//Tuesday d. 11.06.19

Global consumer giant brands are betting on subscription services

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Written by Morten Suhr Hansen

According to news agency Reuters, three of the world’s largest consumer and food companies, Unilever, Procter & Gamble, and Nestlé, are increasingly developing new, innovative and customer-oriented subscription solutions. Reuters list a number of the latest initiatives from the three giants.

The Swiss food company, Nestlé, has already launched their subscription business in several countries around the world, where customers subscribe to Nespresso capsules. For instance, in England, private households receive their coffee capsules on a regular basis.

In addition, Nestlé has recently launched a health drink subscription program in Japan and a subscription named ReadyRefresh in the United States, where subscribers receive bottled water on a regular basis. Nestlé is also planning to expand the English concept, Tails.com– a pet food subscription – to other European markets.

In the United States, Unilever is focusing heavily on launching personalized skincare products named Skinsei. The fact that subscription programs are of high strategic priority at Unilever became clear when the company in paid more than $1 billion in 2016 for acquiring the fast-growing subscription-based company, Dollar Shave Club.

Procter & Gamble, the world’s largest manufacturer of personalised skincare products, also rolled out its own razor blade subscription service – Gillette on Demand – in a number of countries in order to compete with the Dollar Shave Club and other similar subscription services.

The Strategic Resource Group (US) estimates that 10 per cent of all online commerce in the United States are subscriptions, and the growth exceeds other online commerce. This indicates that the share of subscriptions is expected to increase significantly over the coming years.

One reason why these three giants have started focusing on subscriptions is an increased desire among manufacturers to create a direct sales channel to customers -outside the traditional retailers. It is definitely a countermove against giants such as Amazon, who both push prices down as well as increasingly producing and selling their own private labels. With a direct-to-customer subscription-based business model, manufacturers get better prices, higher earnings and more control.

Amazon is also an industry giant within the subscription market. With the program “Subscribe & Save”, Amazon’s customers are able to subscribe to a large number of everyday products, which are delivered in fixed frequencies that suites the customer’s schedule. Industry experts believe that “Subscribe & Save” is unique and the world’s largest subscription concept for physical products with an annual turnover of several billion dollars.

Is launching new subscription concepts a safe way to success? Not at all; it is a fine balance and rather challenging to create a subscription solution, which ensures that customers do not either 1) run out of products, or 2) get too many products delivered. It requires predictable consumption patterns among customers and flexible solutions that can easily be changed along the way. At the same time, the subscription product or service should provide a desirable experience or value for the customer that goes beyond receiving the product itself. Why? Otherwise, there is a risk that consumers grow tired of the subscription quickly and, thus, choose to unsubscribe.

However, there is no doubt that if these challenges can be solved and one is able to find the fine balance, the subscription model is truly interesting and attractive to both businesses and subscribers.