E-commerce Subscription Models Boost Customer Loyalty

Subscription-based e-commerce sales models are no longer just a trend retailers. Today, any e-commerce business can choose to add a subscription service to its existing sales model.

Adding a subscription not only provides extra value to your customer but also builds an atmosphere of trust and loyalty around your brand. While implementing a subscription-based business model does take ample planning and consideration, let’s take a deep dive and examine whether the juice is worth the squeeze.

In this article, we explore what an e-commerce subscription model is, the different types of subscription box models, and how you can implement them in your strategy.

What is a subscription model?

How does a subscription model actually work? In the most basic terms, subscriptions are a revenue model where customers receive either a service or a selection of products at predetermined intervals. This is usually either bi-weekly or monthly, depending on the nature of the offering.

Subscription boxes are the most well-known version of this model, having experienced a surge in popularity over the past few years. Most subscription boxes market themselves on attractive presentation and customer experience as much as the uniqueness of the products themselves (which can often be bought independently). However, there are other types of subscriptions available that have a different focus.

Types of subscription models

There are three main types of subscriptions in the e-commerce marketplace, each of which carries its own pros and cons. As a merchant, it’s important to understand the differences so you can determine which is the best fit for your product offerings.

Curated subscriptions

Curated subscriptions are easily the most popular subscription model, totaling 55% of all subscriptions according to McKinsey. Curation revolves around companies putting together personalized product selections for their customers. These are usually informed by preferences gathered from quizzes or questionnaires required at the start of the subscription.

Curated subscriptions promise their customers a high level of value through brand/product discoveries and personalization at a relatively low upfront cost. They’re available across multiple product categories, including but not limited to beauty, fashion, fitness, and confectionery.

Well-known examples: Birchbox, Play! By Sephora, Frank and Oak

The pros:

Ability to leverage the gifting market (worth $76 billion in 2022).

Offering variety and exclusivity to customers.

The cons:

The need for ongoing customer insights to select appropriate products.

High turnover rates due to customers losing interest.

Replenishment subscriptions

The replenishment model sees customers sign up for recurring delivery of a specific product, such as contact lenses or razors. Rather than being about product discovery, replenishment subscriptions are designed to automate the delivery of essential items so that consumers don’t have to remember them.

Because these models allow businesses to buy the replenished item in bulk, consumers can usually access them at a much cheaper price through a subscription than they will get in a store.

Well-known examples: Angel’s Cup, Dollar Shave Club, Hubble

The pros:

High customer retention due to subscriptions being essential items.

Simple inventory management due to having a smaller range of products.

The cons: Difficulty in making your replenishment offering unique.

Low ability to pivot in the case of supply chain issues.

Access subscriptions

These subscriptions are exactly what they sound like. Consumers pay a fixed fee on a monthly or annual basis to access a particular service or a select group of perks not available to non-members. Services may be tiered, offering multiple price points according to what features they include such as ‘intro’ or ‘enterprise’ level options.

Because access subscriptions often sit alongside other offerings, they can provide a valuable revenue stream to your business

Well-known examples: Amazon Prime, LinkedIn Premium, JustFab

The pros:

Enhancing the perceived value of your existing service. Bundling existing offerings together for higher profit margins.

The cons:

It requires a compelling proposition to persuade consumers to sign up. Maintenance requirements can be high.

Why consider a subscription model?

One of the hard truths within e-commerce is that online sales can be fickle. Consumers move from site to site, searching out the best price or the best quality product. The ever-present lure of lower prices within an overcrowded online marketplace makes it easy to lose even regular customers to competitors.

Subscriptions allow online stores to create better revenue forecasts and build a loyal case of repeat customers. Moreover, they provide a strong value proposition through the ability to try new products, save money on familiar ones, and enjoy the convenience of having everything delivered on a predictable schedule. This helps to turn a fickle buyer into a loyal, long-term customer.

The benefits of a subscription model

More secure revenue

Instead of relying on a high volume of one-off sales, adding a subscription-based offering gives your business a recurring source of stable revenue, which makes it far easier to manage inventory and order processing. Best of all, you also get this money upfront at the start of each new subscription cycle, which helps to ease the cash flow issues which can very prevalent in e-commerce.

Cross-sell and upsell with ease

Another benefit to both merchants and customers is that subscriptions allow for increased cross-selling and upselling activities. By bundling new products with bestsellers and old favorites, this creates an entirely new offering that incentivizes customers to purchase something they might otherwise not consider. You get to enjoy a larger sale, while your customer gets what they want – and then some.

Create brand loyalty

Brand loyalty is all about the customer experience. And when a customer has a great experience, they’re going to stick around. According to Forbes, two-thirds of companies are now competing on customer experience – up from just 36% in ten years ago.

Subscriptions, when executed well, tie the customer to your brand by providing an ongoing source of value.

In 2023, convenience and frictionless experiences are basic consumer expectations in e-commerce. Subscriptions help to create a stress-free experience by having products show up at the customers’ doorstep – right when they’re needed. By giving buyers a unique, branded delivery experience, this pushes them to keep coming back for more.

What to consider when planning a subscription-based offering

While offering a subscription seems like a winning idea, there are several things to consider before implementing this additional sales model.

What to offer

After choosing your subscription model, decide how many different options to offer and what products to include. This can be done in a tiered fashion. Whether organized by price or the quality of goods, giving customers the flexibility to choose from several options helps to widen your appeal.

Studying your existing sales trends is of real importance here. Consider your current customer base, and how your catalog gives you a pathway into potential subscription options. Surveying those already loyal to your brand on social media or through email campaigns is another great way to get some insight into what they really want from your brand.

It’s also important when selecting products to be cautious of inventory shortages or sudden spikes in demand that can’t easily be accounted for. When going this route, keeping selections to a pre-vetted list of items is the best way to go. This way, it will be easier to keep up with demand as your subscription scales.

Frequency

Depending on your products, subscriptions can be set to ship out according to any timetable you choose. Retailers can offer subscription deliveries bi-weekly, monthly, or quarterly. It’s really a matter of deciding what makes the most sense for your brand and your fulfillment operation. You can also opt to allow the customer to choose the delivery frequency (and price these options accordingly) though this can create a more complex fulfillment schedule.

Your timetable can be affected by several factors, such as supplier availability, shipping costs, and labor levels. Considering current sales trends, again, is a large part of the decision-making process. It is essential to ensure that you have ample inventory levels at all times – especially for high-turnover products.

How to offer it

Selling and billing your subscriptions entails a different process than one-off sales, So, if you’re adding a subscription offering to your online store, you need to make sure that the e-commerce platform you’re using is able to support periodic billing, or whether you need to look at switching to a different provider.

For example, Shopify allows merchants to use their open API to build a custom integration that supports subscription sales and management. You will need to factor in the cost of development for this process.

Presentation

Amazing product presentation is a core part of any subscription box offering, and consumers have come to expect it as a part of the customer experience.

Personalizing the package like you would a gift makes customers feel special and valued by your brand. This is the essence of any memorable unboxing experience – presenting your products in such a way emphasizes positive feelings around your brand. This part of the process should always be planned with care and consideration.

For example, are you going to use custom-branded packaging, or this is beyond your budget at this point in time? If custom-branded boxes are too expensive, accessories such as custom stickers or packing tape could be a good solution to building brand awareness upon delivery.

Fulfillment strategies

Last, but definitely not least, is deciding how you’re going to manage the e-commerce fulfillment process. Should you decide to pack and ship in-house, ensure that your logistics team has the capacity to handle the job. Subscription box fulfillment is a very socialized process that requires tailored strategies like box subassembly and separate shipping schedules. This can be time-consuming and complex to organize independently.

Alternatively, partnering with a fulfillment provider can be more cost-effective and takes the burden of packaging and shipping off your shoulders. A 3PL, such as Ryder, can also help you to coordinate test orders and connect you with packaging suppliers to ensure that your boxes have the look that you want.

Don’t wait for more customers and increased sales to come to you. Take the time to explore whether a subscription offering that spoils your current customers and draws in new ones is something that makes sense for your brand. As consumers increasingly gravitate towards more boutique, personalized e-commerce offerings, a subscription is a great way to keep your brand fresh and dynamic and appeal to shifting purchasing habits.