How subscription models could revolutionise retail

This article was first published in Retail Week on the 13th May 2015

“I wish someone would invent something just like Spotify but a bit more expensive,” said Alex Kapranos, the frontman of rock band Franz Ferdinand recently on Twitter. Kapranos was reflecting, perhaps, on Spotify’s payment structure that sees rights holders receive a maximum of $0.0084 per stream.

Other musicians have also raised objections to their share of the spoils from Spotify’s mixed advertising and subscription-based model. Last year Taylor Swift announced her decision to remove her music from Spotify.

As subscription models extend beyond music to other categories such complaints could become common from stores and the brands stocked in them. The evolution of subscription is likely to raise fundamental questions including “what is a retailer?” and “how do people shop?” as the ‘internet of things’, connected technology in the household and beyond, transforms shopping.

Spotify and equivalents such as Deezer have already placed great pressure on definitions of retail in a category where traditional ‘bricks and mortar’ retailers such as HMV have already had to face the disruptional industry challenges created by downloads, iTunes and piracy. Other sectors are seeing subscription-based services cutting out the retailer to go direct. Subscribers to the Dollar Shave Club in the US get all they need to shave delivered each month. Meanwhile HP’s ‘Instant Ink’ service uses technology in connected printers to arrange delivery of ink direct to people’s doors when they are running low.

1280-dollar-shave-club-promo-advertising

As IOT (Internet of Things) becomes a reality, such services are likely to move to a more sophisticated subscription model that doesn’t necessarily include the supermarket or local retailer. Home and appliances will become truly connected and automation will lead to category management based on subscription.

There’s something of a ‘back to the future’ element operating because, decades ago, most UK homes received their daily milk via subscription in the form of the milkman. However, the issue for retailers and brand owners with the new model is that tech companies, appliance manufacturers and online platforms are blurring traditional boundaries.

Retailers and brands have already been disrupted by the rise of Aldi and Lidl showing they don’t need famous brands and extensive shopper marketing campaigns to grow. Now retailers and brand owners like Procter & Gamble and Unilever should fear an internet of things that manages our shopping for us.Dash-Button

P&G has reacted and Gillette now offers shaving subscription from its website in partnership with Amazon. P&G was also quick to jump in with Amazon Dash and its branded buttons that enables a consumer to order a product when it runs out automatically through Amazon Prime.

The likes of Amazon Dash might look good for brand owners now – providing another route direct to consumers in the home – but no-one worried about what brand the milkman delivered. Convenience was everything, so what can we do when full machine to machine automation of shopping begins to put brands and traditional retailers at risk?

Those retailers with data and logistical muscle will evolve into subscription as Amazon is already doing and we will see business models akin to the mobile phone category, with monthly subscriptions that bundle durable device and consumable. Ikea’s latest prediction is that we won’t have fridges by 2025 and our food will be delivered fresh each day by Amazon’s drones. But 10 years is a lifetime for technology companies and retailers, so by then our fridges might just be so smart that they’ve become convenience stores in our connected homes.

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