce.