Subcom is fast becoming the new Mecca for hungry entrepreneurs looking to test their startup mettle. The abundance of new subcom companies entering the space has been astonishing, with new clubs seemingly popping up over night (For a comprehensive and growing list check out monthlygifter.com, which has identified over 100 clubs and counting.) With the emergence of so many new subcom businesses, understanding what the businesses do and how they work can seem somewhat overwhelming.
The good news, however, is that despite the many options and varieties, when distilled down to their purest form, each utilizes some combination of 5 ‘ingredients’ based on 1) Club focus: convenience vs. curation, and 2) Payment type: pre-pay, opt in/out, post-pay.
Part 1: The Convenience-Curation Conundrum
It is no secret there are a LOT of web-based subcom businesses, each delivering everything from artisan food to soap and underwear, exotic cars, jewelry and everything in between.
While each business appears different on the surface, the fundamentals driving each company are firmly rooted in the idea of convenience and/or curation, which is less of a binary distinction, but rather a spectrum on which subcom businesses can be plotted. Take the product of soap for example, it can either be an item of convenience (i.e. generic bars of soap) or it can be an item of curation (i.e. all natural, organic artisan soap.) Both types of soap can be put in a box and sent to your door, but each satisfies a very different consumer want or need.
That said, pure convenience clubs exist in many verticals, but all strive to provide consumers with everyday necessities as easily as possible. Relative newcomers Manpacks and Guyhaus and others offer “everyday essentials” such as socks, underwear, and hygiene products delivered to your door at competitive prices and convenient time intervals (to prevent build-up). The name of the game for these businesses is to get consumers things that need easily and affordably.
On the flip side, curation-based clubs strive to provide consumers with exceptionally chosen items, offering a level of experience and expertise of which a ‘regular’ person cannot reasonably expect to possess. The level of actual curation, whether real or perceived, can vary widely between clubs and individual experiences, but these clubs are geared toward providing ‘wants’ over ‘needs’, with an emphasis on finding the most unique “hand-made”, “exclusive”, and “small batch” items around. A few examples of pure curation clubs are Birchboxfor beauty, Foodziefor food, Blissmo Box for organic & sustainable goods, and Little Passportsfor families with children, and Bluum for mothers and babies.
Part 2: To pay or not to pay, that is the question?
Now with a firm understanding of convenience vs. curation, let’s talk payment style. Given the current subcom landscape, we view there to be three major payment categories: 1) Prepaid, 2) Opt In/Opt Out, 3) Post-Paid. All three are easy to understand, but for the sake of clarity, let’s quickly review each type.
Prepaid Subscription Clubs
This is the most straightforward payment option in subcom, which in its simplest form, charges consumers either the entire cost of the subscription up front, or each month before the goods or services are delivered. While this category can potentially be segmented into more specific sub-groups, e.g. varying monthly dollar amounts based on how much product club members need delivered, as is the case for companies like Hoseanna, generally consumers are completely disengaged from the monthly/periodic payment, and just expect their delivery to occur consistently each month.
Clubs utilizing a prepaid method of payment can fall anywhere on the convenience-curation spectrum, and can range from traditional wine of the month clubs and beauty samples (curation), to more convenient options such as soap, underwear and other daily essentials.
Opt In/Opt Out (Coco Clubs)
The opt in/opt out model is a new twist on its more straightforward cousin represented by the prepaid model. Sometimes referred to as Coco clubs (…the two ‘O’s stand for Ooh-Ooh, like the sound a monkey makes…Seinfeld…anyone?), whereby consumers are required to be more engaged with the club, but in return are rewarded with additional flexibility. Coco clubs like Shoedazzle and JewelMint will notify members of the upcoming month’s selection of items for delivery. After the notification, club members are given a short period of time to decide whether they would like to opt-in and receive an item for that month, or if they’d prefer to opt-out and not receive anything. Members that opt-in are charged a flat fee per item selected, while members that choose to opt-out are charged nothing.
Typically these clubs emphasize curation, and compete for your business by fine tuning recommendation software designed to learn your personality via short online quizzes, order history, etc. Each month these clubs promote “personally” curated items they believe you will like, and hope you opt-in to the program for that month.
Post-pay clubs actively engage their club member to make decisions each month. These clubs usually employ a full-time staff of experts that learn your personal preferences, and hand select items they believe you will enjoy. For example, Chicago-based Trunk Club sends members a shipment of clothing each month, and charges only for items not returned using the prepaid shipping materials provided with each order. An adaptation of this model has begun to emerge in the arts community as well, with examples like turningART, which sends its members artwork each month and charges members a ‘rental fee’ until the piece is purchased or returned. In the event a member wishes to permanently own the artwork, credit from the “rental fees” can be applied against the total purchase cost of the item.
Post-pay businesses take coco clubs to the extreme and are typically entirely devoted to personal curation. If their experts do not pick attractive items, it can quickly degrades the clubs’ value to members and shakes the fundamental appeal as to why you would want be a member in the first place.
In the broadest sense, regardless of the product or service being provided, subcom businesses are created from some combination of 5 ‘ingredients’ based on where they fall on the convenience-curation spectrum, and depending on the payment plan utilized (pre-pay, opt in / opt out, and post-pay.) As the industry continues to mature and the space becomes more crowded with competitors, it will be interesting to see whether certain combinations lend more strongly to attracting customers, or more importantly, which model will most effectively retain customers.
We would love to hear our readers thoughts on the subject, especially with regards to whether certain focuses or payment types lend themselves better to different verticals.