Consumer majors try out online subscription model
Analysts say risks include high marketing costs, high cancellation, customer boredom
London, Jan. 17: Major consumer companies, including Unilever, Procter & Gamble and Nestle, are chasing consumers who want food and household goods delivered automatically, even though this kind of business has not always worked.
The companies are pitching new online subscription services, which promise stable revenues, lower delivery costs and valuable data about customers.
The world’s biggest packaged food company, Nestle, whose Nespresso coffee is already a sizeable subscription business, recently launched a subscription programme for nutritional drinks in Japan and expanded ReadyRefresh, an online bottled water service, in the US.
It also wants to expand the Tails.com subscription pet food from Britain to continental Europe, one of its executives said. It is testing the service in France for a possible launch this year.
Unilever on Monday will launch its Skinsei brand in the US after testing offering “personalised” skincare by subscription. Unilever expanded its Dollar Shave Club subscription razor service to include cologne and beard oil in 2018 and toothpaste in 2017.
Meanwhile Procter &
Gamble, the world’s largest home and personal care company, expanded its Gillette on Demand razor subscription service to Canada. Subscribers can text when they are ready for their next shipment
Selling directly lets manufacturers skirt retailers, giving them more profit and control over pricing, promotions and merchandising. This helps when retailers such as Amazon and Sainsbury’s are pressing consumer product companies for discounts and pouring resources into own-label products.
Subscription selling gives them guaranteed revenues, a better picture of customers and can make goods cheaper to deliver.
The trouble with sub scriptions, analysts say, is high cancellation rates as consumers get bored, high marketing costs, costly delivery and the fact that people often end up with goods they don’t want.
Mondelez International has suspended its Oreo Cookie Club, a programme rolled out last year.
For $20 per month, subscribers got a box containing Oreos in different flavours, with recipe cards, candy and merchandise such as Oreo-branded socks, sunglasses or cups.
After three months Ruby Scarbrough cancelled her subscription, saying in an online review that she could buy the cookies more cheaply at a store.
Jeff Jarrett, global head of e-commerce at Mondelez, pointed to the challenges of delivering massmarket snacks economically and keeping customers interested.
While subscriptions delight some consumers, they frustrate others because “you end up with too much of the product or too little”, P&G CFO Jon Moeller said