26 September 2016

BUSINESS - Unilever Negotiating Acquisition of The Honest Company

Unilever’s proposed purchase of Jessica Alba’s The Honest Company for $1 billion is its second recent move to acquire young start-ups with direct-to-consumer subscription models.

The Dollar Shave Club was purchased by Unilever earlier this year, allowing the much larger company to tap into the market share that Dollar Shave Club had opened up.

The model of cheap, subscription-based service eliminates a lot of expensive elements involved in brick-and-mortar operations.

These types of purchases offer benefits for the start-up in terms of an influx of cash to push them into the black.

For the larger company, such as Unilever with these purchases, or Walmart purchasing Jet.com, the benefits are less tangible but no less real.

Acquiring start-ups that are finding footholds with consumers who now demand much more flexibility and responsiveness from their providers allows large companies to remain relevant in a changing capitalist climate.

The convenience and price point are probably also a factor in The Honest Company’s success, with their bundle services and subscriptions designed to fit specific lifestyles.

The Honest Company also offers the promise of eco-friendly and baby-safe products (though there has been controversy over whether they keep that promise).

This second purchase by Unilever indicates a similar focus on accessing the subscription bases of successful start-ups in order to diversify their customer base and remain agile in a new market environment.

In 2014, 80% of The Honest Company’s sales were via a monthly subscription service. Although their products are now available in Costco, Whole Foods, and Target, their subscription services are still a significant part of their marketing.

And, even if some of their subscribers are inactive, those inactive subscribers are still a valuable commodity for Unilever.

Research has shown that even inactive subscribers purchase more, and more frequently, than non-subscribers. This means that Unilever gains benefits from The Honest Company’s subscription-model start despite the company’s move into department stores.

And the subscription model offers valuable information and direct access to customers, which provides value beyond the standard sales figures.

With venture capitalists being much choosier about where their money goes, these sorts of alliances between agile young start-ups and established larger companies will become more and more important.

By Tiffany Sostar
Tiffany is a writer, editor, academic, and animal lover who came late to her appreciation of pets. At 18, a rescue pup named Tasha saved her from a depression and she hasn't looked back. She has worked as the canine behaviour program coordinator for the Calgary Humane Society, and was a dog trainer specializing in working with fearful and reactive dogs for many years. She doesn't have any pets right now, but makes up for it by giving her petsitting clients (and any dogs she comes across on her frequent coffee shop adventures) extra snuggles.

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