Discovery commerce is a new trend where customers can subscribe to a service and receive a “surprise” tailored to the customer’s tastes once a month.  Discovery commerce evolved as a response to the overwhelming assortment that customers are exposed to now that customers can shop online any time for anything.  For example, NatureBox subscribers can receive boxes of healthy snacks every month in return for their $20 subscription.  Stitch Fix charges customers a $20 monthly styling fee in return for five hand-picked garments and accessories to try on.  All or none of the items can be bought or returned. Birchbox, for a $10 fee, sends its customers a box of lip-gloss, shampoo, face cream, etc, that is individually tailored through a profile questionnaire.  Many of these “surprise” trial boxes lead to purchases of full-sized merchandise.

According to Wharton marketing professor, Barbara E. Kahn, customers use subscription services because it is like a “new fun treasure hunt for things.”  Many customers appreciate the help of having someone else do the searching for them.    Customers also love coming home every month and finding a surprise waiting just for them.  Companies that have been successful in discovery commerce provide products that are regularly needed for consumption (ex. shaving cream), products that make good gifts (ex. stationary or toys), or products for people who want to learn more about a particular product category (ex. wine or cheese).   Consumers are willing to pay for the help of discovering products that are attractive to them.

For manufacturers, using discovery commerce is also a great way to get products in front of customers for them to try.

Some skeptics argue that this type of sales interaction is no different than a Mary Kay or Avon representative coming to the door with items just for you.  Skeptics also compare this model to an educational program called Things of Science that shipped science kits to homes and science clubs across the country. This program ran from 1940 to the 1980’s.

The size of discovery commerce is hard to determine, yet it is clearly gaining momentum.  Birchbox, for example, had revenues just under $40 million for 2012 up from $5.5 million the year before.  While it is growing, doubters do believe that eventually the novelty will wear off.  How can these companies continue to delight customers after the sixth or seventh box of new stuff?

The best way for companies that engage in this practice to succeed is to develop authentic relationships with customers and develop a brand that customers can really engage with.  These companies should also seek diversification strategies for growth, including new products or traditional retail offerings.  Companies also need to really know their customers so that they can provide them with the best assortment that is interesting and meaningful to them.  To do this, retailers rely on big data, including things like what music customers might listen to on Pandora.

Discussion Questions:

1. What is “discovery commerce”?

2. Why do people like it so much?

 

SOURCE: Knowledge@Wharton, October 10, 2013