Retail goes big on subscriptions

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Retail goes big on subscriptions

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Items that will be included in the December edition of Amorepacific’s monthly tea-subscription service “Dada-Ilsang.” [AMOREPACIFIC]

We live in the golden age of subscription services, where consumers can subscribe to almost anything, including water, tea, sanitary pads and even art.

The trend is also changing how local business operate, as major retailers try to cash in by offering exclusive and customized deals to those who are willing to pay a regular fee.

Amorepacific started a tea subscription service on Monday called “Dada-Ilsang,” which sends a selection of teas to regular subscribers.

For a monthly fee of 29,000 won ($25), the consumer receives a new tea flavor every month, in addition to tea utensils and a notebook to record the flavor, texture and aroma of the latest offering.

Orion introduced a regular delivery service on the first day of this month along with its new bottled water line. This service sends water regularly each week to a location and at a time chosen by the customer. Once the initial order is placed, customers do not have to go through the hassle of ordering every week. Orion is offering 60 bottles of 18 ounce water for free to welcome new subscribers to the delivery service.

The services from Orion and Amorepacific are a type of subscription-based service. Like a newspaper, customers receive a product regularly to a chosen location and at a set time, if they pay a regular subscription fee.

Netflix is a typical example. Subscribers to Netflix can watch an unlimited number of programs for a regular payment every month. Car brands like Hyundai Motor, Volvo and Cadillac provide similar services to customers.

Credit Suisse expects the size of the subscription-service market to grow up 5.3 trillion won (4.5 billion dollars) by next year.

The subscription services business is growing in the retail industry, and it’s starting to grab the attention of e-commerce businesses. eBay Korea was the first e-commerce business to provide a paid-membership service.

eBay Korea started the “smile club” in 2017. It is an exclusive club of paid members who receive discount coupons as well as a free service for 30,000 won ($26 ) a month. “Smile club” currently has around 1.5 million members nationwide.

Coupang introduced a similar service last October. It is called the “rocket wow club,” and paid-members receive exclusive services such as free delivery, free returns and overnight delivery for 2,900 won (2.5 dollars) a month. We Make Price and TMON have followed and offer similar services.

After witnessing the success of e-commerce companies, major retail companies are jumping on the bandwagon. Lotte group has its “Lotte Owners” paid membership service. For a little over $2 a month, customers can receive free delivery of all products purchased from its seven affiliate brands and can collect points to use for future purchases.

The subscription-based business model is also expanding to the home shopping industry. Lotte home shopping’s “L.Club” paid-membership service offers a 12% discount and 30,000 points for yearly fee of 30,000 won ($26).

The reason retail businesses are exploring subscription models is to benefit from the so-called “lock-in effect,” a term to describe a customer’s tendency to stick to the company where they made their first purchase.

The competition to secure more subscribers is becoming fiercer with the recent decrease in the profitability of the retail industry. By analyzing a consumer’s purchasing patterns, companies can reduce logistics costs and predict future demand, which can lead to cost savings.

On the other hand, the subscription model also benefits consumers, as consumers can secure daily necessities and services at low prices.

Analysts advise consumers to think carefully before signing up for such services, since it may seem like a small expenditures upfront but can later add up.

“The expansion of the subscription-model is a strategic business decision to maximize fixed resources and costs,” says Suh Yonh-gu, a business professor at Sookmyung Wome’s University.

“It may be beneficial for practical consumers searching for the best deal, but consumers should be aware that increasing fixed expenditures and costs can increase liabilities, which is something to be wary of in an economy where real disposable income is decreasing.”

BY MOON HEE-CHUL [kang.jaeeun@joongang.co.kr]

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