Insights
Nov 20, 20186 min read

The Rise of Subscription E-commerce.

by Klarna.com

There’s a new way to buy, and it’s by the bunch. This e-commerce shift that has been called “the best secular trend” on CNBC and has steadily grown at a rate of more than 100 percent annually for the past five years. We’re talking about subscription model e-commerce — what it is, how it can apply to your business, and why consumers can’t get enough.

Convenience in a Box

The simple strategy is this: consumers pay a monthly or annual subscription charge and receive a steady flow of goods or services in return.

Some companies are buy-one-get-all, binge-inducing types (i.e. Hulu, Netflix, Spotify) in which one fee gives users endless access to streaming services. Then there are subscription boxes, which work on a consistent shipment basis — one monthly payment equals one monthly box of goodies — like Dollar Shave Club for razors or Trunk Club for personalized wardrobe picks. Frequency or quantity aside, the business model remains consistent — consumers pay a recurring fee, and brands provide a service or product on a recurring basis.

From the work-obsessed bicoastal to the uber busy mother of three, this new trend is often the epitome of consumer convenience. Not having to worry about restocking cabinets or running out of essentials like shaving cream — not to mention food (hi Blue Apron) — is super handy, and having everyday products built into budgets works well for the penny pinching (or just well-organized) guy or gal.

On the brand side, the positives are blatant: with rising acquisition costs associated with Facebook and Instagram ads, acquiring new customers is getting more and more expensive, so having a steady consumer base is key. Subscriptions have also been proven to increase customer loyalty and spend.

Customers are happy when they don’t have to think about the goods they need on a regular basis, and you, the soon-to-be-marketing-mogel, can rest easy because you’re cashing in on steady revenue with consistent customers. Too good to be true? Well… it can be.

Why Delivery Cadence Matters

While studies and consumers alike show that people love adorable, Instagrammable boxes delivered to their door, they are also super picky, and churn rate for these kinds of subscription based operations can get high. Consumers are just as quick to cancel services that don’t meet their expectations as they are to sign up and try in the first place. Even companies backed by top venture capitalists, like Birchbox, a subscription based beauty service that raised almost 90M in funding, have faltered as a result of unexpectedly high churn rates.

To combat this narrative, it’s become increasingly common to see brands shift from monthly to yearly subscriptions like Grove Collaborative and Public Goods, both of which started out as monthly subscription-only and quickly adapted to a yearly subscription or membership model — meaning consumers have access to the products they need but only receive shipments when they feel like it.

“With membership you can deliver value on a wider range of products without forcing people into unnatural consumption…which ultimately results in customer churn,” said Public Goods CEO and founder Morgan Hirsh, of his decision to move from a monthly to an annual subscription model.

E-commerce giants are not immune to this new wave of retail — even Amazon introduced a Subscribe and Save initiative to compete with emerging brands, and the numbers continue to climb. Research shows that fifteen percent of online shoppers have signed up for at least one e-commerce subscription service in the past year.

Subscription models are not just for the necessities, like shaving cream and toilet paper. Big ticket retailers are catching onto the trend, and seeing it as a way to keep consumers outfitted in the latest and greatest models of their product.

Take TaylorMade, a company that makes the #1 driver in golf. Golf equipment can get pricey, but TaylorMade’s unique upgrade model lets customers get their hands on the latest clubs by breaking down the cost into monthly payments. As the end of the program nears, customers have the option to upgrade, stopping payments on their old club, and starting payments on a new one. Bringing the latest gear within customers’ reach led to a major boost in conversions and AOV for TaylorMade. Interested to learn how they did it? Check out the case study.

Giving Shoppers Control

Subscription e-commerce is one more way to put buying power into the hands of today’s consumers. With cart abandonment a constant dilemma and steep competition in the online space, e-commerce companies need innovative ways to stand out and keep their customers happy and coming back. It’s not just about your product anymore. Giving consumers more ways to pay and shop puts their needs first and helps you provide a customer experience they crave.

With subscription models to match nearly any lifestyle or budget, this is truly the time of putting consumers in charge. To quote the beautiful and fabulous Bette Midler “I want it now, and I would like it delivered.” Here’s to not settling.