Last updated: January 12, 2022 Blog
Subscription-based products have taken the world by storm.
Think of the dominance of companies like Netflix and Hulu, the ever-growing SaaS industry, or food subscription services like Hello Fresh.
What was once primarily a business model for magazine companies has become a go-to strategy for all kinds of industries, and e-commerce brands are taking notice.
The subscription model in e-commerce offers customers a level of convenience that they don’t get with traditional e-commerce companies. And the numbers show that they like what they’re getting.
According to a McKinsey report, subscription-based companies grew by 300% between 2012-2018, and they are showing no sign of slowing down. Univdatos projects that the Global E-commerce Subscription market will reach $478.2 billion by 2025.
This opportunity for growth has led many existing companies to consider making subscriptions part of their business strategy.
We want to help you discover the best way to do that, so we’ve put together this list of 5 key things to think about as you work through your decision.
1. There are Different Types of Subscription Models
The subscription model in e-commerce is not a one-size-fits-all strategy.
Different brands use different approaches depending on their needs, and there are three particular models that are the most popular that can help you determine how you will compete.
The products within a curated subscription box are chosen by the company and sent to the customer on a regular basis. Each box is like a little surprise specially crafted just for them, making it exciting to receive over and over again.
The challenge with curation is that it has to be done in a way that consistently makes customers feel known. Without that, the experience dwindles and the churn rate goes up. No one wants that.
A lot of products run out and then need to be filled up again. Replenishment subscriptions make it easier for customers to always have a steady stream of the product so they never run out.
Every subscription cycle brings a fresh batch of the product. It works great for essential items that customers use regularly like
- Home essentials
- Beauty supplies
- Nutrition items
The final subscription model to consider has less to do with a product and more to do with special perks customers receive by paying a monthly fee. These members get access to exclusive things like:
- Special products
- Early releases
2. Know the Advantages of Subscription Programs
The sheer growth of the subscription industry shows that brands have found value in the strategy. So what makes subscriptions so special?
In short, the model generates happier customers that stick around longer and buy more products.
Here are some of the ways it does that.
Improve Customer Loyalty
The modern-day consumer buys from brands they trust, and when they find those brands, they tend to stick with them for a long time.
Subscriptions offer a kind of built-in loyalty program. The nature of receiving products on a regular basis makes it natural for the person to form trust with the brand, especially if they’re consistently having positive experiences.
Loyal customers are essential for successful businesses because those buyers tend to:
- Spend more
- Make up the majority of a company’s revenue
- Repeat purchases
- Have a large Customer Lifetime Value (CLTV).
Go From Acquisition to Retention
The subscription model in e-commerce flips the script for growth. Instead of focusing on constantly bringing in new customers, you turn your attention towards retention.
This is good news because companies have a far greater probability of selling to existing customers (60-70% likelihood) than new prospects (5-20%). Plus it reduces all the work and expenses associated with acquisition.
This isn’t to say you’ll never bring in new customers. You can’t retain what you don’t have, after all. But the general focus turns to wooing the customers you do have instead of the ones you don’t.
Predict Your Revenue
Subscriptions give you a clear baseline of sales for every subscription cycle. This not only can add a sense of security to your business, but it can improve:
- Sales forecasting,
- Inventory management
- Growth planning
Create Opportunities for Upselling and Cross-selling
The subscription model in e-commerce gives your business a unique ability to increase revenue from your existing customers. You will have regular contact with them, and they will be used to receiving products from you.
As you continue fostering that relationship and providing them with excellent experiences, you can start marketing additional products or services as well.
Because of the trust you’ve established, they will be more likely to add on items, either as stand-alone purchases or as additional subscriptions.
3. Evaluate Your Product’s Viability
Not all products are positioned well for subscriptions. Some will be oversaturated. Others won’t realistically be repeatable in the ways that subscriptions demand.
Finding the right product will help you succeed in the growing market, and you can use these three steps to help evaluate your product’s viability.
Research the Market
Brands can learn a lot by watching similar companies in their industry.
If you’re already running a traditional e-commerce business, you probably have a decent grasp of your competitors. Do some investigating with these kinds of questions:
- Have any of them dipped into subscriptions?
- Was it successful?
- Did it flop?
- Are there similar companies like yours that have done well with subscriptions?
Knowing this info can help you evaluate the risk of offering subscriptions to your product.
Know Your customers
No one knows your customers like you do, so it’s important that you take them into consideration when thinking about offering subscriptions.
You can look at things like the number of repeat buyers you have and the loyalty of your current customer pool. You might even send out a survey asking if customers would be interested.
These simple steps at the beginning can give you a sense of how your existing customers would react to subscriptions.
Some subscription-based products are obvious. Think about how much coffee bean or meal box subscriptions have grown in the last decade.
While these concepts make sense naturally, other, less expected companies have had great success with subscriptions, too including brands that sell razors, skincare products, and even natural remedy solutions.
4. Have the Right Tools in Place
Subscriptions require quite a bit of administrative management, and a number of modern software tools have come to market that helps ease the burden off the company.
Not all of these resources are created equal, though. Users will only feel relieved if their software really lifts the burden. You don’t want to be left holding the weight.
To help you make the most informed decision about which tools are right, start with these three characteristics.
A Sophisticated Customer Portal
Customers should be able to manage their own subscriptions without having to contact support every single time. Remember that most of them subscribe for the sake of convenience.
If managing their subscription becomes too much of an inconvenience, then they very likely will cancel. Tools with sophisticated, user-friendly customer portals keep the convenience going for your customers so they stay happy and stay subscribing.
Ease of Use for Merchants
Customers aren’t the only ones looking for convenience. You, as a merchant, need a subscription management tool that you can easily navigate, too.
A high-end merchant portal will make it simple for your company to
- Handle support requests
- View customer information
- Make changes easily
- Reduce friction between your brand and your buyers.
These tools will help you actually feel the freedom the software is supposed to offer you.
With subscriptions, data is everything. Detailed analytics help you give you insight into
- Customer behavior and habits
- Popular products
- Personalizing memberships
- Areas to improve.
Accessing this data will help you and your team make more informed decisions about your subscriptions.
5. Understand the Challenges to Overcome
No good thing happens without resistance. Subscriptions are not an exception to this.
To get the most out of your subscription offerings, you’re going to overcome some challenges along the way. Knowing what those are ahead of time can help you plan accordingly.
Here are some of the big ones.
Revising Your Business Model
Adding subscriptions brings a total change to your business model. This is one of the key frustrations we’ve seen with brands looking to reap the advantages of subscription programs.
While many of them understand what they’re getting into, others consider it a small addition to their existing strategy instead of an entirely new way to generate sales.
Accommodating for Additional Inventory Management
Managing inventory that has to go out on a regular basis at the same time is a slightly different game than shipping products order-by-order. In some ways, it actually gets easier to manage inventory once you get used to the process because of the predictability, but it can be a little jarring as you get started.
Offering Great Customer Experiences and Support
Customers want great products, but they also want great experiences. Consistent, positive customer experiences can lead to an 80% increase in revenue, which is great news if you’re able to provide those.
Using a subscription model in e-commerce means creating those great experiences over and over again with the same customer.
Brands that do this well through customer engagement and top-tier support will get the benefits of cultivating trust with their customers on a regular basis.
On the other hand, brands that struggle with this will want to get those worked out before repeatedly creating subpar experiences.
As the industry recognizes the advantages of subscription programs, more brands will rise to the occasion.
While there will always be room for more subscription-based e-commerce brands, each company will have to find competitive advantages involving their product, their subscription model, and the tools they use to succeed.
Subscriptions aren’t a magic formula or silver bullet that will shoot your ecommerce store to success overnight. However, there are clear benefits to adding subscriptions to your business model. Taking the time to go through these considerations can help set you up for success whenever you’re ready to launch.
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