UCL School of Management is delighted to welcome Professor Fernando Bernstein,Duke, to host a research seminar discussing ‘What’s in the Subscription Box: Managing Content to Acquire and Retain Subscribers’

Abstract

We consider a subscription box service in which a service provider ships products to consumers at regular intervals for a xed, per-box fee. Consumers are heterogeneous both in their utility for the contents of the box (which changes from period to period) and in their utility for the delivery service itself (which is identical in every period for an individual consumer). While consumers know their utility from the content before receiving the box, e.g., because the service provider discloses the contents in advance, they only learn their utility from the delivery service after using it at least once. Consumers optimally choose whether to receive a box (and pay the fee) in each period based on their estimate of the box’s value. The service provider has a total budget for the quality of her content (e.g., a limit on the total amount she can spend on box contents) and needs to allocate this budget to periods to maximize her expected demand and, hence, her expected revenue. We nd that the provider’s optimal quality allocation policy depends on this budget and on the level of heterogeneity in consumer preferences for both box contents and the delivery service, and can be categorized as focusing either on retention or on acquisition of subscribers. When the provider’s budget for quality is high and consumers have relatively similar utilities for service, she should increase the quality of her content over time; this strategy prioritizes retention of existing subscribers by oering increasingly better box contents to induce even those with a low realized value of the service to keep subscribing. On the other hand, when consumers have very dierent utilities from service, or if the provider’s budget is low, the provider should decrease her quality over time; this strategy prioritizes initial customer acquisition by inducing consumers to sign up for the service early on, at the cost of retention in later periods. As a result, the provider settles for retaining only those customers who highly value the delivery service.