Kids Art Box, a children’s art project subscription retailer, launched its business at the end of 2019. Co-founders husband and wife team Nick and Melanie Phillips had no idea what was to come in 2020. It turned out to be a tidal wave of demand.
“We had zero revenue the first three months,” says Nick Phillips. Then, in March 2020, COVID-19 forced the world into shutdown. Businesses, schools — all potential virus-spreading communal activity ended. Kids Art Box turned out to be just the distraction for some home-bound children.
From March 2020 through February 2021, Kids Art Box went from selling a couple of art activity boxes a week to 2,000 to 3,000 each week. Throughout that yearlong period, the art subscription service was able to maintain about 75% of its new customers, Nick Phillips says.
As vaccines rolled out in 2021 and some schools resumed hybrid-model in-person classes, the demand for the home art subscription service plummeted. From 2020 to 2021, Nick Phillips says Kids Art Box sales grew by 300% year over year. Sales growth has since lulled and in 2022 is “effectively flat,” year over year, he says.
Facebook ad revenue ‘dropped off a cliff’
The situation was further complicated by Apple’s iOS 14 privacy changes in April 2021, which allowed people to opt out of third-party cookie tracking. Kids Art Box spent the majority of its advertising budget between email and Facebook ads. After Apple’s privacy changes, Kids Art Box ad revenue from Facebook declined dramatically, says Melanie Phillips.
“We dropped off a cliff,” Nick Phillips says. “And new sales went from what they were to zero the day after Facebook made changes related to Apple’s privacy settings.”
As a result, the return on Kids Art Box’s Facebook ads have never recovered, Melanie Phillips says. The retailer rushed to reassess its marketing strategy. And it had to raise prices 8% across the board, Melanie Phillips says.
Despite the slowdown in 2021, Kids Art Box is optimistic going into the 2022 holiday period. After an expected summer lull in 2022 — historically, Kids Art Box’s subscriptions decline during the summer — the merchant expects the holidays to get busy again, Nick Phillips says.
“Our holiday boxes tend to do well in terms of volume,” he says, without divulging by how much.
During the holidays, the subscription retailer offers limited-quantity boxes with a 20% or more discount for active subscribers, he says. Kids Art Boxes also releases one-off bonus boxes that have helped boost its customer lifetime value (LTV).
Inactive subscribers usually return during the gift-giving season, Nick Phillips says. Customers also sign up to take advantage of a discount on the bonus box. It typically increases Kids Art Box’s AOV. He declined to share how much AOV increases due to bonus box sales.
Subscription retailer services demand is on the rise
According to Digital Commerce 360, 3.6% of companies in the Top 1000 are full-subscription-based business models. Subscription-based business models are defined as retailers that earn online sales focused mostly on subscriptions even if it is possible to buy a one-off item. The Top 1000 is a listing of leading retailers ranked according to annual web sales and headquartered in North America.
Web sales growth for those retailers offering a full subscription model is 19.9%, slightly higher than web sales growth for the overall Top 1000 retailers (19.6%).
And the gap between Top 1000 retailer AOV growth (7.6%) and full-subscription-model AOV growth (6.8%) is less than 1%.
When broken down by category, some subscription retailers perform better than others, according to The Subscription Trade Association’s (SUBTA) “State of the Subscription Annual Report,” released in Q2 2022. Consumers still want the convenience of items being delivered to their doors. 54% of all U.S. subscriptions in 2021 were either in the beauty/personal care and food/beverages areas.
This bodes well for subscription retailers like Winc.com, which offers a subscription service for wine and other alcoholic beverages. So much so that in 2022, the subscription retailer launched a second wine subscription service, Societé, catered specifically to its Rosé-drinking customers for its brand Summer Water. Winc sells Summer Water on its own direct-to-consumer site, SummerWater.com, and on Winc.com.
Winc.com uses surveys to gauge customer experience
Founded in 2012, Winc.com is a wine subscription merchant that offers personalized wine recommendations. Customers received a shipment every month. In 2019, Winc.com changed to a credit-based subscription model to avoid amassing a backlog of wines or if they want to cut back on monthly shipments.
How did Winc.com learn what customers wanted? There are three main buckets that Winc uses to review customer feedback: the Net Promoter Score, customer surveys and its customer experience representatives, says Jai Dolwani, chief marketing officer. These data sources are how Winc measures how impactful certain changes are from a customer standpoint. Winc can then make adjustments.
The Net Promoter Score (NPS) measures customer loyalty through questions like: On a scale from 0 through 10, how likely are you to recommend this product to a friend or colleague? Dolwani declined to share Winc’s NPS but said the customer insights and comments are incredibly helpful. Winc reads through the comments customers leave.
In July 2020, Winc reviewed low NPS responses and narrowed the problem down to selection and availability. As a result, Winc increased its SKU count to over 100 wines, up from 30 wines.
“[Making those changes] is incredibly cash-intensive and takes a long time to do in the wine space,” Dolwani says. “We ran a match market test for 50% of our customers where we sourced third-party wines, put those on the site, and saw a tremendous [increase] in NPS, AOV and LTV from the test group.”
Shipping and delivery was another problem area Winc noticed via the NPS. Customers were unhappy with the process, which involves being home to sign for an alcohol delivery. And so, Winc started offering additional shipping options, such as holding a package at a nearby FedEx/Walgreens location or shipping to a place of business where someone could sign for the delivery.
Customers communicate through surveys and customer experience representatives
The second method is through member surveys. Winc runs surveys for all new customers as well as an annual survey of its entire customer base. Those results then factor into the merchant’s digital product roadmap, Dolwani says.
For example, previously, Winc asked customers what their favorite coffee was or whether they liked orange juice or milk in an online quiz to help determine what wines they might like. Dolwani says Winc has learned that its Gen Z and millennial shoppers are not solely focused on flavor, but increasingly about organic, low sugar, low sulfur, biodynamic and natural wine options. Because of these surveys and quizzes, Winc has a better grasp on what wines to sell on its site.
The third is interactions with Winc customer experience (CX) representatives.
“They’re meant not only to be a support channel, but also follow up with key customer issues as soon as possible,” Dolwani says. “[Feedback from CX representatives show] how many members experienced similar issues or have that same request.” Dolwani says.
For example, shoppers complained wines they wanted to purchase were repeatedly appearing out of stock on the website. CX representatives discovered that these wines were actually in stock and there was a problem on the backend. Winc’s CX team contacted the engineering team to fix the problem within the hour, Dolwani says.
Combating subscription fatigue
Coming out the pandemic and into 2021, like Kids Art Box, Winc has noticed subscription fatigue, Dolwani says. To entice more shoppers to buy, Winc has increased its selection, such as increasing its wine selection with a wider range of prices. In April 2021, Winc also expanded into other categories, including hard cider and Sake.
“We saw a strong need for consumers who wanted to get more out of a single subscription versus having to use two or three different [subscription services] to get their alcohol beverage needs,” Dolwani says.
Winc also sells through wholesale channels like grocery stores, through its own DTC website for Summer Water, which went live in May 2022, and through delivery services like Drizly.
Summer Water is Winc’s own wine label. Demand for the product peaks during the summer, Dolwani says. Summer Water customers can make one-time purchases or subscribe to its subscription Societé. AOV for Summer Water’s direct-to-consumer website ranges from $100 to $150. He did not share AOV for the subscription model.
As a subscription model, Dolwani says Societe is different from Winc.com.
“Societé is built for the Summer Water fan,” he says.
The retailer markets to shoppers through Instagram as well as by providing members access to exclusive events, special “swag” surprises in each subscription delivery box and early access to new product launches.
“Winc focuses on introducing the next generation of consumers to the world of wine in a friendly, non-pedantic way,” Dolwani says.
Maintaining subscribership involves a constant tailoring of subscription services based on the consumer’s different wants and needs, Dolwani says. That is increasingly difficult in the current economic environment where consumers are making every dollar count.
“Planning and forecasting will be especially difficult for retailers this year,” Dolwani says.
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