The e-Commerce stats produced by McKinsey present some fascinating growth opportunities for companies that rely on recurring revenue generation. The power of subscription model is quite evident from the study by McKinsey where the customers buying on subscription basis required 6-7 times lesser cost than getting new customers on board. It implies customers buying products through subscription are preferable in profit making.
Understanding Subscription Model
Or call it “Subscription Box.” Subscription is when customers on an e-Commerce website subscribe to purchase same product or a box of goods on a given/suitable frequency like monthly or quarterly basis. Delivering the product on the periodic basis can be determined on how often the customer would require the product. Subscription works suitably for products such as cosmetics, toiletries, books, groceries, pet products, clothing etc. The prominent example of the subscription model is the newspaper. People buy the subscription of newspapers 30 days ahead rather than paying for one, every day. This model is just redefined the way businesses are working these days – more ease to the customers, more value for what they pay, more customization, and more delights.
Case study #1 – Considering the prevalent need and the nature of a product, the subscription can change accordingly. If a product is not purchased on a monthly basis and is required quarterly or yearly, then the subscription box has a spectacular policy for its customers. In every quarter or year, the e-Commerce company would send a package consisting of some of the items (as per your preferences). The customer can keep the ones that are required and will return the package with rest of the items, paying for only those he has taken. If in case he doesn’t need any item, he can return the entire package without paying a dime.
The perk of subscription box for businesses is that a brand new product gets necessary exposure. Even if the customer does not intend to buy the item, may get convinced after seeing the product.
Case Study #2 – Online businesses leverage subscription models to a great extent. Coffee, for instance, is a commodity that is required on a monthly basis. Rather than purchasing from the nearest store, the customer can order it online. Buying coffee online can help save more time if the product is subscribed at the required frequency and type. The subscription value is zero, plus the product would be available at a lesser cost than buying every month. It ensures customer retention as well as recurring revenue.
Case Study #3 – The well-known e-Commerce websites such as Amazon have resorted to subscription models. Based on the buyer’s historical preferences, Amazon offers the capability of subscribing for products the customer purchases regularly. After getting the subscription, the buyer would get some percentage of discount, every time the product subscribed is delivered to his address. Even the video streaming service of Netflix offers paid subscription depending on customer choices and number of services he wants to avail.
Understand your Customers
To understand retention of subscriptions, it is essential to contemplate the idea of churn, the rate at which customers unsubscribe the product or service in a definite time frame. To get your subscription work as expected and generate recurring revenue with minimum churn, it is essential to understand the need of your customers. As a product provider, e-Commerce businesses require the customers to know that they have the best product warehoused. The frequency of churn is a reliable indicator of recurring revenue generation, imparting a clear idea if the subscription box is progressing as expected or not. A continuous rise in churn indicates the requirement of modifying the subscription business model and losing your customers.
Benefits of Subscription Model for E-Commerce Businesses
Following are the benefits of subscription model e-Commerce Businesses enjoy
- Understand Customers Easily: The first and initial result of the marketing efforts of any e-Commerce company is when its customer makes his first purchase. It is then followed by the struggle to retain that customer. Recurring revenue generation through subscription box is one promising method to retain a customer. It is hard to predict that a customer is worth investing time or not. But understanding his requirements can be of significant assistance in setting up the model and leverage lifetime value.
- Reduce Costs, Sell More: Subscription box each month intensifies the shipping experience. If the customer has subscribed for a range of products, then all of them will be delivered at the same time and place. This results in the reduced cost, efforts, and hassle of packaging in the warehouses.
- Less Operational Efforts: Surprise! Customers, now and then love surprises! A package, full of surprise inventory is an amazing experience they want to witness once in a while. This also reduces the effort of selection of products to zero.
- Delight Customer Better: Identifying the potential buyers for a particular subscription box is not an arduous task. Each subscription targets a particular class of buyers, by keen identification of their choices and personas. It helps in fulfilling the customer needs and give them the best user experience.
- Predict and Plan Easily: It is crucial for e-Commerce business to understand for exactly how long the customer will buy their products. The exact idea of retention of customers and the time they purchase help significantly in the prediction of recurring revenue.
Building Subscription Models
Building a subscription model can be an arduous task if it goes unplanned. It is essential to create billing plan to identify the number of times a customer pays the bill for his box. Next thing you would want to do is the creation of subscription by adding to the page of the product or get on cart page (if the products on the cart are regularly bought), plan quiz/questionnaire for the customers, define the technology process, assign an online space where the buyers can manage their subscription box, etc.
A study has proven that businesses having average transaction lesser than $75 will enjoy the benefits of the subscription model. The e-Commerce businesses with value higher than $75 may not experience notable monetary benefits. The study supports mainly the products of health, beauty, food, drinks, etc. Marketing experts predict the policy to work wonders for other categories as well. For all e-Commerce businesses to apply this policy, it is quintessential to understand users and their needs.
Grow the subscription box
Are you thinking of adding subscription models to your products? Are you unsure of whether introducing the subscription model will assist in revenue generation? If yes, then it is time you research and comprehend the user needs, and we, at My Subscription Business can help you do that well. Just get in touch with us at email@example.com and we will get back instantly. And yes, we consult for free!
Tip: To gather user requirements, prepare a collection of emails that finally leads them to the subscription option. More the number of subscriptions, the more you are in demand.