Subscription Boxes for Ag Businesses

With an increased number of consumers shopping online, feeling comfortable with making online payments, and increased social media use, subscriptions have become a popular option for consumers. In 2019, the entire e-commerce subscription industry, including streaming services like Netflix, was worth over $10 billion, which according to one source, is a conservative estimate.

Subscription Box Growth

According to the 2020 edition of the Subscription Economy Index (PDF), subscription companies grew six times faster during the 2012 to 2020 period, with 18% growth, than S&P 500 companies, with 3% growth. The authors indicated that subscription sign-ups are on the rise, and based on companies in the subscription economy index, they expanded at a 12% growth rate. During 2020, according to Digital Advertising News, more than 22% of companies saw subscriber rates grow during the early months of the pandemic.  

Who Purchases Subscriptions?

Information published by McKinsey indicates that compared to the average consumer, subscribers are more likely to be younger millennials, female, have household incomes of $100,000 or more, and have a college degree. Pertaining to their attitudes, they are also more likely to post and use online reviews and make more purchases online than in a physical store.

Regarding online shopping, of consumers who shop online, 54% subscribe to at least one subscription box. And while over half of subscription box subscribers are female, males are more likely to have three or more active subscriptions than females. Based on a study, 44% of female participants have one active subscription compared to 40% of males. In comparison, 29% of female study participants subscribed to two boxes compared to 8% of male participants. But when we sum the percentages of participants with three or more subscription boxes, 42% of male participants had three or more active subscriptions compared to 18% of female participants.

One reason why consumers continue to subscribe is, according to Clutch.co, they "trust that the value they will receive over time from the subscription boxes is worth the ongoing investment, even if they don't use every product in every box."

Types of Subscription Models

There are three general types of subscription models. The first, accounting for 55% of all subscriptions available, is a product trial or curated subscription. Approximately one third of subscriptions offer product refills, and the membership or access model accounts for 13% of subscriptions.

1. Curated Subscriptions

These subscription boxes include a selection of products, with varying levels of customization, designed to allow customers to sample items from food to clothing and beauty products. An example of a subscription that includes product trials or curated items is Blue Apron. Customers can select which recipes they would like included in their box from a fixed list of offerings, allowing customers to personalize their experience. One source indicates that this type of model is best if the business has "a passionate, clearly defined market of consumers. A large and varied network of manufacturers that are willing to give you a deep discount for a one-time order and have the capacity to fulfill it."  This type of subscription offering does require a fair amount of logistics and management to source products for each upcoming box.

One reason why curated subscription boxes appeal is that they provide a "surprise." According to Amanda Dorman, an addiction expert, "Waiting for that box each month—not knowing what it is, but knowing it's coming—creates an adrenaline rush." Curated boxes that provide monthly surprises are offered by Try The World. There are two options to choose from, a larger subscription box called "Countries" and a small assortment labeled "Snacks." 

Subscribers to Countries receive a box containing varied items curated by the brand's cuisine experts, who carefully select a collection of unique products from cultures worldwide every month. Subscribers to Snacks will receive a box containing five healthy snacks from different countries. Additionally, "each box comes with a unique assortment of products from around the world along with periodic tips, recipes, and stories designed to best experience international culinary culture." 

Ag businesses could consider such a subscription model to introduce consumers to popular products (e.g., the main product a farm market sells), new introductions (e.g., trendy food items), and items that they have in excess. Instead of offering a "full-sized" option, smaller trial sizes could be of value and lead to repeat purchases. A greenhouse or garden center could send boxes with different samples of fertilizer and other amendments. A winery could consider creating boxes with samples of wipes that remove wine stains, a couple of wine glass charms, and a sample package of seasonal "wine-themed" napkins.

2. Replenishment Subscriptions

This type of subscription typically offers customers convenience by replenishing products on a reoccurring basis, which eliminates a trip to the store and money since the company may offer product discounts for signing up for the subscription and/or committing to subscribing for a certain period. 

ThreeMain is a company that offers a replenishment model that provides cleaning products in refillable containers. Subscribers get a discount for renewing their subscription, with "3% of all sales are donated to cleaning and protecting our oceans from plastic pollution." Thus, they incorporate a cause marketing strategy that is of great interest to consumers.

While the example above is for cleaning products, think about how you could provide a good or value-added processed product on a recurring basis. Like many wine clubs, florists could provide arrangements on a monthly, seasonal, or other basis. Ag businesses that produce canned, jarred, and similar items, like apple sauce, snack items, or other products, could consider this model. Suppose they know what their customers purchase frequently. In that case, they could develop subscription options that allow consumers to choose the number of packages and how often they receive boxes during the year. Also, consider including a note in the box that encourages customers to add additional items to the next order.

3. Membership Subscriptions

Membership subscriptions provide subscribers with access to information to help consumers learn a new hobby or master a new skill. Content can include:

• a video series with enough information for a viewer to go from novice to expert
• in-depth text and visuals that show the steps to complete a particular process 
• live demonstrations and question-and-answer sessions 
• and even an online community for subscribers to share and exchange ideas and learn from each other

To encourage members to renew their subscriptions, add new information, investigate complementary topics, and periodically invite guest speakers to create a video or lead a live session. Another potential benefit that could encourage consumers to subscribe is to offer subscribers discounts on additional goods and services. For example, Thrive Market gives members discounts on organic, non-GMO, and sustainable products for a monthly fee. Also, subscribers receive additional "members-only deals, rewards, and free full-sized product gift."

Another example is Learning with Experts, a subscription service that offers two options. The first provides subscribers with access to video lectures, the ability to chat with others taking the course, and assignments to reinforce learning. Members who want more interaction with the expert leading the course can upgrade their subscription and receive feedback, message the expert with questions, and receive a certificate of completion.

Consider how you, as an expert, could use this type of subscription service. Based on your business, you could teach an audience about canning foods, arranging flowers, and pairing wines and foods. Businesses could also provide feedback, either through a live session or responding to questions subscribers post on a message board.

Source: McKinsey & Company

Benefits for Businesses

Smooths out Demand and Helps Manage Inventory

Subscriptions provide retailers and manufacturers with sales data for upcoming months, making it easier for businesses to manage inventory and order or manufacture products.

Recurring Revenue

Subscribers pay for boxes in advance of receiving them. "Charging up front for your subscription means you're locking in a year's worth of renewals (unless you provide refunds) and getting your customer's cash upfront. More importantly, it prompts a customer to make a bigger commitment to learning and adopting your subscription, making them much more likely to renew" (Warrillow, 2015, Kindle Edition, p. 184).

According to PriceIntelligently.com, a monthly recurring revenue model results in higher revenues and a stronger customer relationship over time than retailers that rely on customers to return to the business to make additional purchases. While a recurring revenue subscription might have "higher costs upfront… the accumulated revenue very quickly covers those costs and then starts to exceed those costs within a reasonable amount of time." The source also suggests that a strong connection can develop between buyer and seller because the consumer is continuing to receive products at a specific frequency. The buyer is likely to purchase other items from this trusted source.

This relationship may also reduce churn, the percentage of consumers who end their subscription within a specific period, and can result in a higher customer lifetime value, which is the revenue an average customer will provide a company before they discontinue their patronage.

There are two types of churn:

1. Voluntary churn, which the consumer has control over. For example, they cancel a subscription due to personal financial reasons or decide to take a break and resubscribe later.
2. Involuntary churn, which they have little to no control over. Examples include when a merchant cancels the shipment or subscription altogether.

Churn is calculated as follows:

Assuming that 500 people subscribed in January 2020 and 400 continue to subscribe in December 2020, the churn rate for this period is the number of cancelations between January and December (example: 100) divided by the total subscribers in January (example: 500). Thus the churn rate for this period is 20% (100/500).

Average Churn Rates Based On

Type of subscription:

• Consumer goods (i.e., replenishment): 9.62%
• Box of the month (i.e., curated: 10.45%
• Education (i.e., membership): 9.62%

Average cost:

• Less than $10: 7.36%
• $10 to $25: 6.58%
• $25 to $50: 6.78%
• $50 to $100: 5.36%
• $100 to $250: 5.17%
• More than $250: 5.67%

Source: RecurlyResarch

According to Crate Joy, a business:

• is doing great if the churn rate is great if under 7%, 
• good if between 8 and 15%,
• "slightly under the norm" if between 15 and 20%, and
• unsustainable if over 20%.

Calculating your churn rate will help you visualize if and at what pace you are losing more customers than gaining new subscribers.

Access to Customer Data

The HitWise Subscription Boxes in 2018 report provides a great example of the power of having a subscriber base. Based on example businesses, readers can see descriptions of subscriber demographics, attitudes, and behaviors. Data like these can help businesses refine their marketing strategy, provide specific goods, and make recommendations for other products based on subscriber interests.

Consider how much you could learn from current customers about their needs and wants and what goods and services you could offer to help them achieve something or solve a problem. Subscriber insight can also help estimate interest in a potential new product, the quantity needed, and the frequency with which they would like to receive such a product. As with One Click Coffee, mentioned above, responses to survey questions about subscription box satisfaction can help make changes that will keep consumers resubscribing and not abandon a business after the subscription ends.

Encouraging Add-on Sales

Another advantage is the ability to encourage subscribers to increase the value of the box they are buying for themselves or give as a gift, increasing revenue for the subscription business. For example, the Sunshine Box allows consumers to send a "little box of sunshine" to someone "to brighten [their] day." The box includes a few items (e.g., 2½-inch succulent plant, cookies), but the sender can add complementary goods (e.g., coffee, peppermint candies) to enhance the original gift. This is a great way to customize a gift and provide an upsell opportunity for the subscription business.

Challenges

Supply

Before launching, subscription businesses need to determine how many boxes they can initially offer based on current production and processing capabilities, relationship with suppliers, and ability to handle logistics. As the business grows, success also depends on meeting current demand and accurately estimating future growth. It certainly would be an issue if supply ran out before all subscriptions were shipped. Thus, having an idea as to what would be a suitable replacement is critical.

Cancellations/Subscribers not Renewing

Having a flexible cancellation policy is very likely to appeal to potential subscribers. However, cancellations present an issue for subscription businesses, and in some instances, it might not even be due to the content in that specific subscription box. Consumers often cancel or decide not to renew because they are suffering from subscription box fatigue, which is the result of subscribing to too many boxes at one time and being overwhelmed with the number of products they receive. It is a fine line between including too many products and not enough to provide the value that a subscriber expects.

As suggested earlier, survey subscribers about their satisfaction with what they received in their box, but another option could be to offer two different-sized boxes. A box with more items or larger-sized containers could appeal to heavy users, while smaller quantities and/or less frequent shipments (e.g., once every other month versus every month) could appeal to others. A smaller box could also appeal to consumers who want to give the subscriptions as gifts, or it could serve as a trial offer for those who want to "sample" the box.

Discounting Boxes

While subscriptions have increased since 2019, According to the 2020 edition of the Subscription Economy Index, subscription companies offer more and higher than average discounts than industry standards. Businesses might discount subscriptions to entice consumers to try the subscription or encourage past subscribers to subscribe once again.

Best Practices

Of the boxes that consumers subscribe to, food and beverage boxes account for 19% of subscriptions, followed by boxes with hobby items at 15%, and beauty at 10%. If a business is interested in launching a new box in one of these categories, or in general, Sellbrite provides a list of strategies that businesses may want to consider to be relevant to consumers. Each item is described in more detail below.

• Focus on a niche
• Have attractive packaging and high-quality images
• Offer personalized options 
• Make purchasing low-risk 
• Ask for customer feedback 
• Encourage gifting

Focus on a Niche

In terms of marketing, a niche product is a good or service that is very specialized and not of great interest to the masses. Consumers interested in a niche good may have particular needs and wants that few other products can fulfill. Being aware of niche products that result from consumer interest in specific trends, activities, and interests and identifying how to best market to them is one way to compete in an overcrowded marketplace. One resource that provides year-round insight into trends and an annual report that predicts what is likely to appeal to consumers is Trend Hunter. This resource offers both free information and insights as well as custom research and reports. Trends for 2021 included health and wellness, environmental packaging (e.g., cardboard packaging, zero waste foods), non-traditional learning (e.g., online courses, virtual tastings, coaching), and many others.

Learning about these trends and then thinking about how to apply them in a business setting for a small to medium-sized agricultural business can be daunting. How might these businesses incorporate one of these trends into a subscription box?

For a couple of years, health and wellness has been an important trend, and this trend continues to be of great value for consumers and retailers alike. Examples of trending health and wellness products include skincare and goods that fulfill consumers' self-care needs with unique ingredients. Also, due to the irritation that face masks cause, there is now a need for skincare products that help alleviate breakouts. Whether your business is a winery, specialty food business, florist, or other, think about these goods and how they can complement the main items you sell and could be included in a subscription box.

Have Attractive Packaging and High-quality Images

If we are purchasing a product online, we lose the ability to touch, rotate, and otherwise scrutinize the product and packaging. A customer's inability to touch, feel, and try the product is a significant disadvantage for e-commerce. According to data published by eMarketer.com in 2018, 83% of U.S. smartphone owners feel that product images/photos are "very" and "extremely" influential when making an online purchase.

Thus, it is essential to have high-quality and optimized product images to enable customers to visualize how they will use the item or fit visually in the space intended. If a consumer can look at the contents of an upcoming subscription box installment or a sample box, they are more likely to determine if the value of the box's items justifies the price they will pay.

Learn How to Optimize Ecommerce Images for More Sales.

Offer Personalized Options

E-commerce retailers such as Dean & DeLuca allow customers to create a mass-customized gift. The gift-giver can start with the size of the gift they want to give in terms of how many products a container will hold the theme—for example, if they're going to build a gift for a coffee lover, they will select items that fit that theme. As they add contents to the gift container, gift-givers then continue to add items until the container is full, as designated by a graphic that helps them through the process.

FabFitFun is a curated mix of beauty, wellness, fashion, fitness, home, and tech items. Regardless of whether it is a season or annual membership, consumers can customize their box and choose from a selection of items that best meet their needs (e.g., choosing one product from four or five available options).

Make Purchasing Low-risk

Making a purchase low-risk can be accomplished in several ways. Offering samples and having reasonable return policies are two options, while transparency is another. While not widely embraced, Everlane is one e-commerce business that does provide a breakdown of how they develop the price for items based on materials, labor, etc. For example, with a retail price of $50, we can learn that the cost of goods sold for a Belgian waffle wool beanie is $18.12.

In the same vein, the Allure Beauty Box also provides a bit of insight by indicating that for the price of a monthly subscription of $23, subscribers receive products valued at at least $100. According to a Forbes article, "When a firm voluntarily discloses its costs, the consumer is more attracted to the brand, which increases willingness to buy."

Ask for Customer Feedback

It is imperative to learn about customer satisfaction with subscription boxes. There are several ways to do this; one is to use tools that a hosted website offers. Another is to use a site like SurveyMonkey.com that has a free version or a paid version, which provides more features, or a service with fewer options but is free, such as Google Forms.

One Click Coffee is one subscription business that strives "to make sure its offering continues to deliver value." The company uses survey responses to decide what coffee to include in the subscription boxes. Pollyanna Ward, the director, believes that "the survey is one reason the service has a retention rate of 97%."

Ward is quoted in an article published on the Marketing Sherpa website as saying: "[Don't] underestimate the power of your existing customers. When looking for research, you don't need to spend hours Googling and looking for reasons why people buy. Just keep asking your customers who are with you now."

Encourage Gifting

Of course, when a consumer is on a website, we want them to purchase the item they are currently seeking and other items such as gifts. Exotic Noodle offers monthly subscriptions that include "hard-to-find Ramen Noodles from around the world". The product website prominently displays the "give as a gift" option to encourage visitors to share the noodles with others.

After Shipping the Box

Sneak Peek

After each box ships, there are a couple of things businesses should do to prepare for the following shipment and hopefully encourage subscription renewals. One idea is to provide a sneak peek as to what a subscriber can expect in the next installment to create some excitement. A card or flier that includes pictures and a description of the next installment can be included in the current box or sent in an email to the subscriber list.

Unboxing and Getting Started

Consumers may not renew a subscription because they might not know how to use the products they receive in their boxes. Developing an "unboxing" video or infographic describing the contents, the primary and other uses, key product characteristics, etc., is critical. Along with these "get started videos," another strategy is to include a checklist with the steps necessary for subscribers to follow to ensure they are using the product correctly or as intended. Finally, follow-up emails also provide information about using the product, asking subscribers to give reviews, and encouraging subscribers to reach out if they need assistance, are also ideal (Warrillow, 2015).

Services that Manage Subscriptions

While it may seem daunting for a small business to develop a subscription box, services such as Crate Joy and Subbly help businesses create and manage subscription box businesses. Prices vary based on what assistance each service provides, but options include:

• Overseeing renewals, shipping, billing, and processing payments
• Providing customers the option to customize the subscription
• Marketing and client management  

Reference 

Warrillow, John. 2015. The Automatic Customer: Creating a subscription business in any industry.  Penguin Publishing Group.