Subscription Models Are Transforming the Retail Industry

Subscriptions and recurring payments are nowadays part of everyone's life. Early it was mostly limited to newspaper, magazines, and milk subscriptions, but in the last few years subscription economy has grown considerably and is still growing. Currently, a wide variety of products are available in the subscription model which includes, digital streaming services, meal kits, groceries, cars, shaving products, beauty products, clothes, etc.

Shift in lifestyle - Experience Over Ownership

More and more people are valuing experiences over owning things, especially among the new generation customers which is quite opposite to earlier generation peoples who considered owning things as a status symbol. The new generation wants to experience everything and these subscription models completely gel with their lifestyle.

Think about streaming services like Netflix and Spotify, they have completely changed the way we consume entertainment. Earlier one needed to purchase cassettes, DVDs, and BR disks of movies and songs to watch them, but its not the case anymore, one just needs to have a monthly subscription to the digital service providers and you can watch n number of shows, songs, and movies. The same goes with other sectors too, like Uber, Lyft, Dollar Shave Club, Birchbox, Barkbox, etc.

Shift Towards Subscription model

This shift from traditional pay-per-product models to subscription models is seen across the globe. The companies that once adopted the subscription model are not coming back to the traditional one-time sale model, which shows that this is definitely a successful strategy. If businesses implement the subscription model in the right way, they will definitely see success. After watching the success of the businesses that adopted the subscription model, the businesses that stayed away from it early are also adopting the subscription model.

Market Adoption Patterns

Different markets and demographics are adopting subscription models at different rates. As per a survey report by McKinsey, around 46 percent of the populations whom they surveyed, subscribe to digital media streaming services like Netflix. Similarly, the percentage of people who have subscribed to any eCommerce service in the past year is about 15 percent, the younger generation between the ages 25 to 44 are more likely to have subscriptions, and 60 percent of the subscribers are women in the US, as per McKinsey. This pattern is mostly similar in other economies too, millennial's and Gen Z embrace subscription services quickly, as they are mostly tech-savvy people and love digital solutions and personalised experiences. And they are the ones who value experience, convenience, customisation, and staying on trend without the clutter and baggage of ownership.

Major Players

There are many players across various industries having considerable success and market share in the subscription economy and are examples for other traditional model businesses to follow.

• Amazon Subscribe & Save - Offers savings on regular deliveries of household essentials.

• Birchbox - Delivers personalised beauty product samples each month.

• Dollar Shave Club - Provides affordable razors with humorous marketing.

• Blue Apron - Delivers meal kits with pre-portioned ingredients and recipes.

• Stitch Fix - Sends curated fashion items based on customer preferences and feedback.

• Ipsy – Deliver personalised beauty products every month at doorsteps.

• Barkbox – Delivers toys, treats, and goodies at your doorstep every month, making your doggy happy

These companies have disrupted their industries and inspired many other subscription-based businesses.

Benefits of Subscription Models

Personalised Experiences

Long-term interaction with customers and data analytics allows businesses to figure out their subscribers likes and dislikes and accordingly provide tailored offerings to customers, thus enhancing the overall customer experience.

Lower Customer Acquisition Costs

Over time, subscription models can considerably reduce customer acquisition costs, as they are not relying on new customers every time like traditional models. In the short term, expenses might look the same but over a period of time subscribers provide much higher value. Moreover, the subscription model creates a loyal customer base and they act as brand ambassadors as they spread positive word of mouth, which will attract new customers.

Predictable Revenue Streams

A predictable and steady recurring revenue stream is one of the major usp of the subscription model businesses. This provides them with higher financial stability and enables businesses to make more informed decisions regarding future expenses and investments, leading to faster growth and success.

Data Analytics and Customer Insights

Long-term interactions with customers generate a lot of valuable data related to customers preferences and behaviours. With data analytics, businesses can get valuable insights that can help in fine-tuning their offerings as well as developing marketing strategies.

Loyal Customer Base

The recurring nature of subscription services helps in building a loyal customer base, they tend to stay with the customers for a long term period. This loyalty translates into higher retention rates and increased customer lifetime value. Moreover, loyal customers spread positive word of mouth, which helps in brand promotions and attracting new customers.