This holds huge potential for merchants, but challenges remain. With subscriptions getting more common, competition for consumer wallet share will consolidate. Buyers also remain commitment-phobic, with numerous reticent to convert onto payment plans, quick to churn and susceptible to product load.“Subscription is a super powerful tool for D2C and one of the biggest challenges at the same time ” - Daniil Andreev (CEO, ECORN)
What is an eCommerce subscription?
Subscription-based businesses provide products or services to customers on an ongoing basis in exchange for recurring payments. This is usually done on a monthly basis, but reorder cycles differ wildly between categories and brands.
Subscription models typically take four different forms:
Replenishment
Also known as ‘subscribe and save’, replenishment services provide scheduled deliveries of product to paying customers on an ongoing basis. It’s a model which offers buyers convenience and savings over the long-term, and is most suited to low average order value (AOV), consumable goods. Replenishment subscription is common within the beverage space, with DTC brands like Ugly Drinks, Olipop and Bev leading the way.
Curation Boxes
Curation box companies deliver packages containing multiple different products to subscribed customers. Often these are newly released or handpicked items around a similar theme, brought together to create an exclusive or highly personalized unboxing experience. They’re common in fashion and beauty where brands typically sell high AOV, durable items. Merchants like Birchbox, Curater and Stitch Fix are notable examples.
Access subscription
Although access subscriptions often involve the replenishment of product on a ‘subscribe and save’ basis, they typically go beyond a simple transactional value exchange. Brands that offer this model build exclusive experiences which customers can pay to access on a regular basis. This can take many forms. Memberships, communities or loyalty programs offering VIP benefits like early product access, limited edition drops, price discounts, free shipping, gated content, events and social interactions are common. Brands who’ve successfully executed this strategy include Italic, Thrive Market & MeUndies.
Rentals & credit
With increasing competition in the subscription space, brands are getting more innovative with their offerings. Fashion merchant Onloan stands out by renting sustainably sourced garments for consumers to use and then return each month. Others, like children’s clothing store Freshly Picked allow customers to accrue credit through regular payments, which can then be spent with the store at a later date.
What makes the ideal subscription business?
A large cohort of loyal subscribers is the holy grail for many eCommerce brands. With cost of acquisition at an all time high, online stores are seeking to improve profitability by turning single orders into regular repeat purchases. The advantages of this approach are obvious. Recurring payments provide a (more) guaranteed revenue stream without having to pay ‘rent’ on ad platforms to keep acquiring new orders. Loyal customers are also cheaper to manage and spend more once you’ve won them. From an ops perspective, predictable reorder rates make it easier for merchants to plan inventory and fulfilment cycles. Despite such benefits, subscription models are not a natural fit for all businesses. Brands in categories characterised by consumable, low AOV & high frequency items are well suited, whilst those selling high AOV, low frequency products are less so. Necessities like food, drink, toilet paper, shampoo, detergent and toothpaste easily fit into consumer routines, and their expendable nature encourages repurchase. Most are light compared to higher AOV purchases, so ship relatively cheaply. It’s also easy to create and release new variants of each to overcome flavour fatigue.That being said, it remains possible to build a successful subscription offering around a product with seemingly limited reorder potential by getting innovative. A mattress brand, for example, might sell sleep boosting CBD gummies on a recurring monthly basis alongside their core product offering. So too a cookware merchant, who could build a paid educational experience around food recipes, enabling consumers access to expert advice and training from top chefs.
Top eCommerce subscription trends of 2022
Like many hot eCommerce topics, subscriptions are developing at light speed. Part of this growth is pandemic related, but it don’t expect the buzz to evaporate as Covid restrictions ease. There are six key trends impacting the subscription space right now.
1. Demand for subscriptions is increasing
Despite frequently churning thereafter, consumers are more prepared than ever to initially commit to a recurring payment plan. Recent data suggests 69% of Americans have multiple subscriptions, whilst 27% globally expect to increase the number they sign up to in the next year. Desire for convenience and discounted purchases are the main drivers of this. The challenge for brands is to capture that demand, and minimise churn over time. Seamless subscriber management via a synchronous channel like SMS can really supercharge retention.
2. More brands are offering subscription services
The clear benefits provided by subscriptions are driving many merchants to build their own repeat purchase models. By 2023, 75% of direct-to-consumer (DTC) brands will offer some sort of subscription service with their products. Although consumer willingness to commit to monthly payments is increasing, demand isn’t infinite. This means the rising number of subscriptions offered by brands will be in hot competition for buyer attention in the coming years.
3. Consumers now call the shots
With ever more options available, subscription is very much a buyers market - and expectations are changing. Frustrated with lengthy phone tariffs and difficult-to-cancel cable TV packages, consumers are demanding a more transparent and flexible experience. In total, 46% of buyers are put off by long-term financial commitments, and 34% find it difficult to keep track of their subscriptions. Brands that can establish trust by giving customer control of their subscriptions, including the ability to easily cancel, skip or change their purchases at any time, will drive the best retention results. The one-to-one nature of a channel like SMS makes it perfect for building this kind of transparent, flexible brand-customer relationship.
4. Standing out requires innovation
With simple ‘subscribe and save’ offerings now largely table stakes, brands are getting increasingly creative in an effort to differentiate their payment models. Those that can layer community and membership incentives over their reorder cycles, will build loyalty most effectively and reduce long term churn.
5. Gen Z are coming to the party
Since 2020, Gen Z have accounted for 40% of consumers globally, and they’re already having a big impact on eCommerce. Alongside millennials they make up ‘generation rent’ - a group who shy away from physical ownership in favour of Spotify and Netflix packages. They are, therefore, an ideal target for brands offering access subscription services. Social media influencers hold strong sway over this demographic. So much so that subscription brands are expected to spend $15 billion on influencer marketing in 2022, much of which will be targeted at Instagram.
6. Data holds the key to success
Many brands have no idea where their sales originate from. Those that invest in an analytical infrastructure enabling them to identify what drives customers to subscribe can optimise their offerings to increase conversion. Equally, data can help you improve your decision making once a consumer has bought in, reducing churn and increasing AOV in the process.
Key metrics to measure
As powerful as data can be, with so many metrics out there it’s tough to know what to track. Here are the most important.
How to build a subscription model
Even with the best intentions and the right metrics in place, building an effective subscription model that substantially improves retention is a difficult game to play. Commitment-phobia amongst consumers makes converting them onto a paid plan a challenge, whilst product overload, flavour fatigue and competition from others means churn thereafter is a constant threat. The best merchants overcome these issues by giving customers compelling reasons to start a subscription, then delivering consistent value beyond a transactional product exchange to make them stay. Here’s our nine step guide to building a successful subscription model.
1) Build around the right products
There’s little point offering repeat deliveries on products people don’t want on subscription. Understand which items make sense for you, and if necessary widen your product set to incorporate things that consumers buy regularly. Overcome commitment-phobia by empowering customers to test drive your inventory before signing up to a subscription. Variety packs, such as those offered by Dash Drinks, are a great way of doing this. It’s important to remember that the ‘right’ product won’t necessarily entice forever. Customer tastes change. When they get bored of a certain flavour or variety they'll stop buying. The easiest way around this problem is to switch it up by releasing new options. Not only does this keep buyers engaged, but it also offers a potential opportunity to upsell and increase AOV as your relationship with them develops.
2) Invest in a subscription billing service for the future
Brand innovation around subscriptions has evolved quicker than the billing platforms available to support them. Over the next five years, a no-code backend management portal that is simple for eCommerce managers to use will become absolute table stakes for brands.Platforms should also make life for the end user easier. An intuitive, transparent billing service which allows customers flexibility around their subscription will reduce churn and increase a brand’s ability to upsell.
3) Incentivise conversion
With consumers awash with subscription options, only those who sufficiently differentiate themselves will be effective. Give your service a clear USP, just as you would with your business as a whole. Whether those benefits be free shipping, priority access to products, VIP membership or exclusive content, the value proposition of your subscription model needs to be clearly communicated to the consumer. Organic food brand Four Sigmatic does this particularly well with high-quality videos featured on their website.Offering discounts and free trials to motivate sign ups is a time honoured-tactic that can be effective if you then deliver an exceptional first experience. Incentivising advanced payments and auto renewals in exchange for lower monthly payments is also a smart play. When it comes to pricing plans though, it’s important to realise that not all options will work for everyone. Beauty curation brand Birchbox does a great job of providing choice, while potentially capturing 6-12 month’s worth of revenue at sign up.
4) Put consumers in the driving seat
Consumers hate being committed to a long-term payment plan that they have no control over. Make them feel safe in their subscription by giving them the power to update its terms. Enabling buyers to easily cancel, skip and change their subscription at any time is now a must for brands serious about retention. Although this flexibility is not always easy for a brand to manage from an ops perspective, subscriptions that don’t fit the reality of customer’s changing lives are very susceptible to cancellation.
5) Build relationships with customers via SMS
Traditionally, brands have managed their subscription customers with asynchronous email chains or clunky management portals which did little to mitigate buyer churn. Now leading merchants are embracing conversational channels like SMS to build one-to-one relationships with their customers.Not only do text messages enable easy upsells from one-time orders to subscriptions, they also improve a brand's ability to keep subscribers engaging long-term. Buyers who get regular, personalised interaction with a merchant, and can seamlessly edit the terms of their payment plan are much less likely to cancel.The strength of such relationships also makes it easier to increase the AOV of your subscriber base over time, and to predict and tackle churn before it takes place.Delight customers and slash churn with subscription management vis SMS.
6) Offer a compelling experience
Merchants whose subscription offerings extend beyond a simple financial transaction, and incorporate membership or community benefits create more compelling reasons for consumers to stay. This means going beyond a basic email welcome flow, to consistently offering value to subscribers long-term.Clothing brand Curateur do this by creating exclusive blog content, giving customers access to expert fashion advice from Rachel Zoe. Survival product supplier Battlbox enhance their customer's experience by facilitating buy-sell-trade groups for subscribers. This also tackles the problem of product pile-up - a huge cause of subscription cancellation in eCommerce. Similarly, fashion brand Italic go the extra mile by offering discount pricing, free shipping, 24/7 support, personalized gifting and a VIP community for their members.
7) Leverage loyalty
Allowing subscribers to accrue loyalty points as their reorder cycles increase is another great way to add stickiness to your offering.Customers of the Craft Gin Club earn 200 loyalty points for every box they receive. Those who have collected 1500 points can apply for various discounts at the brand’s members store - incentivizing numerous purchases and building brand affinity.
8) Tighten up passive churn
Passive churn occurs when buyers cease purchasing a merchant’s products, despite wishing to remain a customer. It’s often caused by declined card details or UX issues, and can be a significant barrier to recouping recurring revenue from subscriptions. Brands attempting to contact customers to update payment information can also run into email deliverability issues, leading to an unwitting cessation of subscription plans. Failed payment recovery platforms like Churn Buster can help identify where these issues are occurring, and propose solutions so merchants don’t lose hard-earned customers.
9) Optimise continuously
A data-first mindset is critical to optimising retention. Brands that understand which products and promotions brought customers with the highest subsequent LTV into the business, can craft future acquisition campaigns to attract the more of the same type of buyer. Data can also help identify single order customers who buy on multiple occasions, and use targeted messaging via SMS to upsell them to a subscription.Superfood merchant Ancient Nutrition has heavily invested in analytics to better serve existing subscribers. The brand can identify what an individual customer is likely to buy next based on machine learning algorithms, and use that information to add product recommendations to upcoming charge notifications sent via email and text.
Key Takeaways from Subscription Guide 2022 🎁
Innovation is compulsory
The increasing number of subscription services on the market makes it harder and harder for brands to differentiate themselves. Standing out requires creative positioning and a compelling value proposition.
Flexibility is king
‘Subscribe and forget’ models that make it difficult for customers to cancel are old news. Customers now expect to be given flexibility to cancel, skip and change payment plans at any time - and SMS will become the go-to channel to facilitate this.
Experience is sticky
‘Subscribe and save’ is no longer enough either. Consumers might come for the discount, but it’s the experience that makes them stay. Product, CX and relationship building all have to be aligned to drive retention long-term.
Knowledge is power
Brands that can intelligently use the customer data they own will be one step ahead when it comes to both converting and keeping subscribers. Investing in an analytical structure which enables this is crucial to the success of any subscription model.
ECORN Agency can help you with eCommerce subscription and your eCommerce IT infrastructure.
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