Purchasing a house? That’s a major commitment. Financing a new car? Sounds pricey. Paying full retail price for clothes every time you need a wardrobe refresh? There must be a savvier way to shop. Millennials—currently the most powerful consumer generation—are faced with questions like these often. They’ve adopted the sharing economy with open arms as a solution.
Brands like Airbnb, Uber and Swap Society have made the option to rent, borrow and trade assets or products mainstream. These digital platforms make sharing cheaper, easier and accessible on a large scale—all driving forces behind the sharing economy’s projected growth from $15 billion (USD) to $335 billion by 2025.
Millennials value access over ownership because it better aligns with their financial circumstances and flexible lifestyles. Soaring house prices, digital-first behaviors and values-driven purchasing all play major roles in why the most formidable consumer generation is choosing to dive headfirst into the sharing economy.
<div id="homeownership-is-too-expensive"></div>
Becoming homeowners is often too expensive for millennials
Homes are perhaps the largest investment most people make in their lives, and they’re often out of reach financially for millennials. Instead, many millennials are looking for rental options to serve as their permanent home base.
Fluctuations in housing prices are the least of millennials’ worries. Instead, it’s the enormous down payments combined with stricter lending terms, lack of inventory in desirable markets and burdens of student debt blanketing wages that haven’t kept pace with inflation.
U.S. housing prices have risen 16% from the median $327,100 in Q1 2020, leaving many millennials feeling dejected. The double-digit increases we’re seeing in North America aren’t unique, either, with steady hikes in Europe and Asia making it seem like there’s nowhere to run. Optimistic analysts offer reassurance that we aren’t witnessing another bubble in the making. But if there’s one predictable element of the housing market, it’s how unpredictable it can be.
Aside from prohibitive financial factors, millennials’ lifestyles also play a role in their decisions to rent rather than buy. Their preference for urban hotspots is another factor that makes millennials the first generation to trend heavily toward renting.
Take New York City as an example. As Erin Lowry, author of “Broke Millennial,” writes anecdotally for Bloomberg, her one-bedroom apartment in NYC would cost around $800,000 to purchase. Add to that a 20% down payment, monthly co-op maintenance fees, utilities, repairs and taxes, and it becomes clear why her story echoes the sentiments of many millennials in similar situations.
Businesses in the housing industry are adapting to millennial choices—whether those choices are influenced more by unaffordability or unwillingness—by developing built-to-rent communities. These homes, which offer affordable luxury without the big investment and commitment of buying, signal a shift in how millennial consumers want to live.
<div id="the-sharing-economy"></div>
Digital-first behaviors lend themselves well to the sharing economy
Digitization has brought forth new ways of accessing assets that expand the sharing economy exponentially. Millennials, alongside Gen Z, lead the charge in digital technology use. This makes them an ideal audience for sharing-economy platforms.
The so-called “digital sharing economy” was born of the internet’s accessibility and reach, contributing immensely to how products and resources can be accessed and shared. As digital natives, millennials embrace the internet-fueled technical and social aspects of sharing.
“Digitalization has been the enabler for covering a broad range of sharable resources (technical aspect of sharing) and for operating beyond the limits of small groups and personal relationships (social aspect of sharing). This two-fold digital transition of sharing has enabled unprecedented efficiency in coordinating access to resources ... leading to the emergence of a new class of resource-allocation systems which we call ‘the digital sharing economy’” - The digital sharing economy: A confluence of technical and social sharing, ScienceDirect, 2021
Millennials’ digital-first behaviors also make this generation a perfect fit for online housing and ridesharing platforms. Both have enhanced and reinvented the definition of the sharing economy in the last decade or so. Airbnb and Uber, each a global proponent of the sharing economy, have demonstrated the enormous potential of digital sharing.
Millennials make up approximately 60% of anyone who has ever booked shared living space through Airbnb, thanks to their passion for travel and digital adoption combined with their aversion to hotels and home purchasing. Millennials also spend upwards of $100 monthly on ridesharing apps like Uber and Lyft.
Regardless of the product or service, millennials favor online access. Brands looking to capture this generation’s attention within the sharing economy must prioritize digital channels first.
<div id="sustainable-retail"></div>
Millennials find their values mirrored in sustainable retail models
Millennials advocate responsible and sustainable business practices, and that influences what they spend money on. The sharing economy aligns with this, as it’s built on maximizing efficiency and minimizing waste of assets (housing and vehicles) and products (clothing, furniture, etc.).
The millennial generation is steadfastly committed to achieving the U.N.’s Sustainable Development Goals, including responsible consumption and climate action. Their values and behaviors make these goals more realistic, especially since they choose to spend money on brands that practice sustainable business practices.
The sharing economy is an excellent backdrop for sustainable retail models. Aside from clothing swaps (where they’re a close second), millennials top the lists for P2P marketplaces, renting, resales and subscriptions, according to a 2019 “Most popular sustainable retail models used by U.S. consumers” Statista study.
Brands like Swap Society and Pivot Subscriptions are outstanding examples of how to apply sharing-economy innovations to how retail products are consumed.
Swap Society is a massive clothing-swap network that lets members swap their ill-fitting or pre-loved clothing items for fresh apparel—and they know their audience well. Nicole Roberston, founder and CEO of Swap Society, says sustainability is a driving force behind the brand. She knows that young consumers want their clothes to reflect their values. “The overconsumption of clothing has created an environmental catastrophe, and millennials and Gen Z want to wear a better story,” Robinson says.
Pivot Subscriptions is a Canadian furniture brand that shakes up the conventional retail furniture model. It allows customers to “rent” furniture for a monthly fee that cumulatively never reaches the retail value of the product. Subscribers can also swap any amount of furniture for free after two years (or sooner, for a fee). This aligns with millennials’ desire for flexibility and their support of no-waste retail.
Related: Are subscription services the future of digital retail?
If businesses take anything from these brands, it’s that the sharing economy can apply outside of asset sharing. It might take some imagination and restructuring, but retailers can resonate with millennials in big ways by applying sharing-economy concepts to the way they do business.
<div id="XXX"></div>
Get creative and share memorable experiences with millennials
From an outside perspective, it might seem like businesses have to go all in or that their business models need to be tailor-made in order to make it in the sharing economy. But just as brands had to rapidly adapt to digital-first strategies during the pandemic, businesses need to continue thinking creatively about how they offer their products and services. For millennials, unforgettable experiences are born when a brand aligns with their personal values and lifestyles.
Millennials are a discerning generation and their expectations are continuously evolving. The best way to win their loyalty is to understand their needs deeply and make changes to your business that will appeal to their preferences. The sharing economy could offer just that. Share the love!
Fashion, books, groceries, cosmetics—the list goes on. Subscription services appear to be an impetus for growth and stability during the pandemic, with around 23 percent of subscription-based businesses reporting increased subscribers and more than half with no losses whatsoever.
It’s not surprising, either. The excitement of receiving a package each month gives people something to look forward to and provides a standard of consistency during unpredictable times. Whether it’s the curious thrill of opening a monthly mystery box or a fresh weekly delivery of exotic ingredients—subscriptions are undeniably fun for consumers and a driver of loyalty for digital retailers.
But what makes subscriptions advantageous compared with regular e-commerce? Simply put, recurring revenue is the raison d'etre for any subscription model. The opportunity for predictable, repeating revenue and ever-increasing customer lifetime value solidifies subscriptions as a winning strategy in the future of digital retail.
<div id="subscription-services"></div>
Subscription services: The basics
Subscription services involve a customer paying a fixed amount of money that repeats at regular intervals—usually monthly—for a product or service. While the subscription model can also apply to Software as a Service (SaaS), streaming services and digital products (media), the focus in this article is specifically on physical products and their impact on retail.
Subscriptions of physical products typically come in two forms: curated boxes or repeat orders. Curated boxes are assortments of products that are different with each delivery and are either selected by the customer or combined in a mystery box.
While the concept of mystery boxes might sound risky, they’re exploding in popularity, thanks to the sheer diversity of brands that appeal to different hobbies and lifestyles. Brands that send a random assortment of products themed around everything from pop culture to animation, like LootCrate, are pioneers of the mystery-box subscription craze.
Repeat orders are more conventional, involving the same products being delivered over and over again on a schedule. This model applies well to things like household cleaning or grooming products. Dollar Shave Club, which practically wrote the book on recurring self-care subscriptions, is a perfect example.
When done right, the benefits of subscription services are profound. As long as businesses minimize churn, they’ll maintain a healthy and predictable revenue stream without constantly worrying about the cost of acquiring new customers.
According to Tien Tzuo, cofounder and CEO at Zuora, an enterprise software company that helps brands manage subscription services, “If the Subscription Economy is about anything, it’s about a fundamental return to customer relationships. It’s the agility of the subscription model that uniquely positions businesses to adapt quickly to customer needs and provides them with consistent, ongoing value—regardless of economic climate.”
Subscriptions are a great way to forge strong ongoing relationships with customers while presenting a unique chance at exposure for local vendors and up-and-coming brands, as many subscription boxes make it their mission to procure products from small businesses.
COVID-19 accelerated subscription growth last year and continues in 2021
Subscriptions were already on the rise in previous years—17 percent annually for the past five years, to be exact—then COVID-19 pushed that growth even further.
Consumers who already use subscription services actually intend to increase the amount they spend on subscriptions going forward:
- A little more than half of online consumers already use subscription-box services, with nearly the same percentage having more than one.
- Among consumers aged 18 to 24 years—the group that has the highest number of active subscriptions, at around 2.5 each—38 percent plan to increase their active subscriptions this year.
- A slightly lower, but still impressive, 27 percent of consumers globally plan on spending more on subscriptions in 2021.
This increased adoption is what allowed subscription businesses to expand at a rate of 12 percent on average last year, as reported in the 2020 edition of the Subscription Economy Index from Zuora.
Subscription growth isn’t just a regional trend, either. As Ben Dalfen, CEO, Ecommerce and Card Not Present, Paysafe, writes, “The US is the clear leader when it comes to adoption of subscription-based services, with 69% having multiple subscriptions... Canada is the next highest of those included in the research with 50% having multiple subscriptions, followed by Germany (49%), the UK (47%) and Austria (45%).”
All this growth potential is in stark contrast to traditional retail. While subscription services enjoy increased adoption and sales, clothing retail fell 25 percent in 2020, with standard e-commerce efforts not being sufficient to offset brick-and-mortar losses.
This growth can only be harnessed when the right subscription strategy is used. Discerning consumers need to align themselves with a brand before they’re in it for the long run, and there are trends that reflect that today.
Subscription-model trends and brands doing it the right way
E-commerce subscription boxes and meals date back to 2004. But the continued rise has introduced more competitors, enhancing innovation and flexibility. It’s not just “Pay X, get Y every month” anymore—subscription trends are introducing more creative applications of the service at a rapid pace.
Personalization boosts customer experience
Subscriptions are like a holiday gift to yourself—except they come every month instead of just once a year. The experience of receiving these products should bring that same joy. But like a child whose granny got them socks for Christmas again, the wrong selection of products can be disappointing. Personalizing what is delivered is the best way to avoid disappointment.
To deliver a consistently rewarding experience, there needs to be a deep understanding—a sort of camaraderie—between the subscription brand and their consumer. Gleaning the right information from your customers in order to send them precisely what they want, even if they don’t know exactly what that is, is fundamental.
Bespoke Post, a subscription service that offers an assortment of rugged and functional products from small businesses monthly, does an excellent job of personalization. Attached to each subscriber’s account is information about their age, size and color preferences, grooming habits and even mattress size. This ensures that the products delivered in each box are sure to excite rather than disappoint.
Similarly, Dollar Shave Club has an interactive “tell us how you get ready” process that gives in-depth insight into which products subscribers will use and value most. The company knows that it’s pointless (and detrimental) to ship products that the customer won’t appreciate or need.
Food delivery brands like Blue Apron, which sends meal kits that the customer cooks themselves, give the customer control over subscriptions, too. They let subscribers select items based on lifestyle, recipe, taste preferences, style of cuisine and more.
If you’re considering how a subscription model will fit into your business, prioritizing personalization may give you a leg up on competitors. Gathering the right information to recommend, compile and deliver products puts you miles ahead of more generic subscription services.
Pay according to use gives greater freedom
A box filled with goodies is great, but not all customers want to end up stockpiling products unnecessarily. This is especially important for recurring orders, so giving customers the freedom to control when and what they receive will set your brand apart from most others.
These brands are doing “pay according to use” right:
Breo Box, a subscription box that focuses on tech gadgets, gives customers the option to purchase each item from the current box separately—albeit at full retail price. This gives consumers choices (which they love) and prevents them from ending up with a bunch of stuff they’ll never touch again.
Blueland sells eco-friendly cleaning products on a subscription basis. Customers first sign up and purchase a starter kit and then receive refills regularly. But what if they’re not using up the product they already have? Blueland gives them the flexibility to adjust the timing of deliveries or the products they receive and opt out of automatic shipments.
Loyalty programs bring in more customers
Loyalty programs have long been an ideal way of creating a stronger relationship between your brand and your customers. But in the subscription game, there are opportunities to break the mold.
Birchbox goes hard on referrals, for example. As Cat Rossi from Oracle writes, “The Birchbox Loyalty Program not only awards members one point for each dollar spent, but they also award 50 points for each friend referral. By incentivizing subscribers to promote the brand to their friends, Birchbox has the ability to acquire new customers at a low cost.”
Incentivize customers not only for the money they spend but also for how they engage with the brand on social and recommend the subscription to others. Leveraging that loyalty into new business is an excellent tactic for consistently growing subscribers.
Related: Retail loyalty program dos and don'ts
The future is bright for subscription services—are they right for your business?
The evidence is stacked in favor of the subscription model’s continued growth, so it’s an exciting prospect for e-commerce retailers looking to diversify or transform their businesses. Remember, the benefits go beyond basic cost savings and into a more creative and highly engaging personalized journey.
Is your business ready to try out the subscription model? Only you can know that, but use some of the brands mentioned throughout this article as a guiding light. Subscription services are dynamic and emerging, so it’s worth a shot if you’re already selling through other digital channels.
Sell great products, offer customers flexibility, and understand your market and you’ll be well on your way to that coveted recurring revenue subscription model. Happy selling!
