Subscriptions Model in Africa: Winners and Losers in Retail

Consumers in Africa haven’t always shopped in mega-malls, retail centers, and supermarkets. Before everything became available in a single place, many people had the staples that they used on a regular basis such as eggs, milk meat and vegetables bought from a local shop or butchery or grocery shop.

Big box retailers did away with this model decades ago, the result of their lower-cost real estate, which enabled both better pricing and greater selection.

Today the retail center model has taken one of its primary benefits — choice — to the extreme. Now African consumers have so many options in every category that many are craving a way to combat their choice paralysis. Others are looking for ways to make their shopping experience more efficient and convenient.

Thanks to advancement in electronic payment infrastructure, paired with a general improvement in business support services such as couriers which are steadily becoming inexpensive and fast, African consumers will now have the option to enjoy direct-to-home shopping experience.

For retailers, the benefits of offering subscription services can be considerable. It is a model that allows them to lock in existing customers and expand their share of wallet, as well as to reach customers for whom current retail options are inadequate or inconvenient.

When consumers sign up to receive goods via subscription, retailers can gain access to a rich source of consumer purchasing and preference data. They can also use subscription services as a vehicle to test products prior to launch. Finally, a subscription model gives retailers an opportunity to deepen customer relationships and create strong brand connections.

Despite the obvious benefits, most traditional retailers in Africa have not yet began to consider subscription model other than offering loyalty cards.

Borrowing from the US market, where we have seen start ups lead in subscription services such as fisherman’s tools (Lucky Tackle Box) , flowers (H. Bloom), men’s razors (Dollar Shave Club) and snacks delivered weekly (Graze).

Studying the strategies and best practices of start-ups provide a window into which value propositions of subscription services have been the most successful. Table stakes for success are a cost-effective delivery model, user-friendly electronic payment system, and a strong user interface across platforms, including mobile. Companies that have enjoyed extraordinary performance have matched their products to one or two critical customer value propositions:

• Convenience: For time-strapped consumers, there is indeed value to a service that eliminates the need to travel to a store or to remember to buy a product for which they have a continuing need — particularly for a replacement or recurring purchase (e.g., razor blades, laundry detergent, etc.).
• Curation: Consumers may be overwhelmed by the choices in certain categories, or they may need to be educated—or they may simply enjoy the sense of surprise and discovery when items are “hand-selected” based on their interests or preferences. Replenishment is not an issue in this category — rather consumers want to be regularly introduced to new products such as fashionable clothes, personal-care products, children’s toys, books, and so on.

It is important to recognize that subscription services go beyond the basic value proposition of a delivery services such as the one provided by Jumia.

Subscription adds an important extra dimension. Even if the primary benefit is convenience/replenishment, subscriptions present an opportunity to create an ongoing relationship with the customer, redefining the conventions of traditional retailer/consumer engagement.

Subscription is a form of partnership, a new dimension that moves beyond the transaction. Subscription is therefore not simply a replacement of the in-store experience but rather an expansion to the way a retailer or brand can engage. With this partnership in place, physical stores may still play a role in offering the traditional retail experience, but it can also serve as the showroom for purchases that won’t be fulfilled at the check-out but rather by subscription.

We have no doubt that other traditional retailers can succeed by introducing a subscription service — doing so will help them forge deeper relationships with customers, gain access to valuable consumer demographic data, tap a recurring revenue stream, and meet a growing consumer demand for both convenience and curation.