by Amba Wilkes
The subscription era is well and truly upon us. Originally starting as an effective business model for those that offer a Software-as-a-Service (SaaS) – think Netflix, Amazon Prime and Spotify – subscription services have since broadened to other industries including food, fashion, beauty and fitness. You might be wondering what this business model could do for you. To help you decide, we’ve taken a deep dive into eCommerce subscription services.
The subscription era is well and truly upon us. Originally starting as an effective business model for those that offer a Software-as-a-Service (SaaS) – think Netflix, Amazon Prime and Spotify – subscription services have since broadened to other industries including food, fashion, beauty and fitness.
You might be wondering what this business model could do for you. To help you decide, we’ve taken a deep dive into eCommerce subscription services.
What is a subscription-based eCommerce business model?
A subscription-based eCommerce business model is one that charges customers a recurring fee, usually on a monthly or annual basis, to receive a product or service in return.
Popular examples include food subscription box HelloFresh which allows customers to select recipes on a rolling subscription basis for weekly delivery. In the beauty world, Lookfantastic has made a lasting subscription impression with their monthly beauty box guaranteed to feature six products worth a minimum of £50. While Bloom & Wild offer a flower subscription allowing shoppers to enjoy fresh flowers on a regular basis.
These eCommerce subscription services offer a convenient, often personal and sometimes cost-saving way for shoppers to buy what they want. Common subscription delivery frequencies include weekly, fortnightly, monthly or quarterly, while many brands also offer a ‘skip’ functionality to give customers more control with the chance to miss a delivery if they so wish.
However, this is just scraping the surface of an eCommerce subscription service. At a deeper level, these services support strong, lasting and loyal customer relationships. Subscriptions provide the ability to turn shoppers into reliable sources of consistent revenue and since you don’t have to win the custom every time, these repeat purchases are high value to a business.
Typically, to encourage sign up to a subscription service you may have seen specific call to actions such as:
- First month free
- XX% of first XX months
- Gift with purchase upon sign up
- Refer a friend for XX% off your next box
eCommerce subscriptions market growth
There’s no denying the eCommerce subscription market has grown enormously. Over the last few years, it was found that nearly 15 percent of online shoppers have subscribed to some form of eCommerce subscription service. In line with this, the market is forecasted to grow at an annual rate of 68 percent until 2025 to reach a staggering $478.2 billion.
As consumer buying behaviour leans towards increasingly hassle-free shopping experiences, a subscription-based eCommerce business model can provide this with minimal effort. Throwing COVID into the mix has only caused subscription services to surge in an attempt to secure goods while panic buying has been rife and shops have been closed. The predictable revenue of an eCommerce subscription service can act as a lifeline for businesses through the peaks and troughs of retail while also allowing brands to manage inventory more effectively.
Is there a downside to subscriptions?
To understand the opportunities brands face in the subscription space, we have to consider both sides of the coin with some notable downsides including:
- A high turnover of customers due to cancellations
- Being aware of and realistic about demand fluctuations
- Savvy shoppers misusing offers by signing up with multiple email addresses
- As a luxury brand, a subscription service could cheapen your products and reduce the exclusive feel
- The strain of coping with logistic and inventory challenges
To help you weigh up whether this is the right option for you, we’re taking a look at the different types of subscription models available.
Type of eCommerce subscription models
A curation subscription model involves receiving a curated collection of items. For example, this could be in the form of a food and drink hamper, beauty box or clothing. Curation subscription models come in two forms – surprise products and select products.
Most people who subscribe to a surprise subscription love the fact they can try something new each month. Surprise product subscriptions evoke a sense of product discovery.
Unfortunately, the novelty can wear off if the customer doesn’t love a product they receive which means this subscription model has higher cancellation risks and can cause lower customer retention rates.
Surprise product subscriptions also run the risk of causing an influx in complaints even though shoppers agree to receive any product within the subscription category. If they receive a product they don’t like or something they perceive to be of lower value, it’s not uncommon to receive complaints both directly and on social which can damage your brand reputation.
To overcome these challenges, it’s important to ask for feedback on the products you send. Make this service more of a community by bringing your customers into the conversation. This allows you to learn from the products people don’t like, improve your offering and hopefully lessen future complaints.
A select product subscription service allows recipients to pick the product they want to receive each month based on the options provided. If they forget to select their product choice, the brand will revert to the surprise product model instead.
The select product model works particularly well for food and drink brands who offer recipe boxes such as Simply Cook. Simply Cook’s strategy involves shoppers choosing four recipes per week, per fortnight or month with the option to order a one-off box too. Latest in Beauty also offers a select product subscription service where customers log in to their account to choose six products per month for a set price.
A huge customer benefit of this model is that they’re able to order the product(s) they love over and over again while avoiding the options they’re not so keen on. Ideally suited for a business that has a large quantity of products available, customers can discover the products they love without being put in a negative situation of not liking a particular product that could come from a surprise subscription. As a result, this model is likely to create long-term customers in comparison to the surprise model.
However, a drawback to the select product model is that the logistics are complex and it can be more expensive and time-consuming for businesses to implement. It places the responsibility on the brand to predict what will be the most popular options and requires careful inventory management. Failure to plan accordingly could lead to a negative experience between brand and customer.
The value of a replenishment subscription model comes down to convenience. This approach allows customers to choose a product and select the frequency they receive it – a great time saver for those with a busy lifestyle. With the added benefit of a lower cost and/or free shipping, this approach removes the hassle of running out of products - a huge benefit to shoppers, especially during rolling lockdowns and ongoing restrictions.
This model is ideal for essential and repeat purchases such as pet food, ink cartridges or vitamins with the likes of Holland & Barrett and Amazon offering this service. While there is no product discovery involved, it is effective for attracting long-term subscribers, increasing customer loyalty and retention.
An access subscription model is a member-only programme that offers members access to exclusive perks, products and services.
Many businesses who operate at scale already offer some form of a loyalty programme. Combining this with a subscription service can help to drive more predictable revenue while offering your customers a unique and exclusive shopping experience.
Coping with cancelled subscriptions
It’s very common for people to subscribe and then cancel within the first month before even receiving their first delivery due to a change of heart on their investment.
If a customer chooses to cancel after their billing date, the acceptable thing to do is send their final box and then cancel the subscription from the following month. However, many customers expect an immediate refund and cancellation which can cause more complaints and should be handled delicately.
In line with the subscription service boom, Shopify has stepped up their game to support subscription functionality across their merchant’s eCommerce stores. Previously, Shopify’s checkout didn’t support subscription purchases and customers were forced off-site to checkout which meant apps were required for subscription management.
However, to support the rise in shoppers wanting subscription services, Shopify has recently released new APIs which now allow customers to purchase a subscription within the native Shopify checkout. While Shopify subscription apps, such as ReCharge, are still required to manage this process, Shopify’s API is now used to trigger the repeat payments.
Our go-to subscription management app, ReCharge, has been designed to help businesses seamlessly scale their subscription offering in many ways:
- Subscription boxes: For brands who want to offer monthly subscription boxes, ReCharge functionality can be used to set delivery dates, cut-off dates, inventory forecasting and order management.
- Subscribe and save: The app also offers merchants the ability to add subscribe and save functionality to product pages to offer discounts for products that are purchased regularly.
- Recurring products: ReCharge also allows one-time purchases to be easily turned into a subscription with their recurring products feature.
Shopify custom subscription
When your store is powered by Shopify, you can build your own custom subscription solution using Shopify’s subscription APIs and product subscription extension. Shopify’s range of APIs enables you to make Shopify operate the way you need it to.
Is an eCommerce subscription service right for you?
Customers are increasingly subscribing to products and services that would historically not have been offered as a subscription. Given the rapid growth of the eCommerce subscription market, this is one area we don’t see slowing down any time soon.
The market is rife with opportunities for eCommerce merchants to start a subscription service as part of their growth strategy. However, it’s down to brands to develop a great subscription experience in order to avoid high turnover rates, accelerate sales and increase profitability.
Combining the powerful features of Shopify Plus with a dedicated and accredited Shopify Plus partner, you can reap the rewards of an effective subscription strategy. As a premier Shopify agency, you’d expect us to know the platform inside and out. But it’s our background as a retailer that really sets us apart – we understand your challenges and know how to navigate the tricky eCommerce market to help you acquire customers and grow repeat custom.
If you think a subscription-based eCommerce business model could be right for your business, get in touch to chat with our retail experts and discuss your options.