[{"@context":"http:\/\/schema.org","@type":"Article","@id":"https:\/\/www.the-future-of-commerce.com\/2020\/08\/10\/subscription-commerce-model-dtc\/#Article","articleBody":"After half a decade of more than 17% year over year growth, it\u2019s clear that the direct-to-consumer (DTC) subscription commerce model is here to stay.\nIn fact, it\u2019s projected that by 2023, up to 75% of DTC brands will offer subscriptions to their customers.\nSo, merchants who\u2019ve been hesitant to embrace product or service subscriptions may want to give the idea a fresh look.\nRather than being a passing a fad, DTC subscriptions have proven to be a viable strategy for launching a new business or expanding an existing offering.\nHundreds of companies, like Birchbox, BarkBox, and Boxycharm, thrive using a purely subscription-based e-commerce model. And others, like Dollar Shave Club, TrunkClub and Plated, have been acquired by retail giants like Unilever, Nordstrom and Albertsons.\nIt\u2019s easy to forget that Amazon was struggling against larger online marketplaces like eBay and major retail chains before the 2005 debut of its Prime subscription program, which \u201cpermanently raised the bar for convenience in online shopping.\u201d It was Prime that helped propel Amazon to the front of the online retail pack by building customer loyalty, generating more revenue, and creating cross-sell and upsell opportunities.\nAnd as consumers sought household basics and pantry staples at the start of the COVID-19 pandemic, 20% turned to subscription services to deliver the goods. In an economy where many retailers are struggling to maintain revenue, subscriptions can offer a lifeline.\nSubscription commerce model: 3 types to drive growth, explained\nSo, how can your business get in on the subscriptions game? Let\u2019s take a look at three popular subscription commerce models, their potential benefits, and what it takes to succeed. There are three types of subscription commerce models:\nReplenishment model\nPersonalized model\nSpecial access model\nThe replenishment model\nReplenishment subscriptions offer regular deliveries of must-haves like pet food, baby care items and personal grooming supplies\u2014the kinds of things shoppers want to put on autopilot. Billie and Dollar Shave Club are two examples of personal care replenishment subscriptions.\n[h3The appeal of these plans is convenience\u2014and the peace of mind that the items won\u2019t get sold out in a run of panic buying.[\/h3]\nEven without discount offers, these retailers win customers by focusing on ease of use.\nFor example, coffee subscription company Grounds & Hounds reported a 35% increase in monthly subscriptions as stay-at-home orders took effect, simply by emphasizing the service\u2019s \u201csavings, convenience and flexibility.\u201d\nThe replenishment model makes it easy to maintain and grow a revenue stream based on regular repeat orders. And like the other models, it enables retailers to cross-sell or upsell to generate incremental revenue.\nThe personalized model\nWe know that personalization is becoming increasingly critical for shoppers (especially Millennials). This model begins by asking the customer about their needs, preferences, and other information to create a tailored, individual offering.\nThe retailer then offers personalized collections of products, or even custom-made products, on a recurring (monthly, bimonthly, quarterly) or on-demand basis.\nPerhaps the best-known example of the personalized subscription commerce model is Stitch Fix, which went public in 2017 and is currently valued at $2.5 billion.\nCustomers answer questions about their style preferences, and the company curates personalized collections of clothing and accessories based on their answers.\nShipments are sent on a schedule the customer chooses, and customers can offer feedback to refine their collections. This kind of highly customized offering creates a strong connection between the customer and the company.\nThe special access model\nThe special access model delivers exclusive benefits to subscribers, like faster shipping and free delivery, special discounts from partners, and access to products that aren\u2019t available elsewhere.\nThe best-known examples of this model are warehouse club Costco (which requires a membership to shop there and offers deals through a number of partners), and Amazon Prime, which offers free delivery and other perks for subscribers. Amazon Prime is so effective at getting customers to spend more\u2014$1,400 per year by members, versus $600 per year by nonmembers\u2014that Walmart is preparing to launch its own special access subscription service to compete.\n \nSubscription business models: Start small, plan big, reap rewards\n   70% of organizations are deploying subscription business models to sell directly to consumers, thereby creating recurring revenue and customer loyalty.  \n5 benefits of a subscription commerce model\nDeveloping a subscription offering does come with some unique challenges (supply chain management, customer experience and retention, managing customer acquisition costs). But there are also specific benefits that a well-run subscription program can deliver:\nRecurring revenue Recurrent revenue can help a business stay viable during challenging and unpredictable times. A predictable revenue stream from subscriptions allows companies to plan budgets, make projections, and manage costs and expenses more effectively. Automated billing integrated into the checkout process offers convenience to customers and helps companies avoid revenue leakage. This feature can be as simple as a monthly billing tick box, or as varied as Stitch Fix\u2019s billing menu, which includes monthly, seasonal and on-demand choices.To deliver a good customer experience with respect to billing, ensure that the store\u2019s name and the name of the subscription program appear on the customer\u2019s card statement alongside the charge. If customers don\u2019t recognize the source, they may dispute it, leading to costly chargebacks and lost customers.\nHigher customer lifetime value With a subscription commerce model, companies have the opportunity to create a long-lasting relationship with customers based on convenience, reliability, and the ability to meet their unique needs. The impact of convenience on customer lifetime value is clear from the fact that Amazon Prime members spend more than twice as much each year on the site as nonmembers. Convenience alone isn\u2019t enough to build loyalty, though. Retailers must also deliver other components of great customer experience\u2014like reliability and effective personalization\u2014to retain customers for the long term. As the Harvard Business Review notes, subscription models must \u201cmove from customer support to customer success, and keep the customer\u2019s long-term well-being in mind.\u201d\nCross-sell and upsell opportunities Retailers have the opportunity to collect, analyze, and act on data about their subscribers\u2019 preferences, like which products they choose most often and which items prompt additional purchases. With this intelligence, retailers can create personalized cross-sell and upsell campaigns, like product bundles, concierge-level services and related products or services.The key to success here is to tailor offers to the individual subscriber so they have a fully personalized experience.\nReduced capital expenditure and cost of entry Most companies focus on keeping their first-year costs low, and subscription models support this. Because it\u2019s possible to start a subscription service with a small range of products or services (think of Dollar Shave Club\u2019s initial focus on basic razors), companies that want to test demand can do so without committing to a big investment upfront.Likewise, new customers may hesitate to make a big initial purchase with a new retailer, but a subscription can achieve the same result over time. For example, a clothing subscription customer might balk at the idea of buying an entire work wardrobe at once because of the upfront expense and the commitment involved. Over the course of a year\u2019s subscription, with the retailer sending a few items a month, that same customer might fully replenish their wardrobe.\nIncreased customer acquisition ROI With a one-time purchase model, the retailer\u2019s ROI is fixed. A subscription model offers the chance for an exponentially higher ROI. The longer a customer subscribes, the higher the customer\u2019s lifetime value and the better the return on their\u00a0 acquisition cost.These benefits could help many retailers stay afloat during turbulent times and beyond. And as the majority of direct-to-consumer retailers move into the subscription space, merchants who don\u2019t give customers this option may be at a disadvantage. Adopting a subscription model now can also help them stay competitive.\nOf course, getting the customer to keep the subscription depends on delivering the kind of experience they expect\u2014one that\u2019s reliable, convenient, and personalized.\nShifting retail landscapes. Varying buying behavior. What makes people click \u201cbuy\u201d? We\u2019ve got the answers HERE.","author":{"@type":"Person","@id":"https:\/\/www.the-future-of-commerce.com\/2020\/08\/10\/subscription-commerce-model-dtc\/#Article_Person","image":{"@type":"ImageObject","@id":"https:\/\/www.the-future-of-commerce.com\/2020\/08\/10\/subscription-commerce-model-dtc\/#Article_Person_ImageObject","url":"https:\/\/23x6xj3o92m9361dbu2ij362-wpengine.netdna-ssl.com\/wp-content\/uploads\/2020\/07\/Karthik-Suryanarayanan-e1595876511638-150x150.jpg"},"name":"Karthik Suryanarayanan","sameAs":"https:\/\/www.linkedin.com\/in\/karthiksurya\/","url":"https:\/\/www.the-future-of-commerce.com\/contributor\/karthik-suryanarayanan\/"},"dateModified":"2021-12-05T23:13:54+00:00","datePublished":"2020-08-10T16:55:14+00:00","description":"DTC retail is booming thanks to the subscription commerce model. Learn the benefits of these models and which model is best for your business.","headline":"How the subscription commerce model is driving a DTC retail boom","image":{"@type":"ImageObject","@id":"https:\/\/www.the-future-of-commerce.com\/2020\/08\/10\/subscription-commerce-model-dtc\/#Article_ImageObject","height":"630","url":"https:\/\/www.the-future-of-commerce.com\/wp-content\/uploads\/2020\/08\/commerce-subscription-model-1200x630.jpg","width":"1200"},"mainEntityOfPage":"https:\/\/www.the-future-of-commerce.com\/2020\/08\/10\/subscription-commerce-model-dtc\/","name":"How the subscription commerce model is driving a DTC retail boom","publisher":{"@type":"Organization","@id":"https:\/\/www.the-future-of-commerce.com\/","additionalType":"https:\/\/www.wikidata.org\/wiki\/Q1193236","description":"Relevant, timely information & analysis on commerce trends, both consumer-facing and B2B.","logo":{"@type":"ImageObject","@id":"https:\/\/23x6xj3o92m9361dbu2ij362-wpengine.netdna-ssl.com\/wp-content\/themes\/hybris_foc\/assets\/images\/layout\/logo-new-2x.png?_=1","height":"96","url":"https:\/\/23x6xj3o92m9361dbu2ij362-wpengine.netdna-ssl.com\/wp-content\/themes\/hybris_foc\/assets\/images\/layout\/logo-new-2x.png?_=1","width":"500"},"name":"The Future of Customer Engagement and Experience","sameAs":["https:\/\/podcasts.apple.com\/us\/podcast\/a-call-for-a-better-experience\/id1479742201","https:\/\/twitter.com\/FutureOfCEC","https:\/\/www.linkedin.com\/groups\/4844282","https:\/\/www.the-future-of-commerce.com\/feed\/"],"url":"https:\/\/www.the-future-of-commerce.com\/"},"url":"https:\/\/www.the-future-of-commerce.com\/2020\/08\/10\/subscription-commerce-model-dtc\/#Article"},{"@context":"https:\/\/schema.org\/","@type":"BreadcrumbList","itemListElement":[{"@type":"ListItem","position":1,"name":"2020","item":"https:\/\/www.the-future-of-commerce.com\/2020\/#breadcrumbitem"},{"@type":"ListItem","position":2,"name":"08","item":"https:\/\/www.the-future-of-commerce.com\/2020\/\/08\/#breadcrumbitem"},{"@type":"ListItem","position":3,"name":"10","item":"https:\/\/www.the-future-of-commerce.com\/2020\/\/08\/\/10\/#breadcrumbitem"},{"@type":"ListItem","position":4,"name":"How the subscription commerce model is driving a DTC retail boom","item":"https:\/\/www.the-future-of-commerce.com\/2020\/08\/10\/subscription-commerce-model-dtc\/#breadcrumbitem"}]}]