Subscriptions Are Taking Over eCommerce
By Sandeep Kuttiyatur
The digital marketplace has opened up a whole new world of business. Small and medium sized enterprises now have almost limitless possibilities when it comes to reaching consumers, turning a profit, and competing with global incumbent brands. But today, there is one ecommerce model that stands well above the rest: the subscription model.
In the first half of 2018, there has been an overwhelming shift toward subscription-based commerce. Amazon's Prime membership continues to grow at a record-breaking rate, while nearly every other ecommerce category has begun to deprioritize one-time purchases in favor of subscription models. In 2017, 75 percent of online sales were controlled by subscription-based products, a number that continues to grow steadily into 2018.
Subscriptions have become the norm in numerous industries. Long before Prime existed, Netflix and Spotify were transforming the way people paid for entertainment. Consumers no longer had to buy physical media in order to enjoy their favorite films or music, instead paying a monthly fee for unlimited access to a huge database. Not long after, software followed suit with the rise of Software-as-a-Service (SaaS), a delivery model in which software is hosted centrally or “in the cloud” and licensed on a subscription basis. Clearly, subscriptions are good for business.
Why Do Subscriptions Work?
The subscription model continues to break new ground. The now-famous Dollar Shave Club was one of the first innovators in applying the subscription model to consumer packaged goods with their subscription service for razors, acting as a proof-of-concept for this sales strategy in the age of ecommerce and inspiring major competitors like Gillette to follow their lead. Now subscriptions are available for nearly everything, from video games to home-cooked meal plans to prescription medications. A majority of both consumers and businesses have embraced subscription commerce – and that number is still growing.
Here are the benefits for consumers:
- Saving Money: Today, many products give shoppers the option of either subscribing or making a one-time purchase. A good example of this is the growing number of items available through Amazon's “Subscribe-and-Save” program, which offers a lower per-unit price to shoppers that commit to making repeat purchases, saving them money in the long-term.
- Saving Time: Convenience is very important to consumers. By purchasing subscriptions for disposable products like razors, people are able to spend less of their free time at the store.
- Sticker Shock: Many SaaS companies offer a stand-alone, offline version of their product, but the cost is often prohibitively high. Services like Microsoft 365 are very expensive to purchase outright, so most consumers prefer to pay for the low-cost monthly license.
- Access: Media services like Kindle and Spotify are so successful because instead of asking people to paying individually for each piece of media they consume, they provide people with access to a huge database which includes almost any book or song they could think of.
Here are the benefits for businesses:
- Predictable Income: One of the biggest things drawing businesses to subscription models is the promise of income stability. By encouraging customers to commit to regular payments, businesses can establish reliable and predictable income streams.
- Price Control: By establishing a stable cash flow, subscriptions help businesses reduce risk. This enables them to generate accurate profit forecasts, keep prices competitive, and respond to market forces by adjusting their pricing structure in real-time for the entire user base.
- Data Collection: With one-time purchases, customer only need to interact with a business once, pay for a product, and disappear. Subscriptions on the other hand establish long-term business-customer relationships, allowing businesses to gather data and track the user experience as long as the customer is using the product, right up until the moment they stop using the product.
- Driving Loyalty: By encouraging shoppers to commit to one brand, subscriptions reduce customer churn and drive trust and loyalty. This in turn enables businesses to market more of their products to this loyal customer base.
Just about everything is now available as a subscription. Photoshop no longer offers a stand-alone version of their hit software; there are at least half a dozen “personal shopper” services that will send you personalized clothing items on a regular schedule. Even Uber and Lyft are experimenting with monthly subscriptions. This is all because the subscription economy brings more value to both the business and to the customer.
With a subscription-based business model, brands can establish long-term relationship with their customers and build a large, stable and loyal audience. An investment in subscription commerce is an investment in growth and sustainability.
Sandeep Kuttiyatur is CEO of eComchain, a global cloud-based eCommerce solution.