Is The Ecommerce Subscription Model The Future Of Online Retail?

By Rodney Laws | Business

Jan 07

Charting the growth and development of ecommerce is an awkward task indeed. The industry hasn’t actually been around for that long, yet the core process settled into a comfortable groove around the time Amazon rolled out the model that has kept it in a position of global dominance. Since then, you might think that little has changed — but is that really so?

Consider the key area of shipping, for instance. The fundamental mechanisms are the same as ever, but the notion of supporting various pick-up locations is relatively recent, and there are still plenty of sellers getting to grips with it. And then there’s the matter of on-site marketing. Product preview tools are vastly better than ever before, with many companies taking advantage of AR technology to encourage prospective buyers over the conversion line.

In fact, when you pick through all the elements, it’s clear that ecommerce is always changing — just in an evolutionary way. The basics are cast, just as the basics of traditional retail were long ago, but the use of those basics is incrementally being subjected to experimentation. New approaches come along, fly high or fall short, and change how things are viewed.

One approach that’s clearly flown high is that of bringing the subscription model to ecommerce. You can’t have escaped the rise of this business model — but is it the future of online retail, just another option, or a tactic with a limited shelf life? In all likelihood, it’s somewhere between the first two. Allow me to explain why.

Consistency provides a steady revenue

When you rely on subscriptions, you know that any given purchase isn’t a one-off payment: it’s a gateway to enduring payment. This makes it so much easier to predict how much revenue you’ll bring in each month, providing you with a level of security that frees you to grow your business without needing to worry so much about financing.

Your churn rate (the rate at which you lose subscribers) will obviously factor into this, but if you do most things right then you should have a solid base of loyal customers. So what can you do with your steady revenue? Well, you can invest in many ways. You can expand your operation in the most basic sense by scaling up what you’re already doing, or upgrade some aspect of your infrastructure, or even put the money into a secondary business.

This is also great for maintaining the value of your business for potential investors or buyers. Even if you don’t want more money and have no interest in selling your store, it’s prudent to keep the perceived value high: you never know when a golden opportunity might come along and inspire you to go in a totally fresh direction.

Simplicity reduces admin complexity

The process of fielding administrative issues can be tricky in the ecommerce world. With each complaint, you must first determine exactly what product (or products) are involved, how and when the purchase was made, and what communication has already taken place — and if you want to keep the customer happy, you must then take some relevant actions.

If you sell a hundred products, that holds you to assisting with the use of each and every one of them, even though it may not technically be your responsibility. Some customers will never accept the need to go to a manufacturer for assistance. Updating orders, offering deals: it’s a complicated process. And then there’s the matter of getting your pricing right. Imagine regularly monitoring a hundred price tags, ensuring that they stay in line with market averages.

Using the subscription model takes away a lot of this work. When you offer a small selection of subscriptions, your work is similarly stripped back (customization options won’t be too problematic since most people will go without them). You’ll end up getting the same questions over and over again, making it easy to answer them, particularly with a knowledge base.

The pricing too gets much simpler. You can use a dynamic pricing tool if you’d like, with Prisync being the classic example, or make manual tweaks using subscription management software such as Chargebee. You can alter the fundamentals of your subscription tiers, see how it impacts your results, and proceed accordingly.

Larger commitments allow for discounts

Another great thing about subscriptions for products is that buying in bulk makes it possible to offer discounts that wouldn’t be viable otherwise — at least, not for individual resellers. Wholesalers have always been able to lower prices in that way, but chiefly within the world of B2B retail. And making your products cheaper will obviously help you to sell more subscriptions.

Bundling products together also gives you the freedom to maximize profit margins for crucial products by balancing them with narrow profit margins on others, and even offload items that wouldn’t ordinarily sell. Indeed, the point of many subscription boxes is to invite mystery, with subscribers not knowing exactly what they’ll get each month.

Subscriptions will never suit everyone

Despite those advantages, of course, it’s hard to describe the ecommerce subscription model as the future of online retail. Why? Because it doesn’t suit every situation. Just as there are products that don’t really fit the subscription model (think of expensive and rarely-purchased items, for instance), there are people who’ll never want to subscribe to receive products.

Merely being part of the future of online retail is nothing to be sniffed at, though. It’s quite clear by now that the subscription model is a rousing success that only stands to get bigger in the coming years, so it’ll be interesting to see which niches it infiltrates next.