We've profiled 16 subscription business models from around the world in our latest piece of ecommerce insight.
The aim is to highlight best practice, and provide inspiration to consumer brands who want to create ecommerce subscription business models of their own. You can download the full report here.
Monthly subscription box start-ups have generated a lot of buzz; brands and retailers are also adding subscription and auto-replenishment options to their existing ecommerce sites. 15% of American online shoppers have signed up for at least one ecommerce subscription service, according to McKinsey. The number of online subscriptions springing up has also grown quickly in Europe and Australia.
Why subscription business models?
When analysing the 16 examples we’ve looked at both the proposition and the business that has introduced the idea. Subscriptions succeed where they deliver against one of the three following aims. They are:
Access: Providing customers with products they can’t get elsewhere, or at a cheaper price through subscription;
Curation: Providing inspiration with an edited selection of products that may be personalised to customers’ tastes;
Replenishment: Providing convenience by automating the ordering of items that customers regularly require.
Some of the examples are trying to excel at meeting one of these aims – such as Amazon’s Subscribe & Save proposition for the replenishment aim. Others, such as health snack provider Graze, meet all three of the aims to some degree.
Key subscription takeaways
Each example provides different inspiration, but there are some clear themes from our research that it is worth highlighting.
The model must support customer acquisition and retention. Long subscription terms will limit sign-ups, but churn rate is also a crucial metric. Discounts for longer subscriptions, and discounts for paying in full upfront are both mechanisms to encourage loyalty.
To meet the replenishment aim, it’s helpful to allow the customer to choose the shipping cycle, or offer the exact amount that’s required for a standard cycle, such as Dollar Shave Club with its monthly delivery cycle.
Add value for customers who commit to longer subscriptions, or pay the total cost of the subscription upfront. Create a model that adds value for additional commitment, such as GoodnessMe Box has.
If you have an existing ecommerce site, how could a subscription model complement this? Amazon’s Subscribe & Save option is one that relevant D2C brands could consider adding to their website.
A subscription model can test new products, or generate feedback from customers. KiwiCo uses customer feedback for product development, and the brands supplied by GoodnessMe Box want their products sampled to generate exposure.
Technology can be both an enabler and a blocker. Ensure systems don’t limit your ability to create an optimal proposition. Gousto uses AI to predict demand and HP is dabbling in the Internet of Things with HP Instant Ink.
In conclusion, we’ve found that the best subscription business models solve a customer problem and happen to do it with a subscription, rather than the other way around. Spotting a customer pain-point or gap in the market should be the first aspect of any subscription model development.