3 Steps Retail Brands Can Take Right Now With Subscriptions
In my article last week, “How Much Toilet Paper Do You Really Need? “ I touched on consumer behavior during panic buys, as we have seen in the midst of the coronavirus pandemic.
The anxiety consumers have regarding product availability at retail is matched by that of supply chain and merchandising managers who have always struggled to reduce out-of-stocks (OOS). Research suggests that pre-pandemic OOS cost retailers approximately $984 billion annually across the globe. And it’s not just the lost sale that should worry brands. If the item continues to be unavailable for 3 consecutive shopping trips, 70% of customers will abandon that retailer entirely.
THE PROBLEM WITH ESSENTIALS
Brand and product affinity are essentially out the window during panic buy scenarios (as we are seeing with COVID-19), but this has always been an issue for brands. In recent times, the balance of buying power has shifted from them to the consumer as shoppers have more access to information on-line and in-store than ever before. This is further compounded as a digitally empowered consumer (more than 80% of shoppers actually) believes they know more than a store associate, based upon their immediate access to data. Price checking and item availability information have provided them with the tools to purchase precisely where and when they desire. And forecasting the demands of a fickle customer who shows minimal loyalty has become quite the conundrum for retailers and brands. This will change and customers become more intentional with their purchases.
And even pre-pandemic, the most common household items (laundry detergent, mop refills, paper goods, etc.) are the most at risk for being lost as shoppers will take any brand that is still left on the shelf. This compounds the issue for retailers, who have historically relied upon those quick “top up” or convenience runs. Though low margin, they lured customers not only with essential goods, but to increase their basket size with other non-essentials as they roamed aisles on the path to the checkout counter. Brands need to preserve their foundational business and maintain customer loyalty in order to preserve that core business to extend their reach for complementary goods.
STEP 1: DEVELOP A RECURRING SUBSCRIPTION MODEL NOW
One way to counteract this is through a recurring replenishment subscription service. Prior to the coronavirus pandemic, according to McKinsey, e-commerce subscription service has been seeing healthy growth of 100% for the past 5 years, with the largest ones generating $2.6B in sales in 2016 ($1.7B coming from replenishment orders). That’s a hefty increase from just $57m in 2011. Now is the time for retailers and brands to adapt.
More pointedly, the first brand that assembles a monthly guaranteed care package (cereal, soup, paper goods, laundry detergent, baby care needs and cotton swabs), so I don’t have to worry about empty shelves at retail earns the right to store my credit card.
Replenishment subscriptions with guaranteed goods delivery will benefit both customers and brands. Customers will no longer have anxiety about the out-of-stocks on the shelf during shopping trips, and brands will be able to better predict demand while developing direct customer relationships that they can nurture when we emerge post-pandemic.
And brands need to act now before the competition beats them to the punch, because once a shopper saves their credit card and clicks “Deliver to me every 3 weeks,” it’s a lock. More pointedly, the first brand that assembles a monthly guaranteed care package (cereal, soup, paper goods, laundry detergent, baby care needs, and cotton swabs), so I don’t have to worry about empty shelves at retail earns the right to store my credit card. What’s the LTV of that?
Aside from de-facto brand affinity (via flexible monthly contracts), this puts supply chain demand squarely back in the hands of brands. A known individual forecast would demonstrate true intent, rather than the analytical forecast, potentially biased by panic buys. A subscription service provides a direct line of sight into aggregate demand and will allow brands to effectively shuffle their supply chain networks to adapt if needed — pulling stock from one store to another when a distribution center is low, or shipping directly to the consumer.
STEP 2: GETTING STARTED WITH SUBSCRIPTIONS
A common first start is the consumer offer: either via a discount on an initial (or trial) order or with a payment instrument (“save your credit card in your profile for first order discount”). The customer acquisition cost is outweighed by the LTV and convenience of eliminating the minutiae of text entry for future purchases (such as name, address, and credit card). Another method is the “Subscribe and Save,” which promises discounts on every recurring order placed in fire-and-forget mode.
However, while these campaigns have traditionally worked to woo consumers, it’s possible that a discount may not even be required if one can simply guarantee delivery compared to the risk of being met with empty retail shelves. Take Amazon, they’ve already begun prioritizing orders for their subscribers in the face of COVID-19 related surge. Amazon Prime members (those that pay annually for fast and free shipping, among other benefits), will now have their orders prioritized over non-members. This alone could be reason enough for an increase in membership.
For some, this will be easier said than done. Though adding a recurring ‘buy’ button on an e-commerce site may be rather easy, developing the last-mile muscle to support individual deliveries isn’t trivial for a brand used to bulk distribution. That said, companies are adapting their business models with each passing day of the pandemic to meet demand and continue as going concerns. Take for example Baldor, an NYC based commercial food distributor. In the face of restaurant and bar closures, they have pivoted and are now offering home delivery to individual consumers within 50 miles of their Bronx warehouse rather than standard customers: restaurants, schools, and other outlets.
Large CPGs like Kimberly Clark, P&G, or Mars (which also manufactures pet nutrition brands like Pedigree) might attempt to pivot to more robust direct to consumer programs in partnership with retailers or logistics companies like FedEx or UPS as the distribution hub.
STEP 3: THINK OUTSIDE OF THE (ESSENTIALS DELIVERY) BOX
Brands should also think about ease of payments, so customers can easily (or perhaps automatically) shift payments using rewards-based credit cards for non-essential items or to FSA/FHA debit cards for eligible items like over-the-counter medicines. And it’s not just about essentials, as subscriptions can be extended to a variety of product categories including:
- Vitamins & Supplements — this wellness category is also easy to fall off a customers’ must-have list. Make it simpler for them and for you.
- Cosmetics — a gap in the replenishment cycle opens the brand up to risk when that age-defying concealer is nearly empty, and the customer is exposed to competitive campaigns to switch.
- Food — maintaining the stocked cupboard, reducing the number of trips, and maintaining social distancing are key elements.
- Apparel- many runners like me swear by a particular brand, size, and fit, so an athletic footwear subscription would be ideal. Apparel manufacturers might do the same with staples such as socks or undergarments on say, a 3 to 6-month cycle. (perhaps a Left only sock subscription, as I appear to lose those more often than the Rights)
Next, when brands and retailers have laser precision to demand intent, they might also capitalize on reduced markdown and other sales strategies. The deep markdowns due to overstock and soon-to-expire items erode margin for retailers to the tune of $300B per year. Instead of mass markdowns or destroying the product, I can envision consumer-direct campaigns to replenishment subscribers. In this example, a retailer faced with near term overstock might notify their customers that their “monthly order is ready a week early, would you like it delivered now?” (and perhaps at 5% discount to sweeten the deal). For the brand and the customer, this is a win-win.
Last, this becomes a mounting concern when we think of consumers on government assistance programs. According to the US Department of Agriculture, approximately 40 million Americans rely upon the Supplemental Nutrition Assistance Program (SNAP). Yet they cannot procure the goods they need when their assistance arrives each month if the product isn’t on the shelves (as highlighted in a Washington Post article this week finding that a growing number of Americans can’t afford to ‘stock up’). And those who rely on some form of government assistance will undoubtedly increase, as the United States heads into a recession with a potential for close to 20% unemployment. Indeed, The US Department of Labor announced last week that 3.28 million Americans just filed for unemployment assistance. In the coming months, getting the supply chain right is imperative to ensure millions of people can get the products they need when their social security, disability or food stamp checks arrive. Developing a subscription replenishment strategy might alleviate that anxiety.
Originally published at https://www.linkedin.com.