Why retailers are flocking to e-commerce subscription models

Subscription Billing Suite

Published on: February 9, 2022

With the increasing prevalence of e-commerce, retailers are embracing subscription services. Barely a day goes by without another major brand launching their own online recurring revenue stream. A fact that is unsurprising given the expected growth of the subscription economy. A recent study by Juniper Research shows the global market value reaching $257 billion.

Much of this growth is due to the growing demand by consumers for more flexible options. The modern shopper expects unprecedented convenience, financial incentives, and often the additional bonus of delightful novelty. Retailers who fail to deliver on those expectations are quickly being left behind. The good news is that subscription-based e-commerce can be a win-win situation, with companies gaining higher customer lifetime value (LTV) and greater return on customer acquisition costs (CAC).

This blog details three subscription models that are particularly effective for retailers, and then breaks down the most common benefits. Read on to determine if an online subscription business model would be ideal for your company.

3 types of e-commerce subscriptions

1. Replenishment

Instead of having to keep track of common goods and re-order them, or worse make a last-minute dash to a local store, replenishment subscriptions allow customers to automate the ‘replenishment’ of commodity items. A good example of a merchant that employs this type of subscription is Dollar Shave Club, they deliver razors and grooming supplies monthly by mail.

2. Curation

Customers buy curation subscriptions, commonly subscription boxes, because they are surprised and delighted with novel items or highly personalized experiences. For example, Birch Box is a monthly beauty subscription box that sends five handpicked deluxe samples based on the customer’s online profile. This allows customers to try different products from luxury brands, and prime their loyalty, before they commit to purchasing full-size items.

3. Access

Access subscriptions, often referred to as memberships, may be less common in retail than replenishment or curation subscriptions, but that does not mean they are any less important. Retail giant Amazon Prime is a highly lucrative enterprise that uses an access subscription model. Unlike traditional loyalty programs where customers can unlock rewards after spending a certain amount, customers pay a monthly fee to immediately access benefits like exclusive items, lower prices, and free shipping.

Benefits of an e-commerce subscription model

The e-commerce subscription model provides opportunities for many companies to acquire significant gains. Below you can learn about some of the most salient pros of online subscription services.

Increase customer acquisition

The digital subscriptions market is a rapidly growing industry with ample opportunity for customer acquisition. Depending on which of the three types of subscription models you implement, new prospects will be drawn in by highly prized value-drivers like financial incentives, convenience, or novelty. These help to break down barriers to entry that may have prevented customers from purchasing your offer in a traditional context.

Additionally, subscription services are well equipped to support marketing strategies that ease the buyer’s journey. In 2021, 80% of people used a free trial to sign up for at least one retail subscription and 57% of merchants offered guarantee or refund policies. Subscription and check out features that support a frictionless user experience have steadily driven up customer conversions.

Develop customer loyalty and retention

Subscriptions have enormous potential for customer stickiness, which provides plenty of opportunities for your company to nurture and deepen those connections to foster brand loyalty. With a solid retention strategy, you will see a greater return on CAC and LTV as subscribers tend to spend more over time than traditional customers.

The Subscription Commerce Conversion Index shows that nearly one third of all consumers have at least one retail subscription service, and that they plan to keep their subscription. It also found that the average subscriber spends $37.73 per subscription per month and holds five different retail subscriptions on average at any given time. If your subscription can become embedded in customers’ budget and routine, your company will profit from their loyalty.

Improve forecasting and visibility

Since a subscription business model relies on regular recurring payments, you’ll be afforded greater financial visibility. Predictable revenue enables demand forecasting to be performed with greater accuracy, freeing your company from spinning its wheels to attract customers and overstocking unnecessary inventory.

By investing in a solution with automated recurring billing and real-time analytics you can make life even easier. The right solution should reduce the gaps between billing cycles and allow you to glean important insights from customer data to bolster business decisions.

Establish brand community

Subscription businesses are uniquely positioned to create strong brand communities. Customers can feel connected by the shared experience of dependable service and exciting goods. Brand communities can help to establish your brand, as well as increase customer acquisition and retention. By tracking customer behaviour and product performance over time, you’ll have a variety of touchpoints to engage with subscribers.

Companies with excellent customer service often compel brand community members to recruit new customers through word of mouth, or by leaving positive reviews and promoting the brand through their personal social media accounts. Brands need only close the feedback loop by interacting with customer feedback to signal that they are present and able to deliver on a strong customer support experience.

Expand upselling and cross-selling opportunities

By continuously nurturing your client base, you can foster a strong bond of trust with your subscribers, which makes it easier to market additional and complementary services. Customer loyalty and familiarity with your basic products generally positions subscribers to be more open to upsells.

Once a subscription fee has been included in a subscriber’s expected monthly budget, they tend to see additional features as more affordable and are more receptive to added value. This is especially true for customers using your subscription to learn and/or grow, as they may find add-ons help them to achieve their goals more efficiently. Tiered, feature-based, and bundle pricing models are uniquely designed to facilitate upsells and cross-sells.

6 best practices for managing retail subscriptions

Introducing Subscription Billing Suite

A successful subscription-based e-commerce business model relies on handling large volumes of data, quick pivots in complex pricing strategies, and data-driven forecasting. Without the proper infrastructure in place to support your growth journey, your company will likely be overwhelmed and unable to scale appropriately. Many brands determine that they require a financial transformation. A robust subscription management solution, like Subscription Billing Suite, can not only manage recurring billing, invoicing, and recognition challenges, but also supports flexible pricing structures, real-time reporting, and regulatory compliance. It’s available as an embedded extension in Microsoft Dynamics 365 Finance and Operations, Business Central, and GP.

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