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Guide | September 08, 2021

What is Subscription eCommerce and How Does it Work?

Subscription services in eCommerce are having a moment.


Some estimates have forecast the subscription economy to top $228 billion in value this year, and no wonder given that more than 15% of online shoppers have signed up to one or more subscription services. The Covid-19 pandemic has even further accelerated the growth of subscription eCommerce sales by 41%, per some estimates.


The word ‘subscription’ may conjure up images of newspapers and magazines sliding through letterboxes never to be opened, but those days are long gone, and there are few products that can’t be sold by subscription nowadays. Aside from your obvious examples like Netflix and Spotify subscriptions, everything from men’s health companies to fashion retailers are selling their products via subscriptions.


Let’s dive into what subscription services are all about in eCommerce, the benefits to your business of offering subscriptions, and how to do it.


The Different Types of eCommerce Subscriptions


First things first, let’s take a look at the different types of subscription services most commonly used.


Curation Subscriptions


This is the successor to the traditional print media subscription, whether it be a magazine, newspaper, or catalog. Instead of having the remnants of a dead tree arriving at your house on a weekly basis though, these subscriptions give users access to exclusively curated content. Netflix and the New York Times are two of the most famous examples


Curated subscriptions are most commonly associated with digital media like in the examples mentioned above, but some eCommerce companies are breaking the mould by offering customers a selection of products on a regular basis based on the unique desires of individual customers. For example, Frank And Oak offers “up to four items monthly, from shoes to outerwear” and uses a “style quiz” to help customers get exactly what they want, according to the digital publication Byrdie.


There are quite a few examples of curation subscriptions in the B2B world as well. Any industry news or research service that your company is subscribed to, that’s a curated subscription.

 

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If you've ever watched something Netflix recommended to you, you've benefited from a curated subscription.

Replenishment Subscriptions

Ever run out of shaving cream on the morning of a big job interview, forcing you to grin and bear it, four-day stubble and all? Replenishment subscriptions exist to stop disasters like this from happening. 


Companies like Dollar Shave Club provide recurring deliveries of consumable goods for a fee. These services mostly market themselves based on convenience, as they ensure customers don’t run out of the products they need, and that they don’t have to go through the hassle of going out and buying the goods themselves. Another prime example is meal planning services, while the advantage of a replenishment subscription is obvious in the B2B world where companies know exactly what goods they will need and when.


Access Subscriptions


Think Costco with this one. With an access subscription, customers pay to get access (big surprise there) to the company’s products. Think of it as a membership that provides customers with big discounts on a range of products that they already know they have an interest in. One example is Thrive Market, which for $60 a year provides access to a range of discounted healthy food.


The benefits of Subscription for eCommerce Stores 


Now that we know what subscription services in eCommerce look like and how they benefit customers, let’s dive into what the advantages are for the eCommerce store.


Improved Customer Relationship Management


This is a two-parter really, as running a subscription service will give you more opportunities to engage with your customers, which should in turn make it easier to keep them happy. 


Whatever kind of subscription service you’re running gives you plenty of scope to reach out to your existing customers, because that’s what they want! If they’ve signed up to pay for your products or services on a regular basis, you can guarantee they want to get the maximum value out of that. So as long as you’re providing extra value in your email and social media campaigns, customer engagement should soar.


Similarly, having customers signed up for a subscription means you’ll be able to save on acquisition and retention costs. This isn’t to say you can just ignore your subscribers once they’ve signed up of course, just that it’s going to be an easier relationship to manage than people brand new to your brand.


Increased Retention


Combining all that extra engagement from your subscribers with robust data collection and analysis will provide significant long-term benefits. As you learn more about each individual subscriber, you can finetune what you’re offering them to their needs and desires to keep them on board.


When it comes to subscription customer retention really is in your hands, as Kolsky found that churn can be reduced by 67% if companies solve customer issues during their first interaction and successfully manage expectations, so be proactive and the rewards should follow.


Improved Forecasting


This benefit is pretty obvious. If you know exactly how many people want how much of your product or service, it should be a lot easier to project future revenue and sales figures. 


Subscriptions also make inventory management and fulfillment much easier, as the predictable nature of demand will allow you to stay on top of the supply.


What you Need to go Subscription


With the what and the why of subscriptions in eCommerce sorted, now it’s time to move on to the how. Here’s a look at some of what you need to offer a successful subscription service.


An Understanding of your Customers


As in all forms of business, you have to figure out who your customers are. The key question to answer is what problem or issue do they want to solve in their life with your subscription. Netflix subscribers want entertainment without having to search for it themselves, Dollar Shave Club subscribers want convenience in personal grooming, and Thrive Market subscribers want access to the healthy food they can’t find elsewhere.


Understanding your customers is also important for setting your price point. Go too high and you could scare off potential subscribers, go too low and you could be missing out on extra revenue. Setting your price point shouldn’t be a one-time thing either, as research has found that SAAS companies that update their pricing every six months see nearly double the average revenue per user gain over those updating less frequently.


Using an omnichannel approach to your customer interactions can be a big aid when it comes to understanding them, as you can gather data across all the channels your customers interact with.

 

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To understand your customers you'll need to gather plenty of data.

A Niche to Fill

Whatever product or service your company was offering pre-subscription probably already fills some niche or targets a certain demographic, but your subscription can’t just be tacked onto that. People buy movies to download from the likes of Amazon and effectively rent them from Netflix, and while they are consuming the same product, they’re doing it in a very different way for different reasons.


For example, there are plenty of companies that sell clothes so that’s not the niche successful subscription service Stitch Fix has filled. Instead, it’s because it has made personal styling accessible to the average consumer using data, whereas in the past personal stylists were only for the wealthy.


Tech Capability


It’s no good knowing what kind of subscription services you want to provide if your eCommerce platform isn’t able to deliver. Luckily, our platform partners like Magento and BigCommerce provide apps and extensions that make adding subscriptions to your site a breeze.


Get in touch with an eCommerce expert here to find out how SmartOSC can help your business.


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