Welcome to the Subscription Commerce
Did you know that one of the first purchases made online was a pizza from Pizza Hut way back in 1994? Then along came Amazon followed by eBay (formerly called AuctionWeb) in 1995. Needless to say, e-commerce has taken giant strides since then. The allure of online shopping is such that living without it seems incomprehensible today.
The world is now headed towards the next evolutionary phase of e-commerce: subscription commerce. From having an app for literally everything, today we have subscriptions for groceries, cars, clothes, grooming products, and even goodies for the pets. They have opened up a box of possibilities in retail, pioneering the way for innovations and new business models.
What is E-commerce and Subscription Commerce?
Going by the textbook description, electronic commerce is an umbrella term that encompasses all forms of commercial transactions such as buying and selling of products and services via online channels. This includes financial transactions such as banking and online auctions.
E-commerce has become an indispensable part of peoples’ everyday life—whether it is purchasing everyday groceries or shopping for luxury goods. Moreover, anyone can set-up their business online and sell products without having to build a brick and mortar store.
Taking these efficiencies up a notch is subscription commerce. Also known as sub-com, businesses and sellers offer their products on a subscription basis as opposed to a one-time sale. This enables them to convert a consumer’s single purchase into repeated buying behavior, which ensures a steady stream of revenue.
It’s a win-win situation for both sides; organizations profit from a predictable monthly cash inflow and consumers get better deals along with the convenience of not having to place repeated orders again and again – all for a subscription fee.
The Business Models
Since e-commerce is an extremely broad term, subscription commerce cannot be viewed as a distinct model. It is in fact, one of the rapidly booming segments of e-commerce where both can take many forms. On the basis of their business models, they can be classified as:
- B2B (Business-to-Business)
- B2C (Business-to-Consumer)
- C2B (Consumer-to-Business)
- C2C (Consumer-to-Consumer)
- B2E (Business-to-Employer)
- G2C (Government-to-Consumer)
- C2G (Consumer-to-Government)
There are countless offerings in the e-commerce market, with the major ones being:
- Physical Goods
- Digital goods (Music Services, E-books, Images (i.e. Shutterstock))
- Services (Online educators and freelancer services)
Subscription commerce, in particular, can be defined in two categories:
- Discovery Commerce: Consumers receive new products each time. It adds an element of surprise to the subscription box.
- Convenience Commerce: The consumers know which products will be delivered to them.
Subscription boxes are the most popular model wherein products (samples or full-sized) are delivered to the customer’s doorstep for a subscription fee on a frequent basis, usually monthly or weekly.
E-Commerce and Subscription Commerce: The Difference
- Purchase Model: In subscription commerce, the consumers sign-up for frequent deliveries of products, whereas in traditional e-commerce, there are no assurances if a consumer will return after the initial purchase.
- Customer Acquisition versus Retention: Sales models, in general, have always focused on acquiring more customers and selling them products, and e-commerce is no exception. Sub-com, however, is all about building customer loyalty and developing long-term relationships.
- Inventory Management: Subscription companies may find it easier to predict consumer buying habits as they know how many people have subscribed to their product and exactly what are they ordering. This results in better inventory management and avoidance of over-stocking.
- Financial stability: Subscription models allow for higher margins than e-commerce, and since there is a regular income that comes in every month, it’s easier to track and manage finances, which leads to better business predictability as well. Moreover, the marketing expenses involved are much less as compared to regular sales models.
- Consumer target: E-commerce websites have a very extensive customer-base as they offer products across different categories. Subscription businesses, on the other hand, offer products as solutions to very specific consumer problems – such as weekly meal kits for those who don’t have the time for grocery shopping. Hence, they have a very niche target base.
Companies that Successfully Transitioned
Many big names in online retail have stepped foot into subscription commerce. While they haven’t entirely done away with e-commerce, a hybrid approach is what most of them have adopted.
Amazon’s Subscribe & Save
Retail giant Amazon lets consumers create their own subscription that fits their schedules and needs. The products include meal boxes, male grooming kits, daily household items, and pet care products that are automatically delivered to the customers until they chose to skip or cancel.
Ola Select Service
Similarly, ride-sharing company Ola offers ‘Select Service’: it’s subscription-based membership program that includes premium benefits not otherwise available to general riders.
French MNC Sephora is a chain of beauty stores. It entered the US market with its online store in 1999, and in 2015, launched its subscription box – ‘Play!’ by Sephora where every month, subscribers receive a box of makeup samples.
The babyGap OutfitBox
American clothing retailer Gap caters to a very niche market. Its subscription package ‘OutfitBox’ is for parents who want to receive clothing articles for their baby every three months.
Kindle Unlimited is a subscription from Amazon’s e-reader Kindle, which gives its subscribers access to a large selection of e-books from the store without any due dates.
Who is it for?
Subscription commerce has its set of perks and challenges which might not be apt for every industry, but there are some fields that are undoubtedly flourishing under this model:
Fashion and Beauty
The fashion and beauty industry have adopted subscription commerce like no other. There is a subscription that caters to all kinds of consumers and the cost advantage of subscribing to these products in contrast to buying them is one of the biggest benefits they offer.
The consumption of on-demand content and platforms such as Spotify and Netflix have resulted in a massive rise for online content streaming. Even though music services were the first to embrace subscriptions, today other forms of media have become important players in subscription commerce.
Online learning has emerged as a powerful platform, not only for students but for anybody looking for opportunities to learn. Subscription commerce is changing how education is being delivered. Courses are offered as subscriptions either for free or a nominal charge. Many institutes and organizations have also begun offering their own online courses. Udemy is one such example.
Foods & Grocery
Meal kits and grocery boxes are among the most popular subscriptions. They are ideal for specialty foods, such as gourmet meals, and cater well to those who like to try new choices but don’t know where to start. It’s not only exotic foods, but even for groceries, including vegetables, fruits and beverages, the popularity of subscription boxes is rising fast.
How to Make the Transition?
Evaluate Your Business Model
Take a step back and assess your business. It is necessary to identify the core areas that have or haven’t worked out in the past. Try to understand what value the business provides to the customers, and more importantly, whether or not the current offering will be sustainable in a subscription model.
Understand your Consumers
Existing e-commerce businesses will already have a customer base which alone is not sufficient for a successful transition. To offer useful products, it is necessary to have an in-depth understanding about their buying patterns. Take the time to thoroughly research to determine which products meet their requirements and can also been be offered as a subscription.
Creating the ‘Value’
What benefits do consumers get when they subscribe to products as opposed to buying them online? These could be monetary or non-monetary, but the idea remains the same – the model should be persuasive enough to convince consumers to stick around. To create such a model, the emphasis should be on solutions rather than products.
Convenience is the Key
Convenience is one of the major reasons e-commerce is so successful. However, it is not just limited to delivering products to the customer’s door. It also includes how easily the consumer can access and make decisions about the product. Refrain from complicated subscription packages, websites, or delivery systems, and offer selected choices to avoid confusing people while giving them the options to customize their subscriptions.
Feedback and Customer Support
Consumers should always get what they were promised or else they’ll leave unhappily. This is especially true for subscription commerce given the number of options available. Always be proactive when it comes to customer support and use their feedback to continuously improve the products and services offerings.
There are many benefits of subscription commerce, but initial challenges also come with managing a sub-com business, such as:
- Adopting the right pricing strategy
- Acquiring customers
- Building consumer loyalty
- Managing data security / Technological Limitations
- Adapting to the month-to-month workflow (especially when shifting from e-commerce to subscriptions)
The Technology Landscape
As far as technology is concerned, the world has witnessed some of the greatest revolutions in recent years. E-commerce and subscription commerce have witnessed many technological shifts contributing to their constant evolution. Some of these latest innovations are:
- Artificial Intelligence
- Virtual Reality
- IoT (Virtual Assistants)
- Image and Voice Search
- Digital Currencies
It’s an undeniable fact that e-commerce has changed the entire shopping experience—so much that it’s hard to imagine a world without online shopping now. E-commerce is going to flourish as subscription commerce promises to raise the bar on how an average consumer experiences the shopping process.
I’d like to conclude with a word of caution: moving into subscription commerce requires a strong grasp over many fields that might not seem relevant in e-commerce. This means you’ll need careful planning and strategizing to ensure that those recurring revenue dollars never stop coming your way.