How Can A Subscription Model Help Your Ecommerce Business?

The subscription based business model is becoming extremely popular in ecommerce due to several reasons.

• People striving to save time. The first and main factor is that consumers are looking for ready-made solutions to their daily problems. They value time more than money and therefore are ready to pay more to save this time. According to the recent research on consumer behaviour, waiting for delivery stops 34% of customers from shopping online.
• The habit of paying for streaming media products. Apple music, Netflix, Spotify, and many others have made consumers become used to paying for content on an ongoing basis setting the stage for ecommerce box websites. According to the Zuora data, 81% of all British consumers are subscribed for at least one service.
• The modern consumer appliances, forcing automatic purchases. Midea recently presented their new dishwashing machine during the IFA exhibition in Berlin. Its key feature, which may be curious for ecommerce retailers, is the ability of artificial intelligence to determine when the dishwasher tablets run out and will make an automatic order for these from the particular store you chose through the app earlier. This innovation indicates the direction in which the new consumer electronics market follows.
• An attractive opportunity to accrue discounts. People like discounts and bonuses. The statistics demonstrate the following numbers: 54% of consumers will buy products left in shopping carts if those products are offered at a price lower than its original; 22% of consumers purchase products from their preferred brands only when they are on sale or with a coupon. This point is an absolute win-win since customers receive desirable discounts for subscription-based products (the size of which can increase from the number of selected items), and a store receives loyal customers. As of today, British consumers spend around £60 for delivery subscriptions according to the last Whistl data.

This is not a full list of reasons why subscription-based delivery is becoming a convenient shopping method for consumers and a cost-effective solution for businesses.

What is an eCommerce subscription?

The ecommerce subscription model differs from the traditional ecommerce with the ability for customers to make recurring orders with automatic payments.

Types of subscription-based shopping for different niches

There are three types of ecommerce subscription websites:

• Curation. Delivery of personalised products requires a high level of brand trust. Surprise and variety are crucial factors here. Since consumers want these type of companies to know their expectations and needs, they are ready to share their data.

For illustrative purposes let’s look at the Birchbox company which is one of the most successful subscription businesses of this type. They offer their customers to receive a box with beauty samples each month for $10/month. Then they offer customers to purchase the full-size versions of any products they liked the most with a $1 back for each $10 spend.

Another subscription box trend for consumers who love surprises is to receive new-designer shoes or clothing of a particular fashion brand as soon as they are available for order. For instance, this category of consumers can subscribe to receive every ‘fresh’ pair of Balenciaga sneakers or even a T-shirt by NBA Thunder if they wish.

• Access. Delivery of exclusive products. This type of subscription is perfect for brands who offer high-quality products or services for selected members. Uniqueness is a crucial factor in this model.

If in the previous category we had an example with a delivery of new fashion products when they became available to order, this type provides clients with the opportunity to buy products immediately after release, in other words, before appearing on the market. This can be exclusive garments, recently shown on the exclusive catwalks, or test products such as electronics or sports equipment presented at trade shows.

Let’s review the JustFab programme as an example. The store offers clients exclusive access to a personalised boutique for £35 per month. VIP customers need to take a style quiz, after which they will be able to view the selected products with a unique design tailored to their interests and order them at VIP rates (with a discount of up to 75%). Delivery, returns and exchanges are free.

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• Replenishment. Periodic delivery of the same or similar products for everyday use. Time and money saving is the deciding factor here.

Amazon Subscribe & Save is one of the excellent ecommerce subscription model examples. This feature allows customers to choose these types of products from 6 different categories and receive them periodically with door-to-door delivery.

As a rule, this type is efficient for retailers who sell household and personal care products, cosmetics, goods for babies and pets, as well as grocery and health care items. However, all rules have exceptions. This is why some customers will be happy to receive ‘fresh’ socks every week just because they don’t have the time or desire to wash them.

How a subscription feature can affect your business?

Box delivery services in the United Kingdom are still not as popular as in the US; however, this pace of development is pretty high. The British subscription box market is predicted to be worth €1.12 B by 2022 which is 72% more than last year’s estimation. Today, almost 60% of companies want to invest in subscription ecommerce.

However, this doesn’t mean every ecommerce needs to implement a boxing service into their online store. Thus, the analysis of the biggest subscription businesses revealed that this idea would deliver better results if:

• Your store offers a wide range of daily use products;
• Your target audience is between 25-44 years old with annual incomes from £30K;
• Your target audience live in cities;
• Female customers dominate within your target audience;
• You have a door-to-door delivery;
• It’s easy for customers to pay with a card on your website.

Benefits For Retailers

We recommend not to expect the box business model to make quick profits for your traditional online store. However, this solution can help you increase customer retention, improve margins, and make the revenue predictions more accurately. Let’s look at each advantage of box services for ecommerce:

1. Customer retention
   According to the CEE Ecommerce Report 2018, repeat customers return 4 times more revenue than newcomers. That’s why today retailers focus more on the customer experience which consists of many touch points — “bricks” on which strong brand loyalty is built. The subscription delivery service will allow you to reduce the engagement frequency since customers will make an order for recurring delivery once, and receive your products next time without additional interactions with your site.
2. Excellent ROMI
   Acquiring new customers is more expensive than retaining existing ones. Monthly subscription services allow you to spend your marketing dollars on the first stages of the purchase funnel and work only with the “loyalty loop”, hence with customers who are ready to buy products within your store.

1. Profit Margins
   When a customer makes a recurring order, you know when the products should be delivered the following month and can estimate the most profitable shipping option, as well as optimise inventory and packaging.
2. More Predictable Revenue
   The subscription box revenue streams are easier to evaluate since you need to take total subscribers, subtract cancellations and multiply by your subscription cost. One more thing is that the box models statistics can help you identify your customer’s lifetime value (CLV) which in turn, can help you optimise your investments in promotion and business development.
3. Efficient up-selling and cross-selling
   The more products a customer adds into a “box”, the bigger discounts they receive. Therefore, you can offer your clients products, related to recently viewed items, or attract their attention to products that are hard to sell.

If you have decided to implement box delivery into your e-store, make sure that:

• Payment methods on your website comply with PCI DSS standards;
• Your site is optimised for conversions;
• Customers are able to make a recurring order on-site, without being redirected to a new URL;
• You have selected the most suitable online recurring payment tool.
• Your methods of customer data collection are GDPR-friendly.

How to market an eCommerce subscription service?

Subscription delivery services may be promoted within almost all digital marketing channels. The following separate campaigns are the most efficient for the subscription box industry:

• Remarketing campaigns
  The ideal solution to attract an already interested audience. To reinforce the campaign, we recommend that you create several different scenarios. For instance, you can show your ads to customers who previously viewed the products that can be delivered in the box, and who visited one of your subscription services page.
• Trigger email marketing campaigns
  Email is the most efficient marketing channel for subscription services within online stores since this works with segmented customer data.
  For example, imagine that you are selling pet products. You configured your CRM software to track the period between purchases of the same product your registered users make. So when the system detects that a client purchased dog food every 30 days, this translates that information to the email marketing platform as a trigger. And the platform sends the email to this customer with an offer to receive this food monthly for a year with a 10% discount and free delivery. You may also ask your clients to provide you with additional information that can help you improve your email marketing strategy and increase conversions.
• Pre-roll campaigns
  Create short videos with subscription feature advantages which will be shown on YouTube, Smart TV or online video-players before the main media content.

What KPIs should you pay attention to when tracking subscription box statistics?

To correctly analyse if your decision on implementing the subscription service business model was successful you need to monitor the following metrics in the statistics data.

1. A/MRR (Annual or monthly recurring revenue)
   This is the most critical metrics for subscription-based businesses which means a normalised revenue per month from all active subscriptions.
2. CLV (Customer lifetime value)
   Prediction of how much entire profit a customer generates for you on a per monthly basis.
3. CAC (Customer acquisition cost)
   You can calculate the cost of attracting a new customer by dividing marketing and sales spend by the number of customers gained.
4. Churn Rate
   Track how many users cancel the subscription to understand if they are satisfied with your service. You should be always providing value to your customers to retain them.
5. ARPA (Average revenue per account)
   This metrics demonstrates how much a subscriber spends with you within their subscription plan. The key goal of every delivering boxes company is to increase ARPA through up-sells and cross-sells.
6. CAC recovering time
   To understand the time you need to cover the cost of recovering your subscriber you need to divide Customer acquisition cost (CAC) by Average revenue per account (ARPA).

Last thoughts

The subscription model is the new trend in ecommerce business which is predicted to develop rapidly in the next few years. This may be a profitable idea for stores who have a wide range of daily used products such as grocery, household and personal care products, cosmetics, goods for babies and pets or health items. However, before implementing this model into the traditional ecommerce model, be sure that your existing audience lives in cities and earns more than £30,000 per year. Examine the examples of successful subscription businesses to understand the perfect mechanics which lead to success.
Do not forget to check if your website is PCS and GDPR friendly and elaborate a complex marketing strategy for promoting your box delivery service. If you need any help with this, be sure to contact our experts.

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