Nowadays industries seem to be disrupted all the time, but are often only shaken by technological advances before returning to their original state. For this Tech of the Week we will be discussing how e-commerce based subscription models were used to breathe new life into traditional pay-per-product markets, namely the razor and beauty market.
In the razor blade industry the Dollar Shave Club is best known for its viral marketing campaigns, where it focuses on the fact that people don’t like going to the supermarket to buy overpriced razor blades. They sell cheap quality razor blades that are delivered frequently to the consumers via a so-called replenishment subscription. This has proven to be a significant success as Dollar Shave Club currently sells about 10% of all razors in the US and owns >50% online razor market.
Birchbox offers a discovery type of subscription. By creating a market where a personalized selection of beauty related samples is sent to customers for payment, Birchbox has been able to infiltrate both the online and offline beauty industry. The company has grown quickly since 2010 and is active in six countries with over a million subscribers.
Birchbox’s initial success comes from its smart use of customer information for increasing partner and customer value. Its online platform with reviews, a webshop, a loyalty system and user-generated social media created an interconnected value chain with a rich community for subscribers and a means to target potential customers more specifically for partners.
So, why do such businesses prosper? Well, their social media and viral video campaigns jump-started their businesses. Afterwards, each of them chose a different route, Dollar Shave Club internalized all the IT backbone and created their own product range, while Birchbox focused on securing partnerships with more and more beauty product brands and locking in their customers with a loyalty point scheme. For Birchbox, that didn’t end up going well as they couldn’t properly use the data collected from the loyalty program and distributed unsuitable products to consumers. While the Dollar Shave Club still is not profitable, even after so many years of functioning, it is growing still strongly and Unilever recently acquired it for a billion USD.
Dollar Shave Club and Birchbox demonstrate how disruptive innovations can be mapped according to the two attributes – entering a market through the low-end foothold or creating an entirely new market (based on CM Christensen of HBS theory). The former company started by selling quality razors for only a dollar per month to get into a traditional pay-per-product industry, and has recently extended its line with more luxurious razors and care products. Birchbox has found a way to successfully capitalise a market for bundling samples and increasing brand visibility which did not exist before.
Here are some recommendations applying to subscription-based business models:
- Focus on the collection of information about customer to target both the short tail and the long tail segments;
- Expand the value proposition to increase customer’s satisfaction;
- Create a community of consumers and make the subscription model a two-sided relationship.
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Authors: Dan Acristinii, Josine Jin Snoep, Beatrice Testori, Jonathan von Rueden
