Ask HN: Subscription based E-Commerce
What do you think about the current e-commerce trend of subscription based retail? Such as dollarshaveclub.com etc.? Do you think it's a business model with long term viability?
What other products do you see fit this model?
5 comments
It is a very healthy business model. Since repeated transactions are kind of guaranteed to happen, the company could spend confidently on acquiring new customers. They don't have to spend time and again on the same customer to acquire newer transactions from them.
Here is how most non-subscription based e-commerce companies today work: The company shows some traction, gets good funding, acquires customers at a cost higher than the value of the current transaction, with the hope that the customer would later come back to buy more, and the company could recover the acquisition cost over time, and make profits. But every other competitor in the space is doing the same, and the customers have multiple places to buy from. So, the company ends up acquiring the same customer time and again, and all these costs get added up to the customer acquisition cost. But in the early stages, the lifetime value of the customer wouldn't be evident, and the company might end up spending lot more than the lifetime value to acquire transactions in the short term.
This problem doesn't happen with subscription based e-commerce companies, as long as they provide a good service and are able to retain the subscriptions. They could pay for advertisements on a cost per acquisition model, and count only new customer acquisitions, and subscription upgrades are conversions. This way their customer acquisition cost would be constant and under control.
Here are some of the areas where subscription based e-commerce would work well: 1) Groceries, fruits and vegetables 2) Cosmetics and sanitary products - Facial creams, lipsticks, skin care products, after shave lotion, shaving foam, kitchen napkins, toilet papers, sanitary napkins & tampons, condoms, cleaning agents, detergents, etc. 3) Baby products - diapers, baby oil, talc, etc. 4) Medicines - Diabetic, blood pressure control, cancer drugs, etc. - But there are regulatory concerns here 5) Undergarments, socks, etc.
Most of this is already being done by some company or the other.
Here is how most non-subscription based e-commerce companies today work: The company shows some traction, gets good funding, acquires customers at a cost higher than the value of the current transaction, with the hope that the customer would later come back to buy more, and the company could recover the acquisition cost over time, and make profits. But every other competitor in the space is doing the same, and the customers have multiple places to buy from. So, the company ends up acquiring the same customer time and again, and all these costs get added up to the customer acquisition cost. But in the early stages, the lifetime value of the customer wouldn't be evident, and the company might end up spending lot more than the lifetime value to acquire transactions in the short term.
This problem doesn't happen with subscription based e-commerce companies, as long as they provide a good service and are able to retain the subscriptions. They could pay for advertisements on a cost per acquisition model, and count only new customer acquisitions, and subscription upgrades are conversions. This way their customer acquisition cost would be constant and under control.
Here are some of the areas where subscription based e-commerce would work well: 1) Groceries, fruits and vegetables 2) Cosmetics and sanitary products - Facial creams, lipsticks, skin care products, after shave lotion, shaving foam, kitchen napkins, toilet papers, sanitary napkins & tampons, condoms, cleaning agents, detergents, etc. 3) Baby products - diapers, baby oil, talc, etc. 4) Medicines - Diabetic, blood pressure control, cancer drugs, etc. - But there are regulatory concerns here 5) Undergarments, socks, etc.
Most of this is already being done by some company or the other.
Hey,
I just launched 3 days ago a subscription based business called Foodsterbox ( http://www.foodsterbox.com In french for the Belgium test market ).
My "Box" contains 5 to 7 high end culinary products ( each between 15€-20€ retail price ) that are selected around a monthly theme. The customer also receive 5 recipes from well known chefs and an educational guide related to the theme of month.
The hardest thing for us was definitely the price negotiation. Margin in food are very low most of the time and thus it is very hard for producers to lower their price / give us free stuff. Also, most of the small producers doesn't really understand the value of marketing through the box an stuff like that so it make it even harder to negotiate.
Finally, in Belgium the subscription based business is really not well known so there's a lot of "education" about the concept to do too where if we would like to launch in UK, France, USA consumers already know about the "in the box" business and it make that much easier to sell it to them.
I just launched 3 days ago a subscription based business called Foodsterbox ( http://www.foodsterbox.com In french for the Belgium test market ).
My "Box" contains 5 to 7 high end culinary products ( each between 15€-20€ retail price ) that are selected around a monthly theme. The customer also receive 5 recipes from well known chefs and an educational guide related to the theme of month.
The hardest thing for us was definitely the price negotiation. Margin in food are very low most of the time and thus it is very hard for producers to lower their price / give us free stuff. Also, most of the small producers doesn't really understand the value of marketing through the box an stuff like that so it make it even harder to negotiate.
Finally, in Belgium the subscription based business is really not well known so there's a lot of "education" about the concept to do too where if we would like to launch in UK, France, USA consumers already know about the "in the box" business and it make that much easier to sell it to them.
There are actually some really good insights on this space over at Quora:
http://www.quora.com/E-Commerce/So-what-are-the-most-interes...
http://www.quora.com/Subscription-Services/questions
http://www.quora.com/E-Commerce/So-what-are-the-most-interes...
http://www.quora.com/Subscription-Services/questions
From a buyer perspective, I find it bit challenging. Generally, people don't like to commit for a fixed expenditure.
Having said that, as mentioned below; there would be some areas or products where it would work as it would save on other expenditure.
I believe like offline world, online also would have all models. It is on use to make most of a particular model.
Having said that, as mentioned below; there would be some areas or products where it would work as it would save on other expenditure.
I believe like offline world, online also would have all models. It is on use to make most of a particular model.
Wow, Thanks for the comments! Very insightful...I like the idea to sell medical products on a subscription based model...it has some schleps related to it :)http://paulgraham.com/schlep.html