Wal-mart moves to Subscription Business. What does it signify?

Last week, Wal-Mart launched its food mail subscription service under the Goodies.co brand. As of November, Wal-Mart indicates that over 3,000 customers have subscribed to the service. The customers are billed $7 per month for a box of 6 to 8 sample food items available at Wal-Mart stores. What does the retail giant’s entry into the subscription industry signify? We dig into this move by Wal-Mart.

Industry players have been quick to report the opening up Wal-Mart’s Goodies.co mail food subscription service to the public. The product has been under development for the last 3 months and is still in an invite-only program. By subscribing for only $7 a month (inclusive of shipping and handling), customers get sample items that are stocked at Wal-Mart’s stores. The items range from organic to ethnic food products. If customers like the products, they can order them full size from the stores. Wal-Mart says they are still experimenting with this program before making any decisions on whether to scale it up.

Why Should Wal-Mart Care about the Subscription Industry?

 It is interesting to note that this is not the first food subscription service to be launched. There are dozens of similar services including Love With Food, Pop-Up Pantry’s  and Snapbox, which have been operational for some time. These are in addition to the many wine subscription clubs available. However, if Wal-Mart is interested in the subscription business, they must be reading something on the wall.

To begin, the benefits of a subscription business cannot be ignored. Unlike most traditional business models that rely on one-time sales, subscription businesses can guarantee a business consistent cash flow even when the economy is down. In the case of Wal-Mart, Goodies.co can provide the much needed cash flow in case there is a slump in retail sales.

But it is not just about sales that Wal-Mart is looking at. Here are other possible angles that the retail store is hoping to achieve from its Goodies.co subscription experiment:

1. Market Intelligence

With Goodies.co, Wal-Mart is testing whether the market will be responsive to a mail subscription business. While there is no doubt that online subscription businesses, especially from the SaaS industry, dominate the market, there has not been much success of modern mail subscription business.

Depending on how Goodies.co performs, the number of customers that sign up and a host of other metrics, Wal-Mart will be in a position to know whether to pump more resources in the business or abandon it. The store will be looking at how its subscription business stakes against other food subscription startups in the market

2. Customer Behavior

The very essence of starting a business is to solve the problems that your target market has. In the SaaS industry, the problems are usually well defined. They can be about time management, online billing, invoicing, and so on. However, for a business that ships physical products, the market can be tricky to understand and assuming that customers need a product can lead to failure.

Proper market research that includes more than just random sampling is important to understand customer behavior. Wal-Mart can use the consumer behavior data it gets to know whether the subscription business will be viable for them.

3. Product Demand

The food samples that Wal-Mart sends to customers are sourced from different suppliers for free. If customers like the products, they can order them full size at Wal-Mart. Customers can also rate the samples they receive at Goodies.co in return for rewards points that can be redeemed for free boxes.

This customer data can help Wal-Mart improve its product mix on the shelves. Even if the subscription business does not take off, the store will have more accurate idea on different products based on the response of customers, and thus they can stock a more formidable product mix that is likely to lead to increased sales.

Lessons from Wal-Mart Subscription Business

For startups in the SaaS industry, Wal-Mart offers a number of lessons from its mail subscription business. These are the fundamentals that any business, whether working online or offline, should be looking at. These are customer behavior, product demand and market intelligence.

Any SaaS or subscription-based business should do a thorough research of its market and competition before deploying the product in the market. With more businesses entering the subscription economy, competition is expected to be tough and only business that provide value to their customers and address their needs effectively will survive.

Before investing fully into a solution, businesses can roll out beta solutions and gauge the response of the market. Operating under the principles of a lean startup will help to avoid resources wastage in solutions that may not be profitable in the long run.