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Are subscription services the future of digital retail?

Published March 5, 2021

Fashion, books, groceries, cosmetics—the list goes on. Subscription services appear to be an impetus for growth and stability during the pandemic, with around 23 percent of subscription-based businesses reporting increased subscribers and more than half with no losses whatsoever.

It’s not surprising, either. The excitement of receiving a package each month gives people something to look forward to and provides a standard of consistency during unpredictable times. Whether it’s the curious thrill of opening a monthly mystery box or a fresh weekly delivery of exotic ingredients—subscriptions are undeniably fun for consumers and a driver of loyalty for digital retailers.

But what makes subscriptions advantageous compared with regular e-commerce? Simply put, recurring revenue is the raison d'etre for any subscription model. The opportunity for predictable, repeating revenue and ever-increasing customer lifetime value solidifies subscriptions as a winning strategy in the future of digital retail.

Subscription services: The basics

Subscription services involve a customer paying a fixed amount of money that repeats at regular intervals—usually monthly—for a product or service. While the subscription model can also apply to Software as a Service (SaaS), streaming services and digital products (media), the focus in this article is specifically on physical products and their impact on retail.

Subscriptions of physical products typically come in two forms: curated boxes or repeat orders. Curated boxes are assortments of products that are different with each delivery and are either selected by the customer or combined in a mystery box. 

While the concept of mystery boxes might sound risky, they’re exploding in popularity, thanks to the sheer diversity of brands that appeal to different hobbies and lifestyles. Brands that send a random assortment of products themed around everything from pop culture to animation, like LootCrate, are pioneers of the mystery-box subscription craze. 

Repeat orders are more conventional, involving the same products being delivered over and over again on a schedule. This model applies well to things like household cleaning or grooming products. Dollar Shave Club, which practically wrote the book on recurring self-care subscriptions, is a perfect example. 

When done right, the benefits of subscription services are profound. As long as businesses minimize churn, they’ll maintain a healthy and predictable revenue stream without constantly worrying about the cost of acquiring new customers.

According to Tien Tzuo, cofounder and CEO at Zuora, an enterprise software company that helps brands manage subscription services, “If the Subscription Economy is about anything, it’s about a fundamental return to customer relationships. It’s the agility of the subscription model that uniquely positions businesses to adapt quickly to customer needs and provides them with consistent, ongoing value—regardless of economic climate.”

Subscriptions are a great way to forge strong ongoing relationships with customers while presenting a unique chance at exposure for local vendors and up-and-coming brands, as many subscription boxes make it their mission to procure products from small businesses.

COVID-19 accelerated subscription growth last year and continues in 2021

Subscriptions were already on the rise in previous years—17 percent annually for the past five years, to be exact—then COVID-19 pushed that growth even further. 

Consumers who already use subscription services actually intend to increase the amount they spend on subscriptions going forward:

  • A little more than half of online consumers already use subscription-box services, with nearly the same percentage having more than one.
  • Among consumers aged 18 to 24 years—the group that has the highest number of active subscriptions, at around 2.5 each—38 percent plan to increase their active subscriptions this year.
  • A slightly lower, but still impressive, 27 percent of consumers globally plan on spending more on subscriptions in 2021.

This increased adoption is what allowed subscription businesses to expand at a rate of 12 percent on average last year, as reported in the 2020 edition of the Subscription Economy Index from Zuora.

Subscription growth isn’t just a regional trend, either. As Ben Dalfen, CEO, Ecommerce and Card Not Present, Paysafe, writes, “The US is the clear leader when it comes to adoption of subscription-based services, with 69% having multiple subscriptions... Canada is the next highest of those included in the research with 50% having multiple subscriptions, followed by Germany (49%), the UK (47%) and Austria (45%).”

All this growth potential is in stark contrast to traditional retail. While subscription services enjoy increased adoption and sales, clothing retail fell 25 percent in 2020, with standard e-commerce efforts not being sufficient to offset brick-and-mortar losses.

This growth can only be harnessed when the right subscription strategy is used. Discerning consumers need to align themselves with a brand before they’re in it for the long run, and there are trends that reflect that today.

Subscription-model trends and brands doing it the right way

E-commerce subscription boxes and meals date back to 2004. But the continued rise has introduced more competitors, enhancing innovation and flexibility. It’s not just “Pay X, get Y every month” anymore—subscription trends are introducing more creative applications of the service at a rapid pace.

Personalization boosts customer experience

Subscriptions are like a holiday gift to yourself—except they come every month instead of just once a year. The experience of receiving these products should bring that same joy. But like a child whose granny got them socks for Christmas again, the wrong selection of products can be disappointing. Personalizing what is delivered is the best way to avoid disappointment.

To deliver a consistently rewarding experience, there needs to be a deep understanding—a sort of camaraderie—between the subscription brand and their consumer. Gleaning the right information from your customers in order to send them precisely what they want, even if they don’t know exactly what that is, is fundamental.

Bespoke Post, a subscription service that offers an assortment of rugged and functional products from small businesses monthly, does an excellent job of personalization. Attached to each subscriber’s account is information about their age, size and color preferences, grooming habits and even mattress size. This ensures that the products delivered in each box are sure to excite rather than disappoint. 

Similarly, Dollar Shave Club has an interactive “tell us how you get ready” process that gives in-depth insight into which products subscribers will use and value most. The company knows that it’s pointless (and detrimental) to ship products that the customer won’t appreciate or need.

Food delivery brands like Blue Apron, which sends meal kits that the customer cooks themselves, give the customer control over subscriptions, too. They let subscribers select items based on lifestyle, recipe, taste preferences, style of cuisine and more.

If you’re considering how a subscription model will fit into your business, prioritizing personalization may give you a leg up on competitors. Gathering the right information to recommend, compile and deliver products puts you miles ahead of more generic subscription services.

Pay according to use gives greater freedom

A box filled with goodies is great, but not all customers want to end up stockpiling products unnecessarily. This is especially important for recurring orders, so giving customers the freedom to control when and what they receive will set your brand apart from most others.

These brands are doing “pay according to use” right:

Breo Box, a subscription box that focuses on tech gadgets, gives customers the option to purchase each item from the current box separately—albeit at full retail price. This gives consumers choices (which they love) and prevents them from ending up with a bunch of stuff they’ll never touch again. 

Blueland sells eco-friendly cleaning products on a subscription basis. Customers first sign up and purchase a starter kit and then receive refills regularly. But what if they’re not using up the product they already have? Blueland gives them the flexibility to adjust the timing of deliveries or the products they receive and opt out of automatic shipments. 

Loyalty programs bring in more customers

Loyalty programs have long been an ideal way of creating a stronger relationship between your brand and your customers. But in the subscription game, there are opportunities to break the mold.

Birchbox goes hard on referrals, for example. As Cat Rossi from Oracle writes, “The Birchbox Loyalty Program not only awards members one point for each dollar spent, but they also award 50 points for each friend referral. By incentivizing subscribers to promote the brand to their friends, Birchbox has the ability to acquire new customers at a low cost.”

Incentivize customers not only for the money they spend but also for how they engage with the brand on social and recommend the subscription to others. Leveraging that loyalty into new business is an excellent tactic for consistently growing subscribers.

Related: Retail loyalty program dos and don'ts

The future is bright for subscription services—are they right for your business?

The evidence is stacked in favor of the subscription model’s continued growth, so it’s an exciting prospect for e-commerce retailers looking to diversify or transform their businesses. Remember, the benefits go beyond basic cost savings and into a more creative and highly engaging personalized journey.

Is your business ready to try out the subscription model? Only you can know that, but use some of the brands mentioned throughout this article as a guiding light. Subscription services are dynamic and emerging, so it’s worth a shot if you’re already selling through other digital channels. 

Sell great products, offer customers flexibility, and understand your market and you’ll be well on your way to that coveted recurring revenue subscription model. Happy selling!

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