Ecommerce & the subscription economy

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5 minute read

It’s time to start thinking inside the box as more companies are embracing the subscription model. The largest subscription-based players generate more than $2.6B in sales, and startups in niche categories like contact lenses and luxury shoes are growing nine times faster than their traditional competitors.

In 2018, Amazon Subscribe & Save, Dollar Shave Club, Ipsy, Blue Apron and Birchbox were the five most popular subscription ecommerce sites. 

Some industries have completely converted to a subscription model; Gartner predicts that by 2020, up to 80% of software will be sold as a service.

But before making the move to this great opportunity, there are a few threats to keep in mind: 

  • Big retail competitors. Subscription companies face threats from online direct-to-consumer retailers. As John Fetto of Hitwise told Forbes, “[When a retailer sees] a model that’s doing well, they have the inventory to do it themselves.” Right before Blue Apron went public, Amazon acquired Whole Foods and filed for a meal delivery service trademark. Sephora’s Play service could seriously hurt Birchbox and other sampling companies.
  • High customer churn. Customers don’t mind trying a subscription that’s “unique” or recommended by a friend, but they’re also quick to cancel if the experience falls short of expectations.
  • Subscriber fatigue. With the surge of subscription businesses that offer everything from makeup to movies to dirt from the world’s most famous mines, there’s the risk of market saturation. “Like anything, we will eventually hit a wall where people will realize they have way too many subscription services and memberships as the model penetrates every facet of our lives. The gap in fees and usage of so many different services will drive breakage as people manage their personal finances,” writes Tim Ray of YFS Magazine. Savvy subscription providers are heading off the downturn by creating multiple revenue streams (Birchbox recently opened a brick-and-mortar store), but ultimately it will boil down to delivering an exceptional value proposition and customer experience.

According to Zuora CEO Tien Tzuo, subscription-economy companies “live and die” by their ability to serve their customers. They aren’t selling products or services, but experiences. They aren’t securing one-time transactions – they are building and monetizing long-term relationships.

“Ask yourself why companies like Google and Amazon are the fastest growing,” says Tzuo. “It’s because they don’t see themselves as a bookseller or computer manufacturer or a search engine. They see themselves as a platform with billions of customers able to use that platform to address all the aspects of their needs.”

To succeed in this new subscription-based economy, a change in the way customers are approached needs to happen.  

Three key areas to master for exceptional customer experience

  • Customer-centered culture. Everyone in the brand experience – from the web developer to the call center rep – should feel accountable for building a positive customer experience. Customer data should be shared across all contact points, so subscribers feel recognized as a loyal customer and receive consistent service.
  • Customer records should contain purchase and refund history, local pricing, promotions, and browsing behavior.
  • Customer journeys should be proactively mapped to identify pain points and customer intent. Promotions need to be personalized and relevant. Harness commerce solutions to replace generic promotions with individualized products or to upsell services when customers are interested in buying.

If adding subscriptions are in the near future plans, how the technology stack supports all this will be a key enabler to a seamless consumer journey.  “When you offer subscriptions, immediately a slate of user stories need to be added to your commerce experience to form the foundation of subscription transactions and management,” says Rohit Garewal, President at Object Edge Inc.

For their own business purposes, Garewal and his team ended up mapping out 21 additional journeys. Here are their five bigger ones, broken down into subscription transactions and subscription managagement:

  • Subscription transactions
    • Recurring transactions: This a subtle yet extremely important topic. Most retailers don’t store credit cards because of PCI and hacking concerns; but when offering subscriptions, either store a reusable authorization token (not preferred in case someone wants to increase the purchase amount) or store the credit card locally or with the payment processor.  There will be additional changes under the hood if selecting the latter because of the need to build a continuous authorization workflow into the purchase pipeline.
    • Expiring credit cards: Credit cards expire, with 64% of all subscriptions cancelling because of an expiring credit card.  Therefore there needs to be a digital, physical, or both method of proactively reaching customers to obtain a new card on file.
  • Subscription Management
    • Pause/Cancel subscriptions: Customers will demand to be able to manage their subscriptions in a self-service fashion.  Make them call in, or worse yet come into a store, and they’ll be lost quickly.  Pausing and cancelling future orders is not something most ecommerce engines handle elegantly, so the technology infrastructure will need to be equipped to do this well.
    • Modifying a subscription: Often times people will want to change a subscription to add or remove SKUs.  This means the subscription becomes a changeable asset.  Again, most platforms do not handle this elegantly.
    • Change payment methods: Whether it’s because a credit card is about to expire or because the customer wants to receive points on a different card, customers often will change their payment method.  If they can’t do it online, they are more likely to cancel than call-in.

The subscription model isn’t new, but companies now have powerful tools that can help them respond to customer needs in a much more dynamic and accurate way. It comes down to the right data, the right tools and the right ecommerce platform. 

Headless commerce platforms separate the frontend and backend, so businesses can create brand-defining customer experiences while maintaining stable backend business systems. Even if those backend systems need replacing, companies can leverage headless commerce to innovate and stay ahead of the competition.

Kristin Schepici
Kristin Schepicihttp://www.getelastic.com
As the Editor of Get Elastic, Kristin is dedicated to bringing Get Elastic readers top of mind topics and cutting-edge trends in technology and all things commerce. If you're interested in submitting to Get Elastic, please email editor@elasticpath.com.
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