Investigating Subscription-Based Business Models

May 19, 2018

Interested in learning more about subscription-based business models?  If so, then the following #MOOC includes timely &  relevant information:: 
https://www.coursera.org/learn/startup-financing-without-vc/home/welcome

Below is the module assignment as well as a sample of my investigation of current subscription-based businesses.
If nothing else, the analytical framework provides a useful mechanism to structure the problem and formulate a viewpoint.
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Assignment

  1. Create a list of subscription businesses by typing ‘subscription businesses’ into a search engine
  2. Pick at least two businesses for each of the following categories:
    1. food;
    2. clothing;
    3. health/beauty products;
    4. news/advice where one business scores well and the other scores poorly according to the criteria above.
  3. Score some of these businesses against the following criteria:
    1. are the goods or services perishable (1= not very perishable, 3 = highly perishable)?
    2. Predictably consumed? (1 = not at all predictable how fast consumed, 3 = very predictably consumed)
    3. Offer good value, too? (1 = much more expensive than you’d pay elsewhere, 3 = much less expensive that you’d pay elsewhere)
  4. Add up the scores for each business which will be between 3 and 9
  5. Now write an analysis between 200 – 300 words of your prediction about these business’ long-term success based on these scores.

Response
I chose the following subscription business models in the following business categories:

  1. Food (Meal Plan)
    1. Home Chef
    2. Blue Apron
  2. Clothing (Men’s Clothes)
    1. Stich Fix
    2. Bomb Feel
  3. Health/Beauty Products (Men’s Shaving Products)
    1. Harry’s Razors
    2. Web Shave Club
  4. News/Advice
    1. New York Times
    2. Investor’s Business Daily (IBD)

Business Evaluation Criteria

  • Are the goods or services perishable?
    • 1= not very perishable
    • 3 = highly perishable
  • Predictably consumed?
    • 1 = not at all predictable how fast consumed
    • 3 = very predictably consumed
  • Offer good value, too?
    • 1 = much more expensive than you’d pay elsewhere
    • 3 = much less expensive that you’d pay elsewhere

Note that the highest rated business in each category is labeled in green in the table.

​Analysis & Conclusions
Subscription business models are those in which the customer agrees to buy goods or services that are delivered, whether physically or digitally, and then paid for an extended period of time.  As discussed in the course lecture, the long-term success of a subscription model is simple economics based on an optimal mix of the following factors:

  1. Customer acquisition cost (CAC)
  2. Average Purchase Amount
  3. Average Margin
  4. Purchase Frequency
  5. Customer Churn Rate

Within the same business category, most of these businesses price their offerings within the same general range.  Hence, in my opinion, the long-term success of any of these models depends on a blend of branding as well as a firm’s ability to continually offer contemporary (fresh) updates to their products and/or services.  Moreover, since the pricing falls within the same general range, success also depends on a firm’s ability to offer comparably better value.  For example, if Bomb Fell can offer more valuable (e.g., better clothes as the same price point) apparel to men vis-à-vis Stich Fix’s ability to do so will increase the likelihood of the former being a long-term success.

References

  1. https://www.top10bestmealdelivery.com/
  2. https://www.huffingtonpost.com/entry/mens-clothing-subscription-boxes-every-guy-should-try_us_5ad8a095e4b029ebe021a5a7