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There are some products that we buy regularly, and we usually consider it a chore we want to get out of the way. Nobody looks forward to repeating the same shopping trip to buy the same product. What a boring thing!
This is the logic behind the subscription business model. We make an advanced payment to regularly receive or participate in something.
So, what is the subscription business model? And why you should start your subscription e-commerce business in 2021? That’s what we’re going to discuss in this blog.
Let’s delve right in…
What Is a Subscription Business Model?
Subscription is defined as an advance payment made to regularly receive or participate in something. A subscription business model is based on the idea of selling products or services to receive monthly or yearly recurring subscription fees.
We are surrounded by countless subscription-based business models in our everyday life. Netflix, Spotify, and Amazon Prime are very common examples of subscription business models.
So, what makes subscription business models so powerful? Let’s unpack its benefits in the next points…
5 Reasons Why You Should Start a Subscription Business in 2021
Gartner, the leading analyst firm, has predicted that, by 2023, three-quarters of organizations selling direct to consumers will offer subscription services. Gartner also found that 70% of organizations have deployed or are considering the deployment of subscription services in the future.
Another survey conducted by McKinsey revealed that 46% of US shoppers already pay for an online streaming service and 15% have subscribed to an eCommerce service within one year of the survey.
The core benefit of subscription business models is providing tangible advantages for both buyers and sellers. For customers, the value of subscription lies in “Convenience.” And for businesses, the value lies in the ability to guarantee revenue through recurring sales.
Here are more obvious benefits of subscription business models from the consumer’s and business’s point of view:
1. Offering Convenience to Customers
Imagine every time you buy your daily milk bottle you go to the market or make a phone call!!! This is definitely a boring thing as it may be a task that must be performed every day, which increases stress in your already busy life.
A subscription makes the total customer experience super convenient. When a customer subscribes to a product it means that they don’t have to go through a new purchasing transaction every time they need the product or the service.
Moreover, subscribing to a product/service is a way for the consumer to reduce the complexity of choice and worrying about the price. For example, when you subscribe to a mobile phone company you don’t need to worry about checking rates each time you make a call.
2. Saving Customers’ Money and Increasing Your Cash-on-Hand
When you offer subscription promotions to your customers, the main thing that most of them will think of is saving money.
Businesses enable their customers/subscribers to pre-book a product or service or access a platform. Subscribers get this product/service on a regular basis and pay much less than what they would have paid if the product/service had been purchased piecemeal or sporadically.
For businesses, the subscription model is great for cash flow especially for startups as many subscription businesses ask for full payment upfront, of course, at a discounted price.
3. Improving Customer Relationships
Perfect relationships are based on good communication. The beauty of a subscription business model is that it offers business owners so many opportunities to effectively communicate with customers.
They can track how a subscriber interacts with their products and/or services over time by getting feedback after the product is delivered. They can track, for example, when new subscribers join and when subscribers cancel.
This gives a business owner more tools to pinpoint successes and failures in order to tweak and alter their business to ensure customer satisfaction and limit unsubscription.
4. Increasing Purchasing Frequency and Customer Lifetime
One of the most important benefits of the subscription business model is that it makes subscribers spend more money with your business than non-subscribers. As we previously mentioned that customers don’t have to make a fresh decision each time; they need the product and this results in more frequent purchases from you than your competitors.
Another key benefit is the increased subscriber lifetime. When a customer subscribes to a product/service, they have a guarantee to be involved in your business for a while, making it much less likely that they will cease consuming or switch to one of your competitors.
5. Improving Predictability
Operating a subscription business is very helpful in forecasting sales, predicting demand for your product, and planning inventory which makes planning easier and cheaper.
Based on subscribers’ numbers, you’ll be able to predict your sales up to a year ahead and often you’ll precisely know how much you have sold before you start production.
The Main Types of Subscription Businesses
There are many types of subscription business models as follows:
1. The Membership-Based Model
A membership website is a gated part of your website that members pay a monthly or annual subscription fee for in order to gain immediate access to exclusive and premium content.
Some of these websites look like online communities of people who share a common goal while others offer members online courses, training material, or access to premium products.
Magic Stream is a good example of how to create a membership website to enable subscribers to get immediate access to a wide range of topics.
There are many sub-models of membership that include:
- Online Courses: It’s the most common membership site model based on the idea of paying a monthly subscription fee or a fixed price to get access to a variety of online courses.
- The Content Drip Model: It’s based on releasing content at regular intervals to make it easy for members to view or download premium content.
- The Time-Frame Model: It offers membership programs for a specific, pre-defined period to achieve a specific goal at the end of the time period. The most popular example here is the 30-day writing challenge.
- Paid Online Community: It’s similar to paid social media platforms and forums where members have access to your private members’ area as long as they pay the membership fee.
- The Product-Based Model: It’s the best model for selling digital products and downloadable goods.
2. The Subscription Box Model
The subscription boxes model is based on delivering a box of your products directly to your customer’s front door. It’s popular among online retailers as it offers great earning potential and many creativity and customization options, depending on customers’ needs.
Kali, the US online retail for organic feminine hygiene products, is a great example. Kali subscription service offers a personalized, flexible, and convenient experience in providing exactly what each woman needs during her monthly period.
Because everyone’s period is different, Kali offers women the ability to design their own boxes of feminine hygiene products based on their needs and choose the time they need to receive their supplies.
3. The “Subscribers Only” Model
Surly, giving people access for free to your content or your software is an excellent way to attract people to your service or advice but you need to find a way to generate income.
The idea of the “Subscribers Only” model is basically based on offering the majority of your content for free in the way you’ve always done it but keeping your best work behind a paywall for your loyal paying subscribed members.
Amazing eCommerce Subscription Business Examples to Inspire You
If you’re ready to start building your new subscription business, or, if you already have a subscription business and want to improve it, perhaps you still need some inspiration from someone who has already done it?
Well! let’s take a glance…
Amazon Prime is the largest eCommerce subscription business model offered by Amazon. Just like on Netflix, Amazon Prime is a streaming platform where a user can access videos, music, and free games.
It also offers a two-day fast delivery service for products purchased through Amazon and exclusive access to deals and discounts earlier than anyone else.
Blacksocks is an online retailer that offers a subscription service by delivering regular supplies of the same socks, T-shirts, underwear, or shirts to men (usually businessmen) several times a year. Just like a magazine subscription, every few months the subscriber will receive fresh socks and/or underwear in the mail.
Blacksocks subscription offers people exactly what they need as it can be customized to receive regular shipments three times a year, four times a year, once a year, or whatever interval makes it most convenient for you.
graze is a UK-based healthier snack by post, where you can select the healthy foods that are actually tailored to your taste and handpick your very own snack box, delivered to any UK address.
This is a fantastic example of subscription e-commerce businesses. Beauty Pie offers each membership a corresponding monthly spending limit based on typical prices. So you can shop up to your limit, but you pay only members’ price and you can get so much more luxury beauty for less money.
Last but not least…
With more and more businesses entering the subscription world, there is a big question — who is going to win and will be more successful? Definitely, having a subscription business model in the future is no guarantee of success in itself.
So, the winners in the subscription business will be those companies that understand the dynamics of the subscription model and are able to understand how to build powerful value propositions into their subscription offerings and know how to foster customer loyalty.
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