Could Your eCommerce Business Adopt a Subscription Model?
Key Considerations
Explore the most vital factors to consider when adopting a subscription model, and whether it may be an effective tool to drive sales to your eCommerce business.
The use of subscription models for services and eCommerce products has been steadily rising in popularity since 2015, with the value of the UK market currently being estimated at £1.8 billion a year. Whilst the popularity of these models was initially within the services and recipe box sectors, with companies such as Hello Fresh and Amazon leading the charge, elevated consumer demand during the pandemic saw other eCommerce sectors adopt similar models with great success. Indeed, even as the impact of the pandemic has lessened, subscription boxes and other models of auto-replenishment continue to be popular. As such, it may be an avenue that you should consider for your eCommerce business.
Benefits of the subscription model
If you are considering whether a subscription model option could be applicable to your eCommerce business, it’s helpful to understand all the benefits that they provide for both customers and your company.
Benefits for the Customers:
Subscription models offer customers the convenience of products arriving automatically at their door, in regular intervals, at a good price. As well as saving the customer time and money, the burden of decision fatigue is reduced. Additional value can also be given through the curation aspect of the service or product. The ‘expert knowledge’ of the seller is reassuring and promotes the feeling that the product selection is informed and right for the buyer.
Benefits for the eCommerce Business:
There are many practical ways that a subscription model option can benefit your eCommerce business, enabling you to provide better services and products, accelerate growth and reduce costs:
The time and money savings available to the customer can make your company’s offering a more attractive choice over the competition.
Forecasting for cash flow, stock and staffing is more accurate, allowing you to operate more efficiently and with less time/product wastage.
Promotes customer loyalty, averaging out the cost of customer acquisition over an extended customer lifetime.
Expands the possible opportunities for cross-selling and affiliate-selling for associated products or services.
Proof of projected sales may enable you to negotiate better rates with suppliers and service providers.
Demonstrates consistency to potential investors and creditors, which may free up cash for further growth.
Types of subscription models
There are three main subscription models to consider, each may be applicable to some sectors or target customers more than others. Each subscription model can also come with barriers or issues to overcome that should be considered.
Curation business model
The first subscription model is known as the curation business model. This is when a customer signs up for a subscription box, the contents of which are chosen by the business that is sending them. This model works well for sectors where seasonality, novelty and trends are factors such as fashion, beauty and food. Great examples of these boxes are Stitch Fix (where the customer enters their clothing preferences and are sent five items which they can choose to keep or return) and Birchbox (where the customer is sent a monthly selection of beauty products that match their profile).
The best thing about the curation business model is that it can feel very personalised to the customer, promoting strong customer loyalty. If a customer can say ‘they knew what I needed/wanted…. before I even knew myself’, a trusted customer base is established. This customer base then becomes a very powerful tool in itself; brands will want to be introduced to these customers through their inclusion in your curated box and high margins can therefore be negotiated.
Curated boxes are great for introducing customers to things that they may not know they want yet, but it can also cause issues for businesses when customers receive items in their box they know they’ll never want. This is where a simple returns process, like GFS Global Returns Pro, is an essential component – safeguarding your customer’s positive experience, reducing the operational cost of returns, and improving their visibility and speed.
With GFS’s dynamic returns service, you can easily offer free, part-funded, or customer-funded returns, offer exchanges and cross-sells, and get your stock back into rotation faster for a quicker resell.
Replenishment business model
The next type of subscription business model is the simplest, replenishment. This is where a customer subscribes to receive a specific product at a set interval, the idea being that they never run out of the things they use on a day-to-day basis. This type of model is best suited to everyday consumable products such as such as toiletries, pantry staples and cleaning products.
For companies such as Tails.com, a personalised dog food company, this model fuelled rapid expansion, and they now serve millions of dog meals a month throughout the UK and Europe.
Expansion, such as that seen by Tails.com, can place a huge operational burden on a company, especially if the subscription business model has increased demand to countries outside the UK mainland. To keep up with demand, and provide a consistent, high level of service, it is important to ensure your delivery partners have the knowledge and tools to operate at that level.
Using a managed service like GFS Managed Multi Carrier Services provides single access to over 1000 services, delivering to over 220 destinations with exclusive carrier rates. Their IOSS Shipping Solutions and Intra-EU Shipping services also provide the expertise you need to take advantage of international demand for your products.
Access business model
If your eCommerce company’s products don’t fit into either the Curated or Replenishment model, there is a final subscription model that may be appropriate – Access. Instead of paying for products directly, customers pay a monthly fee to be given exclusive access to reduced prices, or perks such as free shipping.
The most well-known proponent of this type of model is Amazon, however there are numerous others such as Well Easy (a health food site where members get 35% off RRP) and Hatch (where parents pay a subscription for products such as cribs, strollers, and car seats, which can then be exchanged for age-appropriate products as the child grows).
However, businesses operating on this model can experience high operational complexity (getting all the products and packing together at the right time and then sending them out to multiple locations can be tough). These issues can be overcome by using an effective and scalable labelling and dispatch platform, such as GFS Selector, which can automate processes and has add-on modules that can connect to your Warehouse Management System.
Is it right for your business?
As we have seen, the subscription model is a very effective tool for promoting customer loyalty, reducing wastage and increasing margins. It enables you to build a lasting relationship with your customers and promotes engagement and good feeling with your brand.
However, you must consider the fact that not all subscription models will suit your business, and you will need to balance the discounts you offer the customer with the benefits that the subscription model brings to your company. You will also need to ensure that you fulfil the promises made to your customers upon sign up to the subscription, and that their experience from start to finish matches the expectations set.
If you think that a subscription model is right for your business and are interested in finding a partner that can support you in the delivery of it, contact our team today!
