To subscribe or not: should your brand offer subscriptions?Laura Leiva
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DTC brands want to diversify their strategy and offer new experiences or personalized products for their customers. Especially after everything that happened in 2020.
What are they offering? Subscriptions.
Subscriptions aren’t a new concept. The printing industry has offered subscriptions to publications for generations. Software subscriptions have been around since the start of the Internet as we know it (AOL, anyone?).
After most have spent a year at home, the convenience of subscriptions has been amplified. Why not get your favorite (insert here) delivered straight to your door?
Unique and convenient – for both an ecomm brand and the customer
What makes this business model especially appealing for DTC brands? When done intentionally, it offers the potential for growth, retention, and community building.
In the last decade, subscription services have seen record growth.
According to Multichannel Merchant, it’s predicted that subscription services will account for 75% of DTC brands by the year 2023, with global ecomm subscriptions reaching 18%.
What makes this model an appealing option for DTC and ecomm brands?
There’s plenty to consider, including:
- Provides an opportunity for brands to connect and engage with customers
- Allows for deeper consumer loyalty
- Brands have the potential to make a positive impact on customer’s daily routines
Multichannel Merchant also offers this breakdown:
- Gen Z shoppers account for 90% of subscription members
- Millennials make up about 70%
Why is the subscription model so popular amongst Gen Z?
This demographic places more importance on a brand’s messaging and values—the quality or experience they offer—over becoming attached to a luxury or big brand names.
What ecommerce subscriptions are out there?
There’s a subscription box out there for pretty much anything. While most are familiar with the general concept of a subscription, it’s helpful to know that a few options exist:
- Pure—With this subscription model, the price and the services consumers get through the membership are fixed. For example, Netflix offers unlimited access to its streaming library for a flat monthly rate.
- Usage—Usage subscriptions are also referred to as a consumption-based model. Customer usage determines how much revenue a brand earns or not. Consumption models make more sense for ridesharing programs like Uber or utility subscriptions—generally, services that break down into smaller pieces and are used as needed.
- Hybrid—Depending on the brand’s services, a hybrid subscription model contains both pure and consumption-based options, offering a combination of fixed and variable rates. An example of this would be a recurring flat monthly rate with an add-on or upgrade option.
All three of these options work toward growing revenue for an ecomm brand.
Most brands can track revenue growth through a pure subscription model, with room for increased sales coming in through extra offerings making the hybrid model a popular option with room for growth.
You’ve got some options for your ecomm brand
Going with a traditional subscription service, you offer customers an option of paying a flat rate for products or services.
For many brands, this arrangement works out fine, and others go a step further by offering a tiered subscription (providing various services or products) for ranging price levels.
One big advantage to a tiered subscription is you offer customers an entry point and then have room to upsell in the future.
Some brands will use this method, going so far as to offer a free or introductory level as the entry point with a limited number of features.
The more a customer uses the product, the likelier they are to upgrade when the free membership no longer suits their needs or experience FOMO with those other shiny offerings available.
But wait! There’s more.
A consumption model subscription might work better for your ecomm brand—most notably if you’re offering SaaS, automation, or even ridesharing services. Customers pay for what they use, creating flexibility based on need.
Of course, there are some drawbacks with a consumption model, too. Here are a couple of things to consider:
- There’s potential for customers to come and go as they please. Without commitments or contracts, consumption models make it much harder for you to plan or predict revenue.
- Some customers don’t like to be on a usage-based plan. There’s something to be said for convenience and annual pricing – pay once, and you don’t have to worry about it for a year.
Often there’s a discount included with annual pricing – an added incentive for prospective customers.
With the number of ecomm brands offering this type of pricing, it could mean the difference between a customer choosing you or going elsewhere.
How are subscriptions working for other brands?
When it comes down to it, a good subscription service offers two things:
Customers are ready to pay a premium subscription fee for something they often use (or want) and for the added convenience of having it delivered on a scheduled basis.
Let’s take a look at some of the most popular subscription boxes and what they offer:
A perfume subscription box, members have the option of selecting premium monthly fragrances from a selection of 700+ brands and having it delivered straight to their mailbox.
For those who want to try various fragrances before committing OR want to build up a collection of perfumes and colognes, this subscription offers a tiered pricing model based on the number of vials a member wants each month.
There are plenty of book subscriptions out there—Book of the Month being one of them. Customers pick one book out of five pre-selected choices for a monthly flat rate membership, ranging across various genres.
Ideal for customers overwhelmed with choices, Book of the Month makes it easy to select a book or pass for that given month. An upsell feature is the ability to add on two more books for an extra fee.
For increased revenue purposes, this upsell is beneficial when marketing to customers who can’t make a choice.
Got a sweet tooth but didn’t have time to make it to the grocery store? Smart Sweets elevates snack time convenience by offering a monthly subscription box.
Members customize each box, choosing 12 bags of sweet or sour candy to have delivered on a predetermined date every month.
Smart Sweets takes two of the most important values in a subscription offering—convenience and personalization—and transforms it into a simple-to-use experience.
One of the OG subscription boxes, Birchbox appeals to customers looking for samples of skincare, beauty, fragrance, and cosmetics.
Birchbox offers members various monthly pricing based on commitment. This unique positioning:
- Allows members to choose a membership that feels right for them
- Encourages members to commit by including a savings incentive
- Helps Birchbox with revenue planning and offers a clearer picture of future earnings
- Extra revenue is possible through the ability to buy sample items as full-sized versions.
Aside from the subscription model, Birchbox also keeps customers on their website by offering cosmetics, hair, and skin products within an online shop.
You’ve got some benefits to consider…
- Exclusive features that attract new customers
- Improved customer retention and scalable cash flow
There’s also the predictable revenue.
Knowing what to expect every month helps you make better decisions related to inventory, sales forecasting, and even reinvestment into the brand’s growth.
Remember that point about customers receiving a discount when signing up for an annual subscription in full?
That works as a benefit to your brand, too. Having that cash on hand is essential as you ramp up operations.
The loyalty that comes with ongoing subscriptions is an extra benefit for your brand.
The longer customers are subscribed, the more insight you get into your demographic – allowing you to make changes or dive deeper into creating personalized experiences.
…but there are challenges to overcome
Here’s a point to consider: customers love what you offer, but they might not love a subscription.
In other words, sometimes having a subscription model (read: commitment) makes it harder for a customer to sign up.
Give them a great experience and benefits, and it makes the decision easier.
Subscription models fall into three categories
According to McKinsey, there are usually three categories consumers fall into when it comes to signing up for a subscription:
- Replenishment: Customers save money and time, plus replenish items they use, such as razors or vitamins. Up to 45 percent of replenishment subscription members do so for at least a year.
- Curation: A key value for this type of subscription is the variety provided in each box, with or without excessive input from the consumer. An example is Hello Fresh or Blue Apron, where members can pick diet parameters, but they don’t have to put much effort into choosing precise meal options.
- Access: Some customers simply want exclusive access to perks or savings. Thrive Market is one such example, which requires a monthly subscription to unlock special savings and enjoy a convenient spot to grab an assortment of groceries and snacks.
How you attract subscribers is important, too
Word of mouth and positive reviews are key in attracting subscribers. The incentive for subscribers might also differ, depending on what you offer.
It might be easier to attract customers who want to replenish items they need, like razors or laundry detergent. Paired with that need, financial savings makes a subscription even more appealing.
Subscription services under the access or curation category need a bit more work and personalization because there’s more of a barrier there in the buyer journey.
McKinsey shares this: consumers who go for subscriptions in the curation or access category begin to expect tailored options throughout the membership.
Besides, they want to feel like they’re getting a good value for what they pay and that it remains a convenient option.
Tips to make the transition to subscriptions easier
If a subscription sounds like the right move for your brand, there are a few ways to make sure the transition is as painless as possible. Although, expect some growing pains.
First, you’ll want to make sure that the products, services, and experiences align with what customers are asking for and that you’re able to deliver.
Another major advantage to including a subscription in your offerings (aside from boosting revenue) is that it gives your ecomm brand more resilience. After a pandemic that’s wreaked havoc on most industries, having a backup plan is always a good idea for ecommerce brands.
Creating a subscription that works for your brand
- Look for ways to merge SKUs and streamline your offerings. Doing this helps you come up with the best pricing options for the brand and the customer.
- Think about delivery options. How do you want customers to receive these subscriptions—does the brand have the infrastructure to take this on, or do you need outside vendors to help?
- Pay attention to the data. Subscriptions aren’t a one-and-done type membership. No matter when the renewal date comes up, you’ll need to have shown the customer the value of your subscription.
Throughout the contract’s life, keep an eye on customer data and satisfaction to see where changes can occur.
According to Shopify, subscriptions in the ecommerce market will hit a projection of $473 billion by 2025. This is the right time to take that leap if you’re ready.
Looking to avoid churn? Get in line
No one wants to experience excessive churn, but unfortunately, it’s part of the territory for subscription models.
Ask yourself these questions:
Is the market oversaturated in this space?
Sometimes you might enter a market where there is a ton of competition. High churn rates occur when there are many and similar options at competitive prices.
Look for ways to position your ecomm brand as uniquely as possible.
What are your goals?
Do you have a membership goal in mind? Want to make a certain amount of revenue in a quarter?
Whatever it is, make sure it’s tangible and at the top of the list when determining what and how you’re going to move forward with a subscription offering.
What does pricing look like?
Don’t be too willing to give away freebies or free trials of your subscription at first. Start slowly to see what your market will spend and adapt as needed.
The good news (kind of) is that customers who aren’t that serious about a subscription will churn out and limit the use of resources.
How do you plan to keep subscriptions?
When you’re starting, acquisition is key. Unfortunately, some brands spend so much time on this part they forget to nurture and keep them – leading to constant churn.
Retention is KEY
After you earn subscribers, you need to focus on retention.
It’s more expensive to look for new customers, so it makes more sense to keep the ones you’ve already earned from a financial standpoint.
Don’t spend all your time looking for new subscribers – figure out a process that works to acquire customers, whether through paid or organic advertising, word of mouth, or affiliate marketing. Then grow your brand by looking for ways to keep them.
What’s next for your brand?
After you’ve got the framework planned out, it’s time to look at marketing.
Email marketing is often a powerful tool in staying connected with new and interested subscribers.
In other ecommerce brands, an affiliate or social media marketing strategy might be better suited for growth.
Here’s the bottom line: there are many factors that go into creating a subscription model for your ecommerce business. With adequate planning and strategy – and a gap in the market that’s primed to be filled – subscriptions are a powerful addition to many brands.