In the US the subscription e-commerce market has grown by more than 100% per cent a year over the past five years, with the largest retailers generating more than $2.6B in sales in the past 12 months. The most recent research from McKinsey reveals that almost one in six people in the States have signed up for one or more subscriptions to receive products on a recurring basis, frequently through monthly boxes.

And it is no different in the UK. Whilst the market is still in relative infancy compared to the USA, it is in a phase of rapid growth. According to Royal Mail the UK subscription box market is forecast to grow by 72 per cent by 2022 and be worth £1 billion compared to £583 million estimated spend in 2017. This will see the number of deliveries each year grow from 40.1 million to an estimated 65.3 million.

Once the domain of magazines, consumers can now get pretty much anything on a recurring basis – from snacks, through to gin, boxes of socks, mystery presents, shaving foam or even a car.

Royal Mail’s study shows that the most prevalent subscription customers are those aged between 25-34 years old. Almost half of this age group are signed up to a subscription service in comparison to just seven per cent of those aged over 65. However, with more niche boxes coming on to the market incorporating puzzling, knitting and gardening it is likely that this valuable market will also experience growth.

Another study, this one by Whistl, shows that the average spend on subscriptions is currently around £60 a year, but it would seem that men are the biggest spenders overall. In fact, 1.5m British men spend over £300 a year.

It is no surprise, therefore, that 58 per cent of businesses intend to invest in subscription services in the next year. And that three quarters (72 per cent) who already offer subscription services intend to add new products over the next 12 months. Over half (52 per cent) of businesses believe that subscriptions are set to be a major focus for their company in the future.

Driving greater brand loyalty is a key motivation for launching a subscription box service, cited by 45 per cent of businesses. And this seems to translate to consumers as the whistl research found that one in three people in the 25-34 age group refuse to shop with retailers that they don’t have a subscription with suggesting that subscriptions are indeed a good way of engendering customer loyalty.

However, subscription churn rates are very high and consumers quickly cancel services that don’t deliver superior end-to-end experiences. Moreover many customers sign up to take advantage of introductory deals. For instance, it isn’t unusual for the first four boxes to be half price. However, once the reduction finishes customers cancel their subscription, only to resubscribe a few days later to once again take advantage of the cut price deal. Often to facilitate this they may alter some aspect of their personal data – for instance providing a slightly different version of their name e.g. using a middle name or an alternative spelling of their first name. This means that data integrity is often a problem for these organisations. Already databases typically degrade at a rate of 30 per cent per year, but add voluntary data obfuscation into the mix and it means that the customer database could actually serve to damage the business.

The reason for this is that lifetime value is a crucial metric for the sustained success of recurring revenue businesses. As a result cutting edge data science, modelling and analytics are often applied in order to find patterns in the data that can be exploited to locate valuable potential revenue through upsell and cross sell opportunities and also identify triggers that result in churn. However, the old adage ‘rubbish in, rubbish out’ is true. If the data that is used to build and train these models is biased then the results will be biased and organisations could inadvertently find themselves creating inaccurate segments. It is critical therefore that the data that flows through the organisation is constantly monitored and maintained. This means for example identifying and removing duplicate information – i.e. finding serial churners that have subscribed multiple times and have a number of records in the database despite bring the same person, ensuring that names and addresses are accurate and formatted correctly and screening for people that have moved house or passed away.

It is no accident that the most successful subscription businesses are those that have an incredibly strong data ethos. Amazon by virtue of its subscription offering on Amazon Prime is by far the largest subscription business and its data is widely considered to be its primary source of competitive advantage. This is because it understands data at both a strategic and grass roots level. With the popularity of the recurring revenue model growing by the day amongst consumers due to the convenience they offer data management must become a key consideration in realising the predicted future growth.