Reasons Best Performing Businesses Use Ecommerce Subscription And Why You Should Consider it for Your Online Business

May 11, 2021
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Emmanuel Umukoro


Businesses have evolved and have given big room for e-commerce subscriptions to take the lead. Businesses like Spotify worth 67 billion USD, Netflix worth 22 billion USD, and others like them offering SaaS Model (Software as a Service) all survive on e-commerce subscription. Subscriptions have now made their way into other sectors including beauty, fashion, food industry, healthcare among others. Dollar shave club, for instance, delivers everything a man would need in the bathroom – from razor blades to grooming products – automatically delivered to your door. It doesn't get any simpler than that. Birchbox too delivers its customers a monthly box including a variety of skincare products, perfumes, organic products, and cosmetics. Ecommerce subscriptions have contributed significantly to the development of many businesses and can drive the same impact for your company.

The subscription business model is one in which a consumer must pay a recurring fee for access to a product or service at regular periods - usually monthly or yearly.

Ecommerce subscriptions are about building solid client interactions and relationships on a deeper level. Subscription converts customers who already recognize the value your firm provides become loyal followers who become dependable sources of recurrent revenue. The more time a consumer spends using your product or service, the more valuable they are to you. And the high client retention rates subscription brings also translates to reduced long-term acquisition expenses.

We will discuss how the revenue value of subscriptions, the outlook for the subscriptions business, and how you can turn any product or service into a subscription.


Ecommerce subscriptions as a source of revenue

Consumer preferences are shifting toward hassle-free shopping, free delivery, and immediate pleasure. All of these objectives are met by the subscription model, which provides value to customers with minimal effort and provides enormous development prospects for subscription-based organizations.

Subscription models rely on pre-planned purchases and recurring revenue, whereas traditional internet retail relies on ad hoc purchases and total revenues. This recurrent, predictable revenue is the value of a subscription.

A subscription model's recurring revenue can save your business from the instability of the market and retail cycle, as well as the COVID-19 epidemic. Subscription-based businesses can order and handle inventory more efficiently with this consistent, predictable revenue. In a subscription business, knowing a customer's lifetime value can also help marketers spend intelligently on acquisition during slow seasons. The most successful subscription businesses can see lower churn rates in their client base due to the deeper, more tailored engagement they have with subscribers than with regular consumers. The average turnover rate for B2C enterprises is 7.05% as a benchmark. Customer dissatisfaction can lead to voluntary turnover, whereas payment concerns might lead to involuntary churn.

Ecommerce subscriptions enable businesses to increase repeat purchases since they eliminate the need to gain business on the spot if they have a loyal, subscribed consumer base. Selling to a current customer has a 60-70% likelihood of success as against 5-20% for a new prospect.

Subscription-based businesses also have considerably more transparent pricing, as stores focus on macro pricing with tiers rather than specific prices on a variety of products.

Furthermore, recurring revenue increases the value of your firm and makes it more appealing to investors and possible purchasers if you decide to sell it.

Businesses benefit from subscription-based business models because they allow organizations to be more data-driven in their customer targeting and acquisition, as well as pass on cost savings in distribution, marketing, and personalization. Subscription-based businesses have access to customer data that allows them to offer better cross-selling and marketing opportunities that traditional shops just can't match.

Businesses benefit from subscription-based business models because they allow organizations to be more data-driven in their customer targeting and acquisition

Situation Report of The Subscription Industry

According to recent estimates, the worldwide e-commerce subscription business would be valued at $478 billion by 2025.

From January 1, 2012, to June 30, 2019, the Subscription Economy Index (SEI), which tracks subscription businesses on the Zuora platform, found that subscription businesses grew revenues nearly five times faster than S&P 500 company revenues (18.2% versus 3.6%) and U.S. retail sales (18.2% versus 3.7%).

In three years, subscription e-commerce businesses have raised $2.5 billion in venture capital funding, including $400 million in the first eight months of 2019.

"It is predicted that 75% of businesses selling direct to consumers (DTC) will be offering subscription"

Outside of the United States, growth rates are even more spectacular. Over the last three years, subscription firms in Europe, the Middle East, and Africa (EMEA) have expanded 4% faster than their North American counterparts.

When we consider the advantages of the subscription model for consumers, it's clear as to see why this market is flourishing. For most customers, the decision to tag along with a subscription boils down to convenience. Gone are the days when you run out of something and have to rush to the shop. Subscriptions are the epitome of the “set it and forget it” mentality. When a customer signs up for a service, they make their selection once, and then they receive their goods or services without having to worry about it again. With the bonus of low-cost or free shipping, it eliminates the burden of having to go out and acquire something—which is especially useful now, given the pandemic lockdowns and limitations.

Client retention and customer lifetime value are the lifeblood of subscription businesses (LTV). When you run a subscription business, churn rate, client acquisition rate, and the cost of acquiring new customers are all crucial metrics to track.

Nearly 40% of customers have terminated their online subscription, with top-performing firms maintaining a higher percentage of their clients. Subscription businesses that offer "cancel at any time" choices must at least recoup the cost of obtaining those subscribers, therefore retention is extremely important. It costs 5–25% more to recruit new consumers than it does to keep existing ones.

“Customers who churn, according to research, do so almost as soon as they signup for a subscription.”

Within three months, more than a third of customers abandon their subscription, and more than half cancel within six months. This is the reason efforts to reduce churn and retain consumers are so important.


Prominent sectors that sell through e-commerce subscription

It's hard to decide which industries are the most prominent for selling subscription products because apples-to-apples comparisons are difficult to come across. The SEI, for example, only monitors the software-as-a-service (SaaS), internet of things (IoT), manufacturing, publishing, media, telecommunications, and business services businesses. Others keep track of subscriptions by subscription category (replenishment, curation, or access) or by industry: healthcare, food, cosmetics, and so on.

Separately, other data curators focus solely on the subscription box market, ignoring media services such as Netflix and Amazon Prime. Movies, television, and music are all classified as subscription boxes in this one.

By combining industry, sector, and category data, a more comprehensive picture of the hottest subscription areas, as well as those that are underserved and ripe for disruption. The IoT industry (energy, transportation, healthcare, construction, and technology, for example), which sells recurring digital services through hardware, is the fastest expanding subscription sector, according to the SEI.

What's fascinating is how rapidly newcomers rise to the top, regardless of industry

Year-over-year traffic reductions are common among top-performing subscription businesses. The bright side is that new shops will be able to enter the market and gain market share. Similarly, top-subscription businesses that fall out of favor in any particular year have plenty of chances to recapture their top places in the next year (like how HelloFresh climbed to the top).

McKinsey divides subscriptions into three categories: curation, replenishment, and access, in addition to product varieties.

Curation Subscription

With the Curation subscription constituting 55% of all subscription, expect to be surprised and delighted : The majority of consumers who subscribe to this subscription services want bespoke curation, which competitors can't readily duplicate. For companies looking to enter the market to enhance their current web strategy or curate something entirely new, this presents a fantastic opportunity.

Replenishment Subscription

With the Replenishment subscription constituting 32% of all subscription, it is focused on “never running out” at a lower cost than retail cost. The hurdle here is that it can be a race to the bottom for price and its relatively easy to replicate.

Access Subscription

With Access constituting 13% of all subscription it makes up exclusive member-only programs that provide "VIP" perks, early access to new products, and exclusivity. Most large-scale firms already have a loyalty program in place. You may increase monthly or quarterly revenue while still providing a unique experience to your best clients by adding subscriptions.


Integrating Ecommerce Subscription into your Strategy

It's crucial to understand why businesses integrate subscriptions into their existing items before placing your products into a subscription box.

  • Stability: You can accurately predict inventory levels, decrease waste, and grow recurring revenue as your subscription grows.
  • Segmentation: The chances of upselling or cross-selling increases as well as “surprise and delight” when you give customers more information about subscription than it is with a regular checkout.
  • Differentiation: A subscription product can set your company apart and identify you as a curator or influencer in a highly saturated sector like beauty industry.

Customers do not subscribe to products because they appreciate the monthly withdrawal of funds from their bank accounts. Let's examine why many people still sign up for product subscriptions

  • Personalization: Increased personalization over time is one of the most important variables in a subscription's duration; keep this in mind to reduce churn.
  • Value: The most crucial issue here is value for money, not overall pricing; as one of the main reasons why people subscribe and churn, it's critical to manage expectations with your customers.
  • Exploration: With so many options available online, many customers consider subscriptions as a convenient way to “try something new” that is highly tailored after them.


How to turn any service or product into subscription

Any product or service can now be converted into a subscription. While there have traditionally been subscription categories such as home goods - razors or vitamins, beauty items, fashion, or food, there are no limits today—if you offer a product, you may succeed in the subscription market.

Consumers are increasingly subscribing to products that were not previously available as a subscription. Consumers with numerous subscriptions are driving this trend: Of the 15% of consumers who receive subscription products, 35% subscribe to three or more services. Diving deeper within this group, 18% of men and 7% of women have six or more.

Pretty Litter claims to have the world's smartest cat litter on the market. While Pretty Litter's subscription maintains track of a cat's health by changing color, Joe Barger, the company's Head of Business Intelligence, believes what the brand promotes is convenience and peace of mind.


Pretty litters ecommerce subscription box


People are very busy these days, and Barger explained that “When it comes to some of the most essential areas of their lives—their pets—we give our consumers fewer things to worry about.”

Barger has committed to share some of Pretty Litter's most useful subscription-related data with other brands to help them flourish.


Learn from your VIP Users

Pretty Litter has created a Facebook VIP hero group, which is home to thousands of their most loyal clients. Not only does the group allow Barger and his staff to learn directly from power users by receiving direct feedback, but it also allows the business to develop brand ambassadors.


“Continuous adaptation is essential for success,” adds Barger. “What works today may not work tomorrow, so keep an eye on what's working and be ready to double down on winning channels while cutting back on underperforming ones.”


Create a Unique Value Preposition

Kitty litter hasn't been conditioned to be thought of as an e-commerce subscription. However, the brand established a value proposition for maximum product "stickiness" by saving customers time and letting them know that the kitty litter that arrives automatically every month is helping them safeguard and care for their pets.

Barger explains, "We have established a clear and distinctive value-add that addresses the convenience of a continuity model." ”This is especially true for a product that is required on a regular and continuous basis.”


Personalization boosts customer retention.

Pretty Litter can customize branded communications with customers by offering online subscriptions. Customers can visit the Pretty Litter website at their leisure to learn about the benefits, rather than doing so while in a hurry at the grocery store.

And tailoring the membership experience aids Pretty Litter in retaining more subscribers. Pretty Litter provides customers with freedom and choice rather than a one-size-fits-all solution.

“There is rarely one solution for everyone,” Barger says. “Offering customers the ability to build their flexible plan is key to retaining your customers. If you’re going to introduce other products, make sure that they’re a relevant fit to your brand. A random product that doesn’t tie back to your core brand could do more harm than good.”


Pay attention to cashflow

Ecommerce subscriptions demand more care than other businesses because customer acquisition expenses and churn are quite high. It's critical to pay great attention to the financial aspects of your subscription business. Particularly because consumers have been conditioned to expect more.


According to Barger, customer expectations are always rising as a result of Amazon's speedy and free shipping. While matching Amazon's speedy shipping is costly, subscription businesses must exceed customer expectations while still managing their money wisely.

“Cash flow management is critical for a healthy business,” adds Barger. “Subscription KPIs are not the same as typical retail KPIs. Make sure you have the funds and cash flow to invest in customer acquisition.”

Kitty litter isn't the only non-traditional product that operates on a subscription basis. Subscriptions can also work for products that aren't often replenished right away.


How to implement subscription in your online store

If your store is powered by Shopify, you can build your custom subscription solution using Shopify's new subscription API and Product Subscription Extension. Shopify’s suite of APIs and open-source templating language, Liquid, enable you to make Shopify work the way you need it to. Take a DIY approach and build in-house with your developer team. Alternatively, for convenience sake and to save money, you can reach out to experts at Chargezen by clicking the get started button or write me at success@trychargezen.com to help you plan a subscription strategy to do what your brand needs.

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