Definition of Subscription Commerce
Subscription commerce is not a new business model if you think about it. Subscriptions have been used by magazines and music (let's be honest we've all got 10 cassettes for a dollar from Colombia House before) as a way to sell products on a recurring basis to maintain customer loyalty and a consistent cash flow. Now it's a booming business model that with the right technology, processes and systems can create a subscription model for your business where you are gaining loyal customers with your products being fulfilled and delivered on a recurring basis. Subscription commerce isn’t the right model for every product, but it is ideal for items that are replenished often such as razors, multivitamins and even food items like energy bars and coffee.
In general, there are two categorizations of subscription commerce:
- Convenience – Customers want to receive the same products automatically with a predictable spend on a recurring basis.
- Discovery – Customers use subscription to discover and sample new products they might not have otherwise known about.
A Brief History Lesson of Subscription Commerce.
Since the dawn of mankind (about 150,000 years ago) traditional commerce was born. Even before the invention of the written language, people were bartering and trading goods and services. This is nothing new to us. When you think of traditional commerce though, you have to rewind a bit to 1979 and a guy named Michael Aldrich. He simply modified a domestic television, connected it to a phone line and thus eCommerce was born. One of the first actual brands to take advantage of eCommerce was (you guessed it) Pizza Hut. They were actually one of the first major brands to test out online commerce, way back in 1994. Shortly after that, Amazon.com and eBay launched in 1995 which began what we know of as the modern-day eCommerce boom. Many companies have since recognized that eCommerce changed the way people shop forever.
In 2005, social networks such as Facebook introduced a new way to influence buying decisions. This trend was dubbed social commerce and is an important segment of the wider ecommerce market. In 2010, subscription commerce once again found itself on the forefront of another trend: subscription boxes. Places like Birchbox and Stitch Fix set off this whole new way of spending using a predictable monthly subscription to get 2-5 new products each month. Ecommerce sales reached $1 trillion in 2012 in large part due to the creativity of companies and their eCommerce methods. In 2014, Forbes estimated that subscription commerce business Birchbox was generating over $125 million a year in revenue.
Will Subscription Commerce Work for Me?
There are generally three common ways businesses use subscription commerce in their operations. Every subscription ecommerce business sets their customers up on a recurring predictable spend, and giving their customers the flexibility to add, change or remove items with ease. The way sellers offer their products can vary from business to business.
Here are the most common subscription models used in ecommerce.
Subscribe and Save - With a “subscribe and save” model, the same products are shipped on a recurring basis to subscribers. This model offers convenience and savings for the customer, while the business benefits from a more consistent and predictable sales forecast. Frequently consumed products, such as pet food or personal care items are good fits for this model.
Curation - With a curation model, brands offer access to different subscription products. It is estimated that 55% of available eCommerce subscriptions follow this model. Brands like Freshly and The Beard Struggle offer customers the choice of selecting the items they want or send out a subscription box with pre-selected products that aim to surprise and delight.
Membership - With a membership model, members pay a fee for exclusive discounts, products, content or services. In the world of brick-and-mortar retail, Costco has set the bar for the membership model and eCommerce businesses are taking notes from physical membership stores such as Costco. The membership model has afforded Costco the ability to cut the margins on all the products they sell down to almost nothing, meaning the brands makes the majority of their revenue through their memberships.
Getting Started with Subscription Commerce.
This first thing you will need is to do an initial discovery on your own business. Since subscription commerce relies on technology to make the process simple and seamless for your customers, can the technology you have in place today handle it? The only way to know is to do a deep dive on the capabilities of things like:
- What eCommerce Platform are you using, and does it support subscription style checkout?
- Is your inventory management software up to date with your current inventory you are holding and can it automate the monthly recurring subscriptions.
- Does your shipping software allow for return subscribers and automate the monthly shipping, as well as updating inventory levels automatically on the back end?
This is just the start. If you need help in these areas, you may want to contact an eCommerce expert (like us of course), who have implemented entire catalogs of products, multiple warehouses and yes--subscription commerce. You need someone who understands your needs and can help you be successful. As you finish the discovery, it's just as important to create a strategy for implementation. This will allow your team, or the team you hire to implement a framework you can build upon for the future.