Subscription-based e-commerce – what is it?Ever since subscription-based models emerged in e-commerce, they have taken the industry by storm. Subscription-based models are popular because they serve both buyers and sellers equally well. This popularity was proven last year with a 3,000% increase in visits to subscription-based service webpages. That’s three thousand percent! In business terms, that’s a mammoth jump in impressions, leads and ultimately, conversions. The subscription-based e-commerce model is quickly catching on in the online selling industry. Even e-commerce giants like Amazon supplement their regular operations with subscription-based selling. Other good examples of industry leaders jumping on the subscription bandwagon exist. Two of the best are Starbucks and Sephora. Traditionally brick-and-mortar businesses are now embracing the subscription e-commerce model.
How does it work?There are 2 major types of subscription-based e-commerce models. One model allows customers to set up a recurring order for frequently purchased goods. This ensures that customers never run out of those goods, which is why this model is also called the Replenishment Model. The Discovery Model is slightly different. It involves the use of subscription boxes. Birchbox uses this model by sending out boxes of goodies as per a predetermined schedule. This model is very popular across many types of e-commerce websites. As more retailers realize how lucrative this model is, the range of goods grows from food, snacks, and grocery to beauty boxes. The most popular subscription method is customers setting up a direct debit with their bank account. That is the only hassle they need to go through to take advantage of the subscription model. This ease and simplicity are two of the reasons why subscription-based e-commerce is so popular.
Convenience for buyersSubscription-based e-commerce models suit buyers than most other models. It allows them to set up a recurring order for goods and commodities they consume frequently. A subscription eliminates the need to go through the shopping process every time you purchase those commodities. On one hand, buyers always have a stock of the commodities they need. This stock gets replenished at regular intervals through your subscription. On the other hand, most subscriptions do not carry cancellation penalties. This encourages more buyers to sign up for the subscription in the first place.
Easier for sellersE-commerce retailers know the industry is in a state of perpetual competition. This is where subscription-based e-commerce models are so useful to sellers. A subscription means you don’t have to compete with others for that subscriber’s loyalty and business. Additionally, each subscription means a repeat customer and recurring sales. Subscription models are a great way to retain customers over a longer time period. A seller only needs to convert a customer the first time. After they subscribe, you don’t need to urge them to make further purchases from you. Of course, there is always room for upselling and cross-selling. But for the most part, sellers get a stable base of repeat customers with a subscription-based e-commerce model.
Easier to forecast accuratelyFinancial forecasting may seem like guesswork, but it is based on estimates, information, and trends. When it comes to subscription-based e-commerce models, financial forecasting becomes much easier. This is because there is less room for variables and fluctuations in a subscription model. Unlike standard e-commerce, where purchase volume is variable, subscription models are predictable. This makes it much easier to make accurate estimates and forecasts. Since the volume remains more or less stable, forecasting revenues and costs is a much simpler task.
Better inventory planningPlanning and managing your inventory is a much clearer process in subscription-based models. Every month, you are in a position to have a better idea of your inventory situation and movement. Each subscription delivery contains the same type of commodities every time. This lets you plan your stock for the year and regulate it more efficiently. You also have a better chance of adjusting your stock levels when new customers sign up for a subscription.
Opportunities for upselling and cross-sellingWhen it comes to upselling and cross-selling, a subscription model offers more opportunities. More than a standard e-commerce model, anyway. The reason behind this is very simple. You already have many subscribers who trust your business. This means they will be more likely to upgrade to a premium service than a new visitor to your website. They feel like an upgrade is not too unreasonable when they are already spending regularly on your service. Subscriptions mean better engagement with customers, and more opportunities to cross-sell or upsell.
Recurring customers without additional effortReturn customers/recurring sales are one of the biggest advantages of the subscription-based model. Of course, customers could always get angry and cancel their Blizz Collaboration subscription. But for the most part, it is safe to assume subscribers turn into recurring customers for a longer period of time. And on top of that, you don’t need to go through the hassle of converting every customer every time. Subscription models offer convenience to customers. They also help build a relationship of trust between them and your business. This is what will keep them coming back with the least effort.
Rosie Harman is a Senior Content Strategist at Visi One Click, specializing in Technology. She holds a Master's in Business Administration from The University of Texas at Arlington and has spent the majority of her career working in tech giants in Texas.
When she's not helping the content team, Rosie enjoys adventuring with her two children around her home town.