Sign Me Up: How Subscription Services Are Transforming the Retail Industry

If you’re into cocktails, snacks from Korea, wizards, crystals, single-cup coffee, T-shirts from Irish pubs, earrings, handmade soaps, spirituality, graphic novels, nail polish, knitting, succulent plants, your pet rabbit, golf, cigars, beef jerky, or almost anything, really, there’s a subscription service for you.

All you have to do is sign up online, and a box containing items related to your interest will appear regularly on your doorstep. Subscription services have proliferated in recent years, driven in large part by two factors, explains Mark Cohen ’71 (’69SEAS), director of Retail Studies. “The price of entry is essentially lower and lower, because these ideas can be presented on the internet with virtually no heavy capital expense,” he says. “Plus, consumers are somewhat responsive to new ideas and endlessly curious, so there’s been a remarkable reception to many of these.”

In addition, many subscription services offer extreme convenience. Perhaps the ones that have received the most attention are the meal-kit delivery services that allow busy people to cook a dinner, often gourmet, in a fraction of the time it might otherwise take. The largest, Blue Apron, recently launched an IPO, a first for such a business. Says subscription-service entrepreneur Kat Vorotova ’14 (’07CC): “Subscription is a shopping model that is not a trend. It’s here to stay.”

What follows are just a few more examples of the many subscription services you can join—all founded by Columbia Business School alumni.

OLLIE

 

Gabby Slome ’15 (’09CC), like a growing number of pet owners, thinks of her dog, Pancho, as a full-fledged member of the family. So when Pancho’s health issues led Slome to research the ingredients in and production practices behind many conventional dog food brands, she was dismayed. “I thought, ‘No wonder he’s not doing well. There needs to be a better way,’ ” Slome recalls. At the same time, she says, “There’s a massive health trend of people caring more about where their food is coming from, and the whole notion of eating real food in its original form, as opposed to heavily processed food.” Slome founded Ollie on similar principles, working with veterinarians to devise recipes using high-quality ingredients. The food they sell is human grade,

means it does not contain rendered meat or by-products, and is cooked at low temperatures and without any preservatives. Subscribers input detailed data about their dog’s age, weight, and health issues, and select from two recipes. Ollie’s algorithm customizes the portions according to each dog’s needs, then delivers the food, which customers store in the fridge. “Being direct to consumers is about more than just bypassing the retailer; it’s about delivering a personalized experience,” she says. “Because we know you and we know your dog, it allows us to serve you better than any retailer could.”

Daily Harvest

 

Daily Harvest launched in 2015 as a smoothie business, delivering farm-frozen, preportioned smoothie ingredients to busy customers, who had only to combine them in a blender and pour the drink into a Daily Harvest–supplied cup. The company has since received investments from tennis star Serena Williams and actor-turned-healthy-lifestyle-entrepreneur Gwyneth Paltrow, and expanded into offering other healthful food that can be prepared simply few people out there today who say, ‘I want to fill my body with garbage,’” says Daily Harvest founder Rachel Drori ’09. “But then real life kicks in… , [and] it becomes harder to eat the way we all aspire to.” Launching a subscription model (as opposed to a smoothie brand to sell in stores) made the most sense for two reasons. First, Drori aims to promote healthful eating, which needs to occur day in, day out. Another goal is to educate consumers on the merits of frozen produce, which often gets a bad rap. “Frozen food is more than a dinosaur-shaped chicken nugget,” she says. “[It’s] actually higher in nutrient content in many cases than the produce you’re buying fresh from the grocery store.”

Scentbird

 

Scentbird’s proprietary algorithms help subscribers select a different perfume to sample each month. The questionnaire for customers goes beyond whether they prefer scents that are floral or woodsy, and instead asks people questions about their moods, likes, and dislikes, and to rate other perfumes they might wear. “We’re three-quarters tech and one-quarter beauty,” says Scentbird co-founder Rachel ten Brink ’01. “I came from the point of view of, ‘How can we use technology to better sell beauty?’” The idea for Scentbird arose from a conversation with the company’s now-CEO about the “perfume graveyard.” Ten Brink describes the scenario: “If you go to the store, after smelling four or five perfumes, your nose literally shuts down. So you buy something, and then you get home and you don’t really like it. [It] just sit[s] gathering dust on your dresser.” Scentbird, she says, allows people to “date perfumes before marrying them.” When a customer falls in love with a scent, she or he (about 30 percent of Scentbird’s customers are men) can buy a full-size bottle online. Ten Brink says that a subscription service is often appealing to both entrepreneurs and investors because it provides guaranteed monthly revenue. The challenge is to minimize the “churn”— the number of people who cancel. “How do you design your subscription so that it is something that consumers stay around for?” she says. Ten Brink is also diversifying, and recently launched a cosmetics company. “We’re always testing and learning and asking customers to try to understand what else they need,” she says.

PLVSH

 

Shashi Srikantan ’13 launched PLVSH (pronounced “plush”) in 2015 to address, she says, “a personal pain point”—how difficult it is for professional women to find work-appropriate plus-size clothing. “The plus-size woman does not see services catering to her,” says Srikantan, “despite the fact that she has the money to spend.” Subscribers regularly receive a box of five items—anything from a dress to a pair of jeans. They pay for what they want and return the rest. Much of what is driving the subscription trend, experts say, is the increasing sophistication of algorithms that tell companies exactly what consumers want. For Srikantan, launching her company as a subscription service quickly provided her with key data. “Within just a few months, I knew what colors, patterns, silhouettes, and fabrics work best for that client,” she says. However, Srikantan stresses that the company does not rely only on algorithms to select the clothes. Every customer is assigned a personal stylist with whom she can email, talk, or Skype for advice on wearing a particular piece. The challenge? Returns. “If you’ve got a higher- end product, you have to provide more flexibility. Staying on top of inventory turns is definitely a big challenge.” Still, Srikantan says a subscription model is perfect for her target demographic: a busy professional, often a working parent. “We would send surveys to clients and ask, ‘What do you like most about PLVSH?’ and the biggest thing was, ‘It shows up at my door. After a couple of times, my stylist knows what I want, and I don’t have to think about it.’”

LOLA

 

For Jordana Kier ’14, launching a feminine-care brand as a subscription business was a no-brainer. “You know you’re going to need more tampons,” she says. She and her business partner had always planned to create their own tampons, and as they began researching, they discovered that finding out the ingredients in conventional tampons was nearly impossible, because the FDA doesn’t require companies to disclose them. them. “We thought, ‘This is crazy. This is something that we’re putting in our body for about 40 years. You should have a full list of the ingredients in them,’” Kier says. In focus groups, women expressed similar concerns, and Kier and her partner worked with product developers to create LOLA tampons to be 100 percent organic cotton, hypoallergenic, and biodegradable, and to have a BPA-free plastic applicator. For LOLA, the all-natural tampons are at the heart of the business. “We really think of ourselves as a feminine-care brand that happens to sell its product via subscription,” Kier explains. Still, the subscription model allows for the customer experience to be highly customized, while also helping Kier run the business at maximum efficiency. “We know exactly what the behavior is on our site and what people are ordering, which helps us plan accordingly in terms of supply chain, product, and even where we want to take the business.”

While some experts think certain types of subscription services may be a fad, they often agree that the model is perfectly suited for necessities. Says Olivier Toubia, the Glaubinger Professor of Business in the Marketing Division and faculty director of the Eugene Lang Entrepreneurship Center: “[The services focused on convenience] are a way to take some very old channels of distribution and turn them upside down, thus short-circuiting the channels and finding a more efficient way to deliver products to consumers.”

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