What is subscription commerce?
Subscription commerce provides a convenient way for companies and eCommerce websites to offer periodic, regular (weekly, monthly, annually, etc) purchases of a product or series of products. There are two main categories that most subscriptions fit into. The first is consumer products. Things like food, cosmetics, clothing or even pet supplies are popular among consumers and fit easily into most eCommerce platforms.
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Major subcategories of subscription commerce with examples
There are two subcategories in the consumer goods subscription service. The first is the regular shipment of an identical item, also referred to as Autoship. The consumer chooses the item they want to receive and then based on the options available selects the frequency at which the item is shipped, for instance, Amazon Subscribe & Save program. The second subcategory is a Curated Box. This subscription model is popular among cosmetic companies like Sephora or food companies such as Farmbox Direct. In this category, a customer subscribes to the service but leaves the general contents of the box to the discretion of the company.
Another major shipping monthly subscription category is related to streaming media. Companies like Apple, Netflix, Hulu and Spotify offer various subscription levels based on what the consumer is looking for. In the video categories like Netflix, the subscriptions are priced according to the video quality (HD, 4K UHD, etc.) and number of devices that the consumer wants to have access to the service. The higher the quality and number of devices, the higher the monthly or yearly cost. Audio streaming services like Spotify also price based on quality which relates to the bitrate quality of the audio files. For example, a premium Spotify subscription provides audio quality at 320kbps.
Finally, there is a category of subscription commerce that relates to Software and IT infrastructure. Companies like Amazon offer infrastructure and software services (IaaS, PaaS, Saas) subscriptions to both consumers and businesses alike. These services have become very popular in recent years as technology improves and bandwidth increases. Companies oftentimes use these types of subscriptions as failover solutions where they need 24/7 uptime for critical systems. This has an advantage to maintaining two physical sites as the subscription service takes responsibility for providing the redundancy that the company needs. It’s also highly cost effective as the subscription cost is generally much lower than the cost the purchasing company will pay to maintain a physical location.
Why you need it
Subscription commerce is highly scalable, which allows a business to take advantage of economies-of-scale. It’s also predictable and convenient as the company receives regular revenue from its subscription base. Monthly revenue forecasting becomes much easier when a company can provide shipping monthly services to its customers. Subscriptions also allow a company to build brand loyalty all while increasing revenue. For example, a company could offer a discount to its subscribers if they refer a friend that also signs up for a subscription.
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Where to start
Initially, a company should start by analyzing market opportunities and then identify which products or services would have the best potential of succeeding in future markets. It’s important for them to look for opportunities to grow revenue within their existing customer base. Finally, it’s critically important that the company understands the resources necessary to create new markets and revenue streams outside of their current customer base. When assessing potential products and services, the company should identify potential problems that their offering will solve and the value a customer will derive from them. The company should understand how to convert the derived value into revenue opportunities for the business. It’s also important that the offering differentiates from the company’s immediate competitors.
One additional critical component to offering subscription products and services is for the company to have an API (Application Programming Interface) between the company’s customers and popular third party applications.
Pricing of the subscription product or service is another important component of the offering. The company should understand the impact of any potential price changes and how they can affect profit margins. Within the pricing structure of a product or service there can be multiple variations. Should the product be tiered based on content or volume (usage)? Should the Billing frequency be monthly, annually or both? The company could also consider offering a discount for customers that prepay a longer term subscription vs a monthly subscription. Whatever the pricing options, they should align with what the company’s competitors are offering.
Willingness of the customer to pay the price is also an important factor in how the company should price it’s new product or service subscription. Delivering a frictionless find, buy and manage experience is important. Having a fully integrated subscription service platform is key to offering a successful product or service. Ideally, the platform should include onboarding, marketplace commerce, identity and access management, billing, relationship management, spend management and data analytics. This eliminates the need for the company to combine different solutions together in an attempt to get a complete picture.
Last but not least, when transitioning from a single purchase model to a subscription service model, the company should have a plan for ongoing customer service. Can the current customer support group scale to meet the increase in the customer base? Will the company need to partner with a third-party customer support partner in order to handle the increase in customer support requests? It might be necessary for the company to offer new services to its customer base when transitioning to a subscription service model.
To wrap it up
In essence, subscription commerce can help your business scale all while bonding with your customers. This offering grows recurring revenues and creates “stickiness” by increasing the company’s base of loyal clients which, in turn, can help the company to offer even more products and services and increase the value offering to their customers.