Subscription services seek to lock-in customers long term
Retailers offering subscription services say that business is booming.
A 38-year-old working mom living in Seodaemun District, western Seoul, receives six side dishes and one soup every week, delivered from Hyundai Department Store’s Sinchon branch nearby. She gets weekly deliveries, priced at 99,000 won ($88.54) per month.
“I tried the subscription service because I was hesitant about going outside to shop for groceries due to Covid-19,” said Shin. “I remained subscribed because the delivery service saves me from worrying about what to make for dinner and offers products at a 10 to 30 percent lower price than buying it from the stores.”
Subscribers to Hyundai Department Store’s side dish subscription box this May rose three-fold since the service’s introduction last August.
With subscriptions, customers pay a fixed monthly or weekly rate in exchange for certain products or services. Newspaper, milk and fruit and vegetable juices are some of the traditional subscription services Koreans are used to, but the ongoing pandemic diversified the market. Subscription boxes now include various items, such as snacks, coffee, alcoholic drinks and flowers.
Although there is no specific data on market size of the subscription economy, McKinsey & Company says that 15 percent of online shoppers are using subscription services in the United States as of 2018. According to global digital research company eMarketer, the U.S, e-commerce market was valued at $710 billion last year.
In Korea, retail companies are leading the subscription market by offering to regularly deliver food and daily necessities. Emart Traders started offering monthly subscriptions for coffee, pizza and meat in March last year, selling a total of 60,000 subscriptions since the service started. The company plans to diversify its product range to include diapers, health supplements and cosmetics.
Lotte Confectionery offers a monthly snack subscription service, priced at between 9,900 won and 19,800 won, and the company started an ice cream subscription box in May. Shinsegae Department Store’s fruit subscription box for a monthly rate of some 200,000 won, was introduced in May last year. Paris Baguette offers subscription services for its coffee and sandwiches at 49,800 won per month.
According to a Korea Agro-Fisheries & Food Trade Corporation (aT) survey of 1,374 people last year, 57.2 percent of the respondents were currently subscribed to a food subscription service. Of the 57.2 percent, 66.2 percent said they decided to sign up because of "convenience" and 28.4 percent said "low cost" was the driving factor. Another 21.9 percent said they were subscribed because it saved them from the hard purchase decision-making process.
Convenience stores are also jumping onto the subscription bandwagon, as it is an effective lock-in strategy. Lock-in is a business scheme, making customers heavily dependent on a certain company for products and services.
Somewhat different to other retailers, convenience stores sell discount coupon subscriptions in which its customers can enjoy a monthly discount. Paying 4,000 won a month, visitors can get a 20 percent discount on CU box lunches. The discount is applied only once a day, and for a total of 10 box lunches a month. The convenience chain offers similar services for coffees, sandwiches and kimbab at different prices. GS25 also has a discount coupon subscription service, applicable for coffee and box lunches.
The subscription economy is flourishing, but gaining long-term customer loyalty is equally important. According to aT’s survey, some 30 percent of respondents who have paid for a subscription program in the past said they canceled a subscription within three months of signing up. The main reasons were lower-than-expected quality and unsatisfactory products.
“Companies need to provide more than just convenience and cost efficiency to maintain subscription rates,” said Kim Chul-young, a buyer of fruits and vegetables at Shinsegae Department Store. “On top of putting in efforts to maintain the quality of fruits, we included hand-written letters the package, writing about the best ways to eat the fruits and the origin of the products, getting positive feedback from customers that they looked forward to the deliveries.”
BY BAEK MIN-JUNG [email@example.com]