Amazon

Is Amazon On The Way To Becoming Subscription Commerce’s New Hub?

Will Amazon Be Subscription Commerce's New Hub?

Getting to scale is a necessary but difficult hurdle to clear on the road to subscription services success. Customer acquisition and retention are expensive, and churn is endemic. The potential benefits can be great; according to the PYMNTS Subscription Commerce Index, Americans spent $2 billion per month on subscriptions in 2018, so there is clearly revenue and interest to tap into. But fully reaping those rewards isn’t easy, and subscription merchants must work to optimize the experience.

Which is perhaps why Amazon entered the scene with the launch of its Subscription Box Store last July, and why even successful subscription brands like BarkBox have started signing on.

Founded in 2011, the company is best known for its subscription offering, the BarkBox – a curated collection of dog toys and treats that shows up on dog lovers’ doorsteps once a month. Bark’s products began showing up a la carte on Amazon in late 2018, when Amazon’s subscription team approached CEO Matt Meeker with an offer to become part of the subscription box store.

Once integrated into the subscription hub, Bark would hold onto the job of filling and curating boxes, while Amazon would take on the more administrative side of facilitating the transaction –customer acquisition, sign-ups and payments.

“We wanted to use Amazon as a customer acquisition channel, same as Facebook and Instagram, where there’s a higher cost of acquisition. Being early is a huge advantage on Amazon, as it was on Facebook in 2012,” Meeker told Modern Retail. “That’s part of what makes it appealing. Customers’ trust with Amazon also helps a lot, and the idea of Amazon introducing the product to people was promising to us.”

Amazon, of course, comes with the built-in ability to introduce products to a lot of people, given that its Prime members alone are a 100-million-person army of extremely digital, commerce-enthused customers. Prime members spend about $1,400 a year on Amazon, as opposed to the $600 that non-Prime members spend, and they are unusually favorably primed (pardon the pun) for subscriptions. Prime itself costs $119 a year (or $12.99 per month). The Amazon experience itself is designed around a series of sub-memberships and subscriptions undergirding that Prime offering – like Unlimited for eBooks, or Subscribe and Save for lower-margin replenishment household staples.

Brands get all of that exposure to a large, spending-enthused customer base – though there are some costs. First, selling on Amazon’s marketplace means Amazon sets the rules, and largely owns the customer relationship. Brands have some flexibility in order customization or frequency, but not nearly as much as they have on their home sites.

But, as Jason Goldberg, chief commerce strategy officer at Publicis, noted in a Modern Retail interview, Amazon might well be offering customers something more useful and valuable than a marginal amount of customization ability, and that is centralization. The problem with the great unbundling revolution of the digital era is that consumers end up separately managing an awful lot of subscription accounts – and it can be easy to lose track.

“If you’re looking for no friction, which is the name of the game for subscriptions, Amazon has the lowest,” said Goldberg. “In general, people don’t want to subscribe to one single product and manage subscriptions brand by brand. You want a single portal to manage all those things.”

The slightly bigger cost, and the one that might be a bigger disincentive for brands to sign on to the Subscription Box Store, is data. Subscription Box services, which are curated to customers’ tastes, are particularly invested in a flow of consumer data to optimize their offerings. If Amazon’s infrastructure clouds those data streams, the exposure might not be worth the loss of information.

It’s a tricky needle for subscription brands – particularly for DTC offerings that don’t have large or well-established customer bases. And even for those that do, customer churn means acquisition costs tend to be high and persistent.

“How to figure out subscriptions, individually and at scale, is the million-dollar question,” said Lily Varon, digital business strategy analyst at Forrester. “For brands, the appeal of the subscription box is that predictable revenue and gathering of consistent customer insights, which may lead to stickier customer relationships.”

And for some entrepreneurs, the early experience with Amazon’s Subscription Box Store hasn’t been uniformly positive, as Charlie Ritchie, founder and CEO of online tea subscription Tea Runners, told Modern Retail. Tea Runners was part of the initial launch of the new portal last year. As Ritchie noted, at first they did see a “big boost” in business, largely ascribed to a big push by Amazon around the new subscriptions, including an email to 200,000 Amazon customers.

But the growth tapered off, soon after the free advertising went away – and the brand found that the smaller-than-expected uptick in volume didn’t justify the loss of the customer relationship they were sustaining.

“Amazon has a rule that subscribers through Amazon are their customer, and not ours. We can’t market to them directly, we don’t get their email addresses, we can’t contact them,” said Ritchie.

He also noted that they see higher churn rates on Amazon than on their regular site, though they do not get analytics from Amazon as to exactly why that is.

While the experience has not quite delivered at the level its CEO expected, Tea Runners is still in the Subscription Box Store. Ritchie said there is an observable benefit in that it funnels in a regular stream of new customers without much heavy lifting or marketing on the brand’s side, which makes it an excellent supplementary channel.

And for Meeker, CEO of Bark, that diversity of channels is key, and is the best value Amazon can provide.

“You never want to be too dependent on any one thing, not Facebook, not Google. So it’s the same with Amazon,” he noted. “The more channels we have that are cost-effective is great. We just need to be where the customer is.”

And the customers, Meeker said, are undeniably on Amazon.

And the subscription boxes are following them. As of today, there are about 100 subscription box offerings on Amazon reaching a wide variety of verticals. There is some concern that as the site gets bigger and attracts more brands, competitors will have to start competing directly within the Amazon store.

It is a concern, Meeker said, but doesn’t much affect their plans to maintain their presence on the marketplace.

“Our view on [Amazon competition] is that we have to be everywhere the customer is to build real relationships with them, know their dogs, respond to their needs and be the best at that,” said Meeker. “If we start to cross off the list anyone who could compete with us, then we’re not selling at Target anymore either.”

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