Shifting to a subscription-based e-commerce business can help you improve customer retention and drive sales. Nonetheless, depending on your consumers and the nature of your business, this model may not be right for your store.
In this post, we’ll explain what subscription-based e-commerce is and why you might want to try it for your online store. Then, we’ll explore the different types of subscription models and provide examples. Let’s get started!
What Is Subscription-Based E-Commerce?
Subscription-based e-commerce is a business model in which customers pay a monthly or annual fee for products or services. Unlike standard e-commerce, where consumers make one-time payments, the subscription model creates predictable revenue through recurring payments.
For instance, HelloFresh delivers fresh ingredients and recipe cards for preparing easy meals at home:
Customers save time by having ingredients delivered right to their door. What’s more, by preparing step-by-step recipes at home, they can spend less money on restaurants and delivery. Meanwhile, HelloFresh benefits from repeat buyers and predictable revenue through its subscription model.
The Pros and Cons of Subscription-Based E-Commerce
Now, let’s explore the pros and cons of subscription-based e-commerce. We’ll start with the benefits.
According to the research, acquiring new customers costs five times as much as selling to existing ones. Furthermore, existing customers are 50% more likely to repurchase from the same business. So, subscription-based e-commerce allows you to nurture existing customers and build stronger relationships to improve retention.
What’s more, this model requires constant contact to remind customers of deliveries and provide receipts. Thus, you can remain top-of-mind for future purchases.
However, there are some downsides. First of all, getting a subscription-based business started can be difficult, especially if your competition already uses this model. This is because there are typically a lot of costs associated with creating a recurring product or service.
Moreover, some shoppers prefer making one-time payments. Therefore, you’ll lose out on revenue if your customers don’t want to commit to recurring payments.
Additionally, consumers sometimes expect a better value from subscriptions. So, you’ll need to keep consumers interested with new products and discounts.
Finally, while subscriptions save customers time and money, they can also cancel at any time. This can create uncertainty for your revenue.
Examples of Subscription-Based E-Commerce (3 Successful Models)
Subscription-based e-commerce can improve your sales while helping you save money on customer acquisition. However, your products and content will determine which model you should use.
Now we’re going to discuss three examples of subscription-based online businesses. This way, you’ll be better equipped to decide whether or not you can start a subscription-based e-commerce business.
1. Curation
When it comes to subscriptions, curation is a popular service. For example, curated subscription boxes contain different items in each box.
Typically, customers choose a theme or complete a survey, then they receive a selection of products each month. Through curation boxes, consumers can try a variety of fresh, fun products based on their specific interests.
This model leverages consumer psychology by evoking mystery and stimulating consumer curiosity. That’s because customers get excited by the surprise factor of opening a mystery package.
Many stores, like BarkBox, offer curated subscription boxes as their core business:
BarkBox provides monthly boxes of treats, toys, and activities that are customized for pets.
Then, customers who love a product can repurchase it in the BarkShop.
BarkBox adds value by offering free shipping to customers who purchase more products. Furthermore, they entice consumers to sign up for longer subscriptions by offering discounts for six- and 12-month contracts.
2. Replenishment
With a replenishment or auto-ship subscription, customers pay to receive their favorite products at scheduled intervals. This model enables individuals to automatically restock their essentials, so they never run out. What’s more, since customers are stocking up on their necessities, you don’t need to change the variety from month to month.
The replenishment model works best for everyday products, like food and beauty items. For instance, Dollar Shave Club replenishes razors and other personal care items every month:
Dollar Shave Club attracts new customers by offering a deeply-discounted starter bundle with free shipping. Then, customers can browse the shop, select what products they want in their box, and choose how often they receive them.
3. Access
Access subscriptions charge customers a fee to gain access to content, products, or services. This model is typically found with digital entertainment, like Netflix and Audible, rather than physical products.
Amazon Prime is one of the most popular examples of an access subscription:
With Prime, customers pay a monthly or annual fee to get specific benefits when buying on the marketplace. Perhaps the most appealing Prime perk is the free two-day shipping (which is often same-day or one-day, depending on a person’s location). Additionally, many products purchased with Prime can be returned for free.
What’s more, Amazon adds value by including a variety of digital entertainment for free with Prime Video, Prime Gaming, and Amazon music. It also partners with other subscriptions, such as Max, GrubHub, and Audible, to offer free trials for members.
Conclusion
Subscription-based e-commerce can drive sales and provide predictable revenue for your business. A curation box might interest your customers if you offer specialty items. Or, if you sell products people like to keep in stock, you can try a replenishment subscription. For digital content, the access model is better suited for your business.
Do you have any questions about subscription-based e-commerce? Let us know in the comments section below!
Photo by Valeriia Miller