eCommerce subscriptions have grown tremendously in the past several years and there are no signs of the trend stopping. The Subscription Trade Association (SUBTA) predicts that by 2023, 75% of direct-to-consumer (D2C) brands will offer subscription services.
Why is this? The reasons are multifaceted, but one of the most prominent is an ongoing shift in consumer behavior. Today, consumers crave hassle-free shopping experiences, exemplified through perks like free delivery.
Subscription services play into consumers’ desire for convenience.
It’s not all about consumers, however.
Subscription services in all their forms are a boon for businesses. They offer reliable, recurring revenue, which is crucial to succeeding in a highly competitive and rapidly changing eCommerce environment.
In short, eCommerce subscriptions help brands succeed in the long term and weather unforeseeable events such as the COVID-19 pandemic.
As you prepare for 2021, now is the time to decide whether a subscription program is right for your business.
In this post, we’ll cover everything you need to know about the topic.
What Are eCommerce Subscriptions?
At its core, an eCommerce subscriptions service is about efficiency and convenience — for both merchants and their customers.
For merchants, it’s a battle-tested business model that generates recurring revenue. In this model, a company provides ongoing products or services on a regular basis in exchange for payment. Marketing guru Scott Galloway argues that this model takes advantage of humans’ inability to register time. In short, all of us are terrible at estimating how much we’ll use a product in a given period. For example, just 18% of gym members hit the gym consistently.
On the consumer side, eCommerce subscriptions free up shoppers to focus on meaningful experiences, like spending time with friends and loved ones. They don’t have to take the time to reorder products or waste brain space on remembering to restock items they consistently use. The cherry on top is that subscription services often offer promotions, making them more cost-effective in the long term.
Companies offer different “types” of subscription services depending on their products and industry.
The Most Common Types of eCommerce Subscriptions
There are a wide variety of subscription services. We’ve defined the most common types below. In some cases, businesses might utilize one service or a combination of services.
Subscribe and Save
A Subscribe and Save service — sometimes known as a replenishment or auto-ship service — provides regular, recurring delivery of a product to consumers. Usually, deliveries occur weekly, monthly, or quarterly. It’s standard practice for merchants to offer a discount per product to incentivize customers to subscribe and ensure they’re getting the best deal on the market.
Common products that are offered through a Subscribe and Save service include toiletries, beauty items like concealer, groceries, and pet supplies.
Traditionally, many eCommerce and D2C brands offer a one-time purchase option in addition to their Subscribe and Save service, as well as the ability to add additional products to their delivery. Many brands also use a subscription-only business model.
Membership boxes — also known as Subscription Boxes — are subscriptions that seek to delight and thrill consumers by appealing to their sense of curiosity. They provide collections of products to consumers based on individual preferences. More often than not, a membership subscription focuses on niche products. For example, Yankee Candle utilizes Membership Boxes, allowing their customers to receive their favorite fragrances at their doorsteps.
A membership subscription model offers consumers access to the value an organization creates in exchange for a recurring fee. Products that are sold through the organization are typically offered at a steep discount — making the membership attractive to consumers. Costco is a prime example of this model, as is Planet Fitness.
Benefits for individual organizations vary, but they might include exclusive content, free shipping, access to events and conferences, marketing activities, and professional services.
Now that you know the types of subscription services, let’s cover some of the many benefits of using this business strategy.
Benefits of eCommerce Subscriptions
Before we get into it, there is a general point to make: The majority of the benefits are interconnected and influence each other.
Reliable, recurring revenue
Organizations need to know their runway. Running an eCommerce subscription program improves a brand’s ability to forecast sales and revenue numbers.
Because of the very nature of the subscriptions, brands have customers locked into purchasing products for specific periods of time — up to a year in some cases. This creates predictability.
In other words, subscriptions generate reliable, recurring revenue.
Along these lines, subscriptions also facilitate better inventory management.
Since customers subscribe for extended periods of time, businesses have a better understanding of the amount of product they need on hand to fulfill orders.
Increased customer retention rate
How do you keep customers from leaving your company? Adopt a subscription program.
Subscriptions increase customer retention rates. This is because the longer a shopper subscribes, the more value they get out of the service.
From a cost perspective, shoppers are spending less money, saving time, and reducing their stress levels.
Put another way, eCommerce subscriptions reduce customer churn. And the fewer customers that churn, the better your bottom line looks.
This is important to note: Reducing customer churn is a recipe for success.
There are two reasons for this:
First, returning customers tend to purchase more products over time. For example, Bain & Company found that in financial services, a 5% increase in customer retention produces more than a 25% increase in profit.
Second, Customer Acquisition Cost (CAC) for brands is sky-high and getting higher with each passing moment.
This brings us to…
Improved Customer Lifetime Value (LTV)
Retailers and D2C businesses spend astronomical amounts of money on customer acquisition when in reality only 14.77% of all eCommerce customers are returning shoppers.
By utilizing a subscription program, brands can maximize the investment they made acquiring customers.
Data from Marketing Metrics shows why this is beneficial. Businesses have a 60-70% chance of selling to an existing customer, versus 5-20% of selling to a new prospect.
Examples of Successful eCommerce Subscription Programs
Now that we’ve detailed what subscriptions are and their benefits, here are examples of successful programs by Ordergroove clients.
Yankee Candle’s in-store experience is powerful — it enables customers to easily explore new fragrances. In late 2019, the company sought to enhance their brand by delivering a similar high-value experience through other channels.
One channel the brand tapped was subscriptions. Yankee Candle implemented a frictionless subscription program that creates high-value experiences for their loyal customers. The program leverages unique promotions and reduced shipping thresholds.
Following the COVID-19 outbreak, the program’s growth accelerated dramatically. The company reported 343% growth in recurring revenue since the start of the pandemic.
Bariatric Eating, a provider of high-quality meals, drinks, and vitamins for people following bariatric surgery, partnered with Ordergroove to introduce a subscription service on Shopify Plus.
The subscription program enables the company’s customers to establish, adjust, and maintain a healthy routine. This includes complete control over their subscriptions, including the ability to change flavors, products, and quantity, as well as skip, pause, or stop at any time.
The company saw tremendous growth in the first month of the program — 136% week-over-week growth.
FiltersFast.com — the top filtration provider in the United States — partnered with Ordergroove to implement a Subscribe and Save program.
The program offers a 10% discount for Filters Fast brands and 5% discounts on original equipment manufacturer (OEM) brands.
The company also enticed clients to subscriptions by offering free shipping, a suggested shipping cadence, and allows them to easily add new items to their subscription order.
During the pandemic, the company’s online revenue has grown nearly 3X. New subscribers are up more than 183%. Even more impressive, Filters Fast’s subscriber retention averages 96%-98%.
For consumers, subscriptions are a low-cost and convenient alternative to visiting brick-and-mortar stores. To continue to grow, retailers and D2C businesses need to consider adding subscription services to their strategy.