What is Subscription Commerce and How to Manage It

Are you a business owner looking for ways to grow your business and have a regular monthly income? The eCommerce subscription business is the one you should consider. This article will introduce you to the mechanics of subscription commerce for online business. Let’s read ahead. 

Ins and Outs of Subscription Commerce

At its core, subscription commerce is a business model where retailers sell products or services recurrently. It means subscribers continue to pay a monthly/quarterly/yearly fee to receive or access the brand’s product. Thus, subscription commerce is a business template that fosters long-term customer engagement with a brand. 

The subscription model has a long history that possibly dates back to the 17th-18th centuries, with periodicals and milk delivery starting the show. Many credit Amazon for introducing the subscription model successfully into a modern online business setting with its hallmark Prime membership. 

In the early 2010s, Dollar Shave Club and BirchBox became the first online stores pioneering eCommerce subscription-based boxes. They demonstrated that transactional customers could be successfully transformed into brand loyalists. 

Today, subscription commerce has expanded its reach in all nooks and crannies of retail, streaming services, magazines, and gym subscriptions. The success of subscription commerce is attributed to breaking down large upfront fees into easily payable chunks. Thus the brand benefits from a regular revenue inflow and prolongs a customer’s access to store items.

Most Prevalent Types of Subscription Models for eCommerce

All subscription businesses fall under the following three categories:

1) Replenishment Model

This model is fit for offering essential consumables or luxury products weekly or monthly. Take, for example, flower subscriptions or grocery kits from eCommerce brands like Misfits Market and Bloom. The time period varies anywhere between 1 week to 12 weeks.

According to Recharge Payments, the replenishment model makes up 32% of the subscription commerce market. Usually, convenience items like pet food, medicines, toiletries, and beauty bundles come as replenishments. This model has higher conversion rates than other types.

The replenishment subscription model gives many advantages to customers. Buyers can select the everyday essentials that are delivered to them at a fixed date and often at discounted prices. With some businesses, they can bulk purchase with a one-time order without subscribing to it.

2) Curation Model

The curation subscription model, better known as the subscription box, is what most eCommerce buyers are familiar with. Famous examples of curation subscriptions include BirchBox, BlueApron, and StitchFix. Here the brand exercises its expert knowledge and selects an assortment of its best products for regular, usually monthly deliveries to customers.

Businesses applying the curation model can reap higher average order value with each shipment than replenishment models. Subscription boxes have the added benefit of strong personalization based on every individual customer’s taste and preferences. They are a pro when it comes to branding, packaging, and meeting high shipping expectations.

Some brands resort to mystery subscription boxes like Lovevery selling children's toys. This leads to a delightful experience of monthly ‘unboxing’, resulting in a strong customer retention impulse. The catch, however, is to keep things exciting with new combinations of products that delight buyers.

3) Access Model

This category of subscription commerce is almost exclusively reserved for digital streaming services, most notably Netflix, Spotify, and Amazon Prime. Here, subscribers pay to access digital content and entertainment like music, movies, games, newsletters, art, etc. With a monthly or yearly payment, customers can enjoy the service without a limit on the number of times they consume it. 

Access models also include membership programs from retailers like Costco, Target, Walmart, DoorDash. This model comprises 13% of the subscription economy. Access-based subscription has the highest customer retention rate, partly due to the large demand and mostly due to high customer engagement. They usually run on autopilot and can have a free trial version that upgrades to premium content when subscribed.  

This model is sometimes paired with physical products as an add-on. For example, luxury home studio and workout bike maker Peloton offers exclusive digital content like on-video workout sessions with trainers. 

A 6-Step Guide to Launch eCommerce Subscription Business

1) Find Your Niche and Value Proposition

Subscription businesses abound in the market, from daily essentials to gaming puzzles and everything in between. To stay competitive in the market, you’ll need to find a concrete idea that has the potential to grow. And customers awaiting that service. 

For example, a florist can start a curation service to offer a monthly subscription for bouquets or during peak seasonal occasions. However, it may not be very easy for a pet store supplier. They would have to dive deep into the research to find the relevant product-market fit. It may be better for them to offer a subscription box service for pet vitamins with less competition than pet toys.

2) Choose a Subscription that Fits the Bill

Now that we have an understanding of the three types of eCommerce subscriptions, you can find a model that can suit your business goals. Take the case of an online spice store. 

If your business goal is to restock customers’ pantry essentials, then the replenishment model will be a good option. If you are more invested in selling a premium spice mix or blend, then a curation service would be the best fit. However, if you wish to offer on-demand cooking lessons to home cooks, then the access model will fit the bill. 

3) Get the Best-in-the-Market Products

Subscription boxes can have a wide range of products, but whatever they may be, your priority is to get the best quality. Only the highest-graded products will appeal to your customers and get them to engage with you for a long time. This is illustrated by two popular D2C brands.

Misfits Market works with local farmers to procure organic and fresh produce in their replenishment box. They then offer it to their customers at a price that’s lower than their competitors. Similarly, Pura Vida works with local Puerto Rican artisans to create members-only radiant bracelets. This creates an appeal around its ‘exclusive service.’ 

4) Set the Right Price to Attract the Right Consumer

After you have sourced the right products, the next step is to price them. Pricing charts can be a little tricky to finalize, mostly because there are a lot of factors to consider. These include your competitor’s prices, costs incurred in fulfillment and logistics, cost of acquiring them, etc. 

To achieve the right price markup, you’ll need a solid plan. Don’t offer too many discounts or prolonged free trials in case your products sell rapidly or your customer's churn rate is high. Have different price plans for different product bundles. For example, a bundle containing low AOV can have a lower price structure than one consisting of premium goods.

Another factor that is taken into account is the timeframe of renewal. Usually, prices are fixed depending on a monthly, 3-month, 6-month, or 12-month plan. This is especially helpful for access-based models where you can incentivize customers to choose a long-term plan for a greater profit margin. 

5) Build a Website or Find the Right Subscription Platform 

Whether you add a subscription model to your eCommerce business or create a whole new subscription commerce business, you’ll always need a website. Or alternatively, an eCommerce platform to create your storefront. 

Some of the popular eCommerce website-building platforms are Shopify, Magento, WooCommerce, and BigCommerce. The purpose of the website is for you to share everything about your business. SellFy, Plodia, Squarespace, and Payhip are good choices for digital subscriptions.

Start with high-quality images of samples, product information, and a seamless checkout page. Set your website to have smart navigation search features, and add chatbots for quick customer service. And provide ample service and product information on how you can enrich your customer’s lives. 

6) Forge a Marketing Plan

Now that you have a whole setup of your subscription website and business-ready, it’s time to market them with a strategic plan. The quickest way for subscription businesses, especially D2C subscription brands, to flourish in marketing is to build a social media presence. Here are a couple of tips you can use:-

• Create wholesome social media accounts featuring your creative assets, especially product photos. 
• Engage your customers to provide customer reviews, feedback, unboxing videos, etc.
• Send regular newsletters and emails to keep customers engaged and informed of new product launches and content. 
• Collaborate with micro-influencers and network with online communities to build brand awareness. 

Best Practices to Successfully Run Subscription Business

While it may seem right to keep focusing on acquiring customers, it doesn’t accrue much in the long run. This is because subscription businesses have a history of quick customer churn rates, with 1/3rd of customers canceling subscriptions in the first three months. It’s inevitable to focus on customer retention instead. 

Here are a few tips to retain customers:-

• Provide personalized customer services like delivery rescheduling, custom labeling, and loyalty programs. 
• Offer strategic discounts and promotions like a broad percentage off of the first purchase, free deliveries, buy-more, and save-more offers. 
• Provide control to your customers, like skipping an order, auto-updating payment options, swapping products, etc. 
• Drive customer loyalty and engagement with automated customer support, community groups on WhatsApp, etc. 
• Incentivize auto-renewal and easy cancellation. 
• Focus on brand building with tactics like branded packaging, personalized thank you cards, shipment tracking notifications, etc. 
• Choose right fulfillment partner & shipping carrier with a high percentage of on-time delivery rates.

Conclusion 

Launching an eCommerce subscription business is no longer a daunting task. You will surely succeed if you adhere to customer-retaining practices, create a robust business model, and build a strong logistics infrastructure. Subscription business models have a long-term success rate, so all you need to focus on is starting one today.

FAQs

1) What are the challenges of an eCommerce subscription business?

eCommerce subscription businesses are a lucrative business model. However, they suffer from their common challenges like customer churn rate, low average order value, lack of long-term customer engagement, and poor inventory control. 

2) What are some examples of successful subscription businesses?

Some of the most successful eCommerce subscription businesses for replenishment models are Dollar Shave Club, BarkBox, and Sephora. For curation services, the top brands are Stitchix, Blue Apron, and Ipsy. Best examples of subscription-based digital streaming services include Amazon Prime, Netflix, Hulu and Spotify.