Outside the Box: How Brands like Blue Apron and Chewy Flipped the Script
At their inception in the early 2010s, subscription box services like Birchbox and Ipsy relied on novelty. A monthly package of thoughtfully selected beauty products excited customers, who were intrigued by convenience and curation. Companies in other industries jumped on board, too—services like Blue Apron offered to take the planning out of meal preparation, delivering ready-to-cook kits to consumers, while brands like Stitch Fix selected outfits for members to take the headache out of shopping for clothes.
But within a few years, the initial excitement wore off and, despite the success of acquisition efforts, customers began to cancel their memberships. An entirely new strategy was needed to stem the tide.
To achieve long-term business success and grow their revenue, companies like Birchbox, Blue Apron and others began to shift their focus on retention by prioritizing customer relationships and data-driven personalization. Now, the lessons that many of subscription-first pioneers learned are proving instrumental in shaping the future of direct-to-consumer subscription models.
The Problem With Acquisition Alone
Throughout the 2010s, subscription boxes grew quickly. For example, when Blue Apron went public in 2017, the company raised a $300 million IPO. But by 2019, it had lost 95% of its stock value. The cause? An acquisition-centric business model. Often, subscription box businesses were spending more on acquisition efforts than they could make back before that customer cancelled the subscription.
“Many subscription box companies invest heavily in their customer acquisition marketing strategy, offering promotional offers that heavily discount the cost of their products, and spending large sums on advertising to promote these offers,” Ron Wilcox, senior product marketing manager at customer support platform Solvvy, writes.
As a result, if customers cancel early, businesses bleed cash, making it difficult to grow, introduce new products—or even stay afloat. “Unless your members are renewing, your subscription is like a leaky bucket, with water escaping faster than you can add more. The key to success for any subscription box business is the ability to retain subscribers,” customer retention expert Robert Skrob explains.
Data in the Driver’s Seat
But pivoting to retention-driven business strategy isn’t like flipping a switch. To keep customers engaged and on board, businesses have to cultivate relationships, which rely on data. When Linda Kozlowski began her tenure as Blue Apron CEO in 2019, she knew things had to change to prevent the business from declining. So the company tapped into its data and discovered some surprising results. For one, there was a disconnect between the company’s physical product—its meal kits—and its digital asset—the Blue Apron website.
Though it had been collecting robust customer feedback since launching in 2012, Blue Apron was missing an opportunity to analyze it and make it actionable. The company found it had its target demographic all wrong—its customers weren’t “enthusiasts” and “aspirers” as it previously thought. Rather, most of its customers were “avoiders” that wanted to cook, but hated the hassle. The company made adjustments, simplifying its recipes and personalizing the experience for this cohort. Once retention improved, Blue Apron’s business began to blossom again, and it had subscription data to thank.
While Blue Apron is an example of a subscription-first brand recognizing the importance of retention, other companies have made even bigger leaps. Pet supply provider Chewy started out as a traditional ecommerce brand built around acquisition—consumers made standalone purchases, sometimes returning to reorder, but often not. Seeing the promise of recurring revenue cultivated via subscriptions, Chewy changed its approach, building a subscription model that used the company’s existing one-time purchase data to drive retention. Now, the company boasts some of the highest customer experience and satisfaction rates in its industry.
Companies Can’t Get Boxed In
With the COVID-19 pandemic driving massive growth in box subscriptions—32% of consumers are signed up for a retail subscription box and spending an average of $57 a month—the brands behind the boxes must seize the moment. Competition is growing and for companies to thrive, data-driven personalization must be top of mind. With the right retention strategy in place, revenue and growth will follow.