The Benefits of a Subscription Business Model And Why it Might be the Future of E-commerce

Hrishikesh Jobanputra
written by

Hrishikesh Jobanputra

Hrishikesh Jobanputra is a marketing strategist, copywriter, and co-founder at 39shops.com. He helps small business owners boost revenue with razor-sharp marketing strategies and conversion copywriting.
He can be reached at his twitter handle @hrishikeshj

posted on

August 31, 2020

The Benefits of a Subscription Business Model And Why it Might be the Future of E-commerce

Did you know?

By 2023, 75% of direct-to-consumer (DTC) organizations will offer subscription services, according to a subscription box business model brings a unique set of benefits to your business such as:
  1. Predictable Inventory: You can predict inventory demand with reasonable accuracy. Which means better savings in inventory costs and much better financial control.
  2. Optimized logistics: Because shipments can be forecasted, there is less redundancy and reduced logistical costs.
  3. Consumer loyalty: Perhaps, this is one of the biggest drivers in the growth of subscription boxes. Sending products to the same consumer again and again means increased lifetime value, reduced churn, and higher profitability.

It’s no surprise that established e-commerce players such as Amazon are catching up in the race. Amazon has 18+ subscription box offerings - right from product discovery to convenience boxes.

Rising Consumer Demand

10 years ago, when BirchBox was launched, nobody would have imagined the subscription box economy could rise so quickly.

A study conducted by McKinsey in the subscription industry revealed incredible insights:

  • Subscription is the fastest-growing new way of buying online.
  • 15% of online shoppers have subscribed to one or more subscription boxes to receive products on a recurring basis
  • The majority of these consumers are young, affluent urbanites offering them a convenient, personalized, and cost-effective way to buy products
  • The subscription e-commerce market has grown by 100% in the past 5 years.

No wonder why subscription box brands such as Dollar Shave Club, Birch Box, Away, Warby Parker, and Casper are seeing exponential growth.

When we closely observe the success of these popular subscription box businesses, we see three things in common:

  1. Convenience
  2. Experience
  3. Cost

Let’s explore each of these consumer benefits some more and get a sense of the incredible possibilities that have opened up.

1. Convenience

Convenience is one of the key growth drivers of subscription business. For instance, when DollarShaveClub was launched, it solved a unique problem most men have - forgetting to buy a new blade when it’s due.

The simple idea of automatically receiving the subscription blade was enough to drive 2,000 subscribers in the first 24 hours of it’s launch. Of course, their humorous video played its role in the success of the launch.

Dollar Shave Club Subscription Box

But here is the bottomline.

Subscription adds to the convenience and the consumer doesn’t need to shop for the same item again and again.

The most successful subscription boxes are in the consumable products space.

We are seeing more and more variety in this space with subscription boxes such as coffee (DeathWish), ketogenic diet (Perfect Keto), oral hygiene (Quip), contact lenses (Hubble), Men’s apparel (Menlo House Club), and so on.

So, if you are looking to start a subscription box, this is probably the best bet.

2. Experience

Great experience is rooted in personalization. The most successful direct to consumer brands know that every subscription box shipment has to sell itself and it must deliver a superior experience - without exception.

Good experience directly relates to personalization. It’s about knowing the customer’s unique preferences such as taste, style, cost, or even psyche. And then delivering a subscription box that matches their choice.

BarkBox is perhaps a great example of delivering personalized experience. Every site visitor is asked to enter the dog's name, size of the dog, breed, his birthday and if the dog has any allergies. Based on these inputs by the dog owner, Barkbox then recommends the right subscription box to the consumer.

And we are just getting started.

Personalization also means engaging with consumers in real-time, gathering data, and adjusting subscription boxes based on their feedback.

These things will play an important role in fostering loyalty and creating long-term value for the customer.

3. Cost

Earlier in this article, I mentioned the cost savings advantage of the subscription box business model. Many D2C brands are passing on the cost saving benefits to the consumers resulting in better loyalty and longevity.

In addition to these tangible benefits, there is a hidden psychological advantage fueling the growth of the subscription economy.

The psychological benefit of subscription business model

According to Greg Petro - one of the top 25 most influential people in the retail industry, the Subscription box business model is thriving because it is based on the idea of ‘more is less’.

He cites three big reasons behind the growth of the subscription box economy:

  1. Increasing choices in every product category mean consumers are feeling more overwhelmed than ever before
  2. More choices mean greater confusion
  3. It also means increased buyer remorse once the initial purchase is made

A subscription simplifies the consumer's buying decision because each box is recommended based on the consumer's unique preferences.

Besides the biggest motivator for consumers to remain subscribed is the reward uncertainty involved in the whole process. Every month, there is a fixed reward (the subscription box arriving at your doorstep) coupled with uncertainty (there is something new).

This combination of reward coupled with uncertainty encourages the consumer to remain subscribed.

To sum it up, subscription based business models provide a great opportunity for e-commerce entrepreneurs and the key here is to focus on a niche market.

Instead of getting carried away by the success of popular subscription boxes, you need to go one step further and make sure that your positioning is unique and compelling.

To learn more about starting your subscription business from scratch, I recommend reading this guide. (Start a subscription box business in easy steps)

Conclusion and the way ahead

Delivering a personalized experience is the key to building a successful subscription ecommerce platform.

And it all begins with understanding your audience and tailoring your offerings to cater to their desires.

If you can offer a consistent experience coupled with convenience at a great price point, there is nothing like running a subscription box business.

Hrishikesh Jobanputra
written by

Hrishikesh Jobanputra

Hrishikesh Jobanputra is a marketing strategist, copywriter, and co-founder at 39shops.com. He helps small business owners boost revenue with razor-sharp marketing strategies and conversion copywriting.
He can be reached at his twitter handle @hrishikeshj

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