Subscriber sales will soon be referred to by retail market observers as the “year of subscription sales” due to their growing popularity.
Subscription sales are a proven marketing strategy. Derrick Herbst is the director of business strategy at ecommerce B2B platform. Conga.
Customers and companies continue to shift from a one-time purchase of products or services to subscription purchases across many different industries. He told E-Commerce Times that subscription-based business models benefit both the customer and the company.
As the reach of subscriptions to goods and service has expanded, many variations of marketing models have been developed. Herbst, however, sees that there are two main models which often meet the needs of both buyers and sellers. E-commerce retailers who are savvy should opt for a subscription model while still maintaining their one-time-only and recurring sales strategy.
Subscription models are based on customers paying multiple payments over time for access to goods and services, instead of a single large payment. Subscriptions are becoming more popular than ownership in the economy, especially for entertainment, shopping, software and cars. This increases the customer’s lifetime value.
Herbst claims that moving to a monthly subscription model achieves the goal of reducing one-time expenditures. The second goal, which is to deliver predictable future costs, can be achieved by limiting price increases throughout the subscription period.
He said that businesses can profit by offering a model of subscription to attract more customers and capture them more profitably in this new inflationary age with expensive money.
Dynamics of Access and Acquisition
Access and acquisition models are often able to meet the needs of most industries. In access purchases, the consumer “orders” content, goods or services until they cancel or for a specified time.
Herbst provided examples such as using a car service or PC as a service (PCaaS). Consider Netflix or MS Office 365. You can also purchase a maintenance contract for an HVAC system, or a security monitoring platform.
Consumer subscriptions usually relate to consumables like food, beauty supplies and vitamins as well as medical device supplies. This could include supplies for devices like an X ray machine or cartridges for office printers.
Herbst pointed out that, “While there are subscriptions that combine access and acquisition, they can also be a pure subscription.”
He gave the example of a consumer subscription that includes a free razor, as well as access to the device with the purchase or razor blades.
A similar combination in the business world would be to give a printer to a customer at a monthly fixed price or for free, and then require them to buy toner and paper for a set period. He added that the seller could represent this arrangement as a price per copy.
Pricing for these combinations can be complex as they are based on a minimum amount of an acquisition item at a specific price.
Flexible Models Fit E-Commerce Customers
Subscription labels are not the only ones that use this fundamental selling principle. These labels allow for the sale of products and services by establishing a regular, recurring schedule. This approach is a more effective marketing strategy for retailers and service providers than a single-time sale.
Take the curation-based model, for example. It provides subscribers with a unique selection of items based on the needs and preferences. This method allows shoppers to discover and purchase new products. It also gives retailers an opportunity to build customer loyalty.
This model allows consumers to automate the purchase of goods on a regular schedule. Consider this as a subscription option that allows you to save. As consumers become more comfortable with online shopping for food, drinks, health, wellness and grooming, subscription shopping has gained in popularity.
Having consumables delivered directly to the consumer’s door is convenient and economical. The consumer can adjust their order to save time and money by monitoring consumption patterns. Vendors get a competitive edge for their brand.
“As we are experiencing the end of cheap money, we should expect that customers — businesses as well as consumers — will strive to reduce upfront costs and cash outlays and have predictable costs going forward as inflation pushes prices up,” observed Herbst about a central driving factor for subscription sales.
Transition Time for Business Sales
Herbst pointed out that subscription sales are a common business model for the entertainment and software industry. He expects to see other industries move away from the one-time-purchase model and towards subscription-based business. There are many service providers who offer subscriptions, including ride-sharing services, mobile phone services (including fitness programs), travel services and health care providers.
Manufacturers of consumer electronics, large appliances, and industrial equipment offer maintenance subscriptions. They also provide enhanced offerings, such as communication features and integration of the Internet of Things. These subscriptions allow customers to receive notifications about equipment status, as well as to monitor and control devices remotely.
“Even a local carwash company sells a carwash subscription since several years. So many industries, beyond entertainment and computer software, are moving to’subscription model.
Subscription model Business Benefits
Herbst says that subscriptions offer three main benefits. The first is consistent. recurring revenue For content and service provider. Businesses can generate a sustainable income stream through ongoing relationships with customers, rather than making a large upfront sale in the hope that the customer will return to purchase more.
Second, increased sales volume or average selling price/unit. Most subscriptions are for a minimum period, which means that the revenue is fairly predictable over this time.
Then, using the renewal rate, companies can forecast future revenues. He continued, “Many customers pay more for each unit of product and buy a higher quantity or grade because they are making smaller payments rather than a single large purchase.”
Subscribers will also benefit from increased customer satisfaction. This leads to higher customer retention and more renewals. Subscribers are often in constant contact with their customers, and can see how they utilize the product or service.
Herbst stated that “customer loyalty can be increased by tailoring products and service to the needs or wants of customers.”
He also added that the continuous monitoring of customer behaviour provides insights into upsells and crosses-sells for when customers renew, or earlier via tailored special offers, promotions, and discounts.
Switching to Subscription Sales
It is a fact that customers may leave at any moment. Businesses need to win their customers over daily in order to use a subscription model that will maintain a constant revenue stream. Retailers must therefore change the way their customers conduct business and think about money to keep them happy.
Herbst warned that if you don’t take care of your subscription-based customers consistently, you may lose them.
He said that to ensure regular delivery and billing, businesses should have the appropriate technology and align their processes, personnel, and billing solutions.
Businesses must be able to manage the transition from a single-purchase model to one that is based on recurring revenue, using all of their processes, technology, and people.
Customers must see the value of your subscription model to effectively use it. So, he said that sellers must first make sure they provide some or all of the benefits customers value.
Retailers need to know the strengths and weaknesses of their brands. A company that makes excellent capital goods but does not have good software or field services capabilities may be unable to offer a “solution” subscription.
Herbst stated that “it is essential to address these weaknesses in order to continue winning business each day.”
Avoid Potential Pitfalls
Herbst’s last caution is to ensure that your company’s processes, billing, delivery and people can support subscriptions. When moving from a non-subscription model to a subscription model, you should expect to have to accommodate both for a period of time.
Customers must see the value of your subscription as being greater than that of competitors. It could be that the competing offering is a new business model which offers more value than your subscription, or it could be that a direct subscription-based rival offers different benefits or prices for a similar offer.
Avoid this by assessing whether you can sustain your model and offering with the market segments that are available.
