For years people have subscribed to newspapers and magazines, but now consumers can subscribe to receive a wide range of basic products, from fashion to fresh vegetables.

As consumer buying habits are trending towards simpler, hassle-free shopping experiences, companies like Pact Coffee, Graze and Glossybox are invading the subscription space and seeing incredible growth.

While subscription selling may not be a new model of retail, it has the potential to up-end traditional shopping patterns.

Just this month, music streaming subscription services like Spotify were included in the UK basket of goods and services used to calculate inflation. 

Successful subscription services fall into two model categories. On the one hand, there is a utility model for FMCG and staple goods, where lower costs mean that a subscription provider can offer deeper discounts whilst continuing to maintain margins.

Internet giants, such as Amazon with its 'Subscribe and Save' service, are already moving fast to grab this space. 

 

At the other end of the scale, curation offers an additional premium margin for luxury products. Consumers will pay more for goods, such as artisan coffees or high-end beauty products, if they have been hand-selected by tastemakers or according to their personal preferences. 

For customers, the value of shopping subscriptions lies in convenience. The simplicity of a regular delivery removes the thinking from a purchase decision.

Subscribers don’t need to remember to reorder every month, reassuring them that they will have whatever they need before they actually need it.

Home delivery removes the hassle of making a trip to a physical store or a website to place an order, whilst flat-rate payments help customers stay within budget and offer added value through bundling or special offers. 

For businesses, the advantages of subscription services are quite obvious. Recurring sales revenues, along with the cost of acquisition amortised across multiple transactions, can enable either a higher margin model or the ability to offer deeper discounts than on single purchases.  

This consistency in revenue also allows subscription providers to easily calculate the lifetime value of a customer, manage inventory and offer simple pricing. 

As a result, there is competition for the subscription space. Shoppers are unlikely to change their subscription provider regularly so it is crucial that you are first to sign up consumers if you seek to dominate a sector.

The businesses that have proven successful in this space understand the importance of personalisation and using data to curate effectively.

Retailers must provide an illusion that they intimately understand a customer’s needs, even if the reality is different. Large supermarkets with their extensive loyalty data, are very well placed to operate a subscription model, but must be wary that not all products are strong candidates.

Whilst most FMCG goods could be offered in this way, it will be interesting to see if companies  who offer higher value fashion, such as JustFab and Fabletics, will be successful because a high rate of returns could impact on their margin model.

That said, relatively generic goods, such as socks or golf balls, could easily be offered on a subscription basis. 

Overall, multichannel retailers could well offer subscription services. If they look beyond the pure online sales growth model, elements of subscription marketing could be used to improve their offering.

The key is to understand why the customer will not just buy products once, but over and over again. 

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Published 15 April, 2015 by Darryl Adie

Darryl Adie is Managing Director at Ampersand Commerce and a contributor to Econsultancy. You can follow Darryl on Twitter, LinkedIn and Google Plus

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Comments (2)

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Matt Collins, Director at PaymentBrain

Nice post, Darryl. I think the curation angle is a really interesting one. It's been fascinating to see all the different areas people have found to apply this in -- everything from Craft Rebellion's beer subscriptions to ToucanBox's kids activity boxes. I put together a list of some of them here: http://subscriptioncommerceinsider.com/subscription-commerce-companies/

about 3 years ago

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Amir Elaguizy, CEO at Cratejoy

Great post Darryl.

What we're seeing at Cratejoy is that once a subscription gets traction in a particular sector that the traditional retailers in that sector have no other choice but to offer a subscription service. The subscription operators have so much leverage over supply chains due to the recurring and predictable nature of their business, as well as their own much more sustainable business model means they don't go away easily - and they don't suffer as much from seasonal trends.

about 3 years ago

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