The Amazon Effect   /   June 10, 2019

In bid to get closer to brands, Amazon is building out a subscription box platform

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Matt Meeker, the CEO of Bark, which launched in 2011 with BarkBox, a curated subscription box for dog toys and treats, had Amazon’s subscription accounts team approach him earlier this year, several months after the brand first started selling its dog products on Amazon, to pitch him on a new selling model.

According to Meeker, the Amazon reps positioned the Amazon Subscription Box Store, which launched last July, as a way to benefit for the retailer: If BarkBox integrated into Amazon, the brand would be responsible for filling and curating boxes, but Amazon would act as a facilitator for customer acquisition, sign-ups and payments.

“We wanted to use Amazon as a customer acquisition channel, same as Facebook and Instagram, where there’s a higher cost of acquisition. Being early is a huge advantage on Amazon, as it was on Facebook in 2012,” said Meeker. “That’s part of what makes it appealing. Customer trust with Amazon also helps a lot, and the idea of Amazon introducing the product to people was promising to us.”

Subscription models are no simple business: The cost of customer acquisition, customer fatigue and churn are hurdles for growth. Now, that difficulty to scale is bringing direct-to-consumer brands and Amazon closer together.

Within Amazon’s 100-million-person strong Prime subscription program is a burgeoning collection of sub-subscriptions: a collection of product replenishment models that build repeat purchases and recurring revenue into Amazon’s bustling ecosystem. Amazon’s subscription programs, including Subscribe and Save, for lower-margin replenishment items like toilet paper, The Subscription Box store, which includes BarkBox as well as Allure Beauty, Fancy Socks and GQ boxes, plays a role in two of the retailer’s overarching goals: To drive profitability in its retail business and bring more customer-loved brands into the fold. Boxes cost the same on Amazon as they do on brand’s sites — a BarkBox monthly subscription, for example, is $29 on BarkBox.com and Amazon, but BarkBox offers different prices at different delivery cadence. Amazon’s value, then, is in the ease of use: Prime members have payment and delivery preferences already set.

So the benefit for brands is integrating a subscription into a platform customers use regularly. For subscription-based direct-to-consumer brands, an Amazon partnership lowers the barrier to entry. As it usually works with Amazon, though, there’s a tradeoff involved: Subscribers are still Amazon customers, and the program limits the amount of control brands have over order frequency and personalization.

An Amazon spokesperson said that subscription programs “provide more ways in which customers can find products they need and want more frequently, with low prices and fast and free shipping options, as well as special discounts, convenient auto-delivery features and more. These programs also let our selling partners reach more customers in new and unique ways to help grow their businesses.”

“If you’re looking for no friction, which is the name of the game for subscriptions, Amazon has the lowest,” said Jason Goldberg, chief commerce strategy officer at Publicis. “In general, people don’t want to subscribe to one single product and manage subscriptions brand by brand. You want a single portal to manage all those things.”

It’s a more compelling reason to work with Amazon than others that DTC brands have grappled with, but the common concerns around an Amazon partnership remain: Subscription models thrive off of customer data, and rerouting a subscription through Amazon’s pipelines obfuscates the user insights these brands need to serve them properly.

Subscription brand boom
For brands, building a subscription into Amazon Prime helps to clear hurdles that set in once a subscription model hits a certain saturation point. Subscriptions are a popular model for direct-to-consumer startup brands, including Dollar Shave Club, Hims and MeUndies. By building in repeat-purchases, brands can guarantee a certain amount of predictable returning customer revenue, a figure that can be pointed to for VCs as an asset when in the funding process. But brands have a hard time fighting customer churn, meaning they have to spend customer acquisition and retention marketing fees, to not only bring new customers into the subscription but to keep the ones they have.

“How to figure out subscriptions, individually and at scale, is the million dollar question,” said Lily Varon, digital business strategy analyst at Forrester. “For brands, the appeal of the subscription box is that predictable revenue and gathering consistent customer insights, which may lead to stickier customer relationships.”

According to Forrester research, 5% of adults in 2018 had signed up for and were actively using a product subscription. There’s also overlap between subscribers and Amazon: researcher Hitwise found in 2018 that of those who had signed up for subscription boxes, 58% were Amazon shoppers.

“It’s hard to scale a subscription business,” said Meeker. “You have to have a compelling story to along with a good, low cost, and then get your supply chain in check and make sure your margins are good. So Amazon fits in as more diversification of sources for finding new customers. You never want to be too dependent on any one thing, not Facebook, not Google. So it’s the same with Amazon. The more channels we have that are cost effective is great. We just need to be where the customer is.”

While Amazon has become pay to play in its product listings, it can still offer built-in reach to new customers. That’s an important pitch as subscription boxes — Blue Apron and Birchbox among the most high-profile — struggle to maintain growth.

“Subscription programs haven’t scaled like the founders may have wanted, and as they look for pivots, Amazon’s large customer base could lead to an appealing pivot,” said Goldberg. “Day one, they probably had no interest in being available on Amazon. Today, Amazon is swooping in right as founders are looking for an alternative.”

And Amazon is sweetening the deal. As part of the agreement to launch BarkBox on Amazon’s Subscription Box platform, Amazon is promoting the BarkBox with positioning on the Subscription Box landing page and in email marketing. When early promotion on Amazon’s end runs out, Meeker said his team will explore investing marketing dollars within Amazon’s platform. It currently spends on Amazon advertising for its Bark-branded products sold outside of the subscription box on Amazon.

“Ultimately, what we’re looking for is a stable channel for growth,” said Meeker.

Dealing with a dearth of data
With the subscription box program, brands fulfill the orders (unlike Subscribe and Save, which is a program for first-party vendors selling directly to Amazon), but at the end of the day, customers still belong to Amazon.

Charlie Ritchie, the founder and CEO of online tea subscription Tea Runners, said that Amazon asked his brand, which didn’t sell on Amazon at the time, to be part of the launch of the new subscription box program last year. According to Ritchie, the brand saw an initial “big boost” in business, as Amazon set up an advertising push around the new subscriptions for free, including an email push to 200,000 Amazon customers. However, that boost didn’t match Amazon expectations: Ritchie said Amazon’s reps told his team to anticipate an extra 1,000 customer orders per month, which his team accounted for in manufacturing and inventory planning.

“Everyone’s wanted to nail a subscription, but there are all kinds of pain points.”

“The scale that was actually delivered was way lower than that. So we didn’t know what to expect and they didn’t either,” said Ritchie. Eventually, the retailer stopped free advertising on behalf of the brand and the growth tapered off.

For the customers that did sign up on Amazon, Ritchie said there was no way to introduce them to other Tea Runner offers.

“Amazon has a rule that subscribers through Amazon are their customer, and not ours. We can’t market to them directly, we don’t get their email addresses, we can’t contact them,” said Ritchie, who added that Tea Runners’ direct subscribers have options to curate the flavors or ask for monthly samples in their boxes, which isn’t available to Amazon customers. “What they were worried about was that we would get lots of customers through Amazon, and then funnel them to our own site, where we wouldn’t have to pay a fee. That’s a downside.”

Amazon takes 15% of sales for subscription orders, and Ritchie said that the limitations are a concern, as well as the lack of control. His team doesn’t receive specific analytics around customer churn, for example, which happens more frequently than on the brand’s site. But mostly, the benefit of the Amazon program is that it funnels in a regular stream of new customers without much heavy-lifting or marketing on the brand’s side. He sees it as a supplement to the company’s main business, which still accounts for the majority of sales.

For BarkBox, the Amazon subscription program has some ability for customization built in: Customers can select a box designed for small, medium or large dogs. “We had to accept that there’s a way this program works on their end, data-wise,” said Meeker. He added that for Bark, knowing dog type and customer locations from fulfilling orders was enough.

Heightened competition
Amazon’s Subscription Box program now includes more than 100 brand boxes across the beauty, lifestyle, pets, toys and kids and food and drink categories. As the program scales, it could be a lifeline to subscription startups that have begun to sputter.

“Everyone’s wanted to nail a subscriptions, but there are all kinds of pain points. Customers are fatigued, they get too much stuff, it’s too hard to cancel, so on. Amazon has been particularly good at alleviating those,” said Goldberg.

There’s benefit for Amazon as well, which is realigning its retail strategy in order to boost profits and minimize overhead. Unlike Subscribe and Save, Subscription Boxes require the brands to do the fulfillment and delivery, meaning Amazon’s only facilitating lighter lifts, like payment.

“Amazon is moving toward profitability as well, and subscription is a phenomenal way to get to profitability if you’re at Amazon’s scale,” said Goldberg.

For brands in the program, increased competition is something to consider both from other boxes, as well as Amazon itself. Ritchie said that as the program builds out, and there are other similar tea brands to compete with, he’ll consider spending more on Amazon advertising to generate the same customer stream. According to Meeker, competing against Amazon on its own turf is a matter of accepting the challenge.

“Our view on [Amazon competition] is that we have to be everywhere where the customer is to build real relationships with them, know their dogs, respond to their needs and be the best at that,” said Meeker. “If we start to cross off the list anyone who could compete with us, then we’re not selling at Target anymore either. Amazon just happens to be very good at competition.”

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