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Subscription Commerce: How to Build a Business on Repeat Customers

 

What exactly is subscription commerce? In essence, it's a business model where customers commit to paying a regular fee, typically monthly or annually, in exchange for a steady supply of products or services. This approach has surged in popularity over the past decade, which triggered a marked increase in subscriptions across numerous industries. From fitness and food to entertainment and everyday essentials, subscription commerce has become an integral part of contemporary consumer behaviour.

Let's delve into the complexities of subscription commerce, explore its various models, and discuss the advantages it offers both businesses and consumers. We'll also showcase some exemplary subscription services that are flourishing in today’s marketplace.

 

Benefits of Subscription Commerce

Subscription commerce is becoming increasingly favoured by both brands and consumers, offering numerous benefits to each.

For businesses, the benefits of subscription commerce include:

  • Predictable Revenue: Provides a steady, recurring income stream.
  • Enhanced Customer Relationships: Fosters deeper connections and boosts loyalty.
  • Valuable Insights: Grants access to crucial customer data and insights.
  • Increased Value Metrics: Elevates average order value (AOV) and customer lifetime value (LTV).
  • Lower Acquisition Costs: Reduces the costs associated with acquiring new customers.
  • Inventory Management: Simplifies planning and accurate inventory management.

For customers, the advantages of the subscription model include:

  • Convenience: Offers ease and the relief of having one less thing to worry about.
  • Exclusive Perks: Includes discounts, curated experiences, and access to gated content.
  • New Product Trials: Provides opportunities to try new, often premium products from trusted brands.
  • Surprise and Entertainment: Delivers excitement through "mystery box" subscriptions.
  • Personalised Experiences: Allows for customised shopping experiences tailored to individual preferences.

 

Three B2C Models of Subscription Commerce

As customers increasingly value simplicity and convenience in their shopping experiences, it's hardly surprising that subscription commerce has gained traction. Do you have a favourite product or service that you use regularly? Why bother with the hassle of reordering or settling a bill each month when it can all be handled automatically for you? Here are the three primary models of subscription commerce, alongside examples of services, their meanings, and how they operate:

  • Access subscriptions (also known as the membership model): Subscribers pay for access to content and perks, such as exclusive articles, discounts, and special products. Consider streaming services, magazine or news subscriptions, and gym memberships. Examples include Netflix for streaming, Forbes for news, and Fabletics for fitness apparel.
  • Curation subscriptions (also known as the box model): Subscribers receive regularly scheduled, curated boxes of products tailored to a specific theme or interest, such as fashion, pet care, beauty items, or gourmet foods. Examples include BarkBox for dog treats and toys, and HelloFresh for meal kits.
  • Replenishment subscriptions (also known as the subscribe-and-save model): Subscribers sign up to receive regular deliveries of frequently used products, often at a discount. This model is ideal for items like paper goods, vitamins, household essentials, and grocery staples. Examples include Amazon’s Subscribe and Save service, or auto-replenishment options from specific retailers and brands.

Ultimately, the choice of subscription model depends entirely on the nature of your product or service offering.

 

B2B Subscription Models

Increasingly, B2B companies are discovering that subscription commerce is pivotal in fostering long-lasting customer relationships. Products that your customer routinely uses and replaces over a predictable period are ideally suited to a subscription replenishment model. Here are some example models for B2B businesses:

  • Replenishment Model: Any item that your customer regularly uses and replaces over a predictable period is perfect for a subscription replenishment model.
  • Field Service Agreements: These agreements help streamline regular maintenance cycles and provide cover for unexpected issues, offering customers reassurance and a form of insurance.
  • Integration into Product Lifecycles: By offering subscription services, B2B businesses evolve from just selling components, products, or parts to integrating themselves into the entire product lifecycle.

Example: Michelin has integrated sophisticated sensor technology into select tyres, allowing the company to gather data on tyre usage. They monetise this data through subscription maintenance contracts that help transport companies maximise fleet efficiency and uptime.

 

Is Your Business Prepared for Subscription Commerce?

As the marketplace evolves, not adapting to subscription commerce could leave your business at risk of being disrupted. It’s essential not just to move quickly but to ensure your organisation is fully prepared for the considerable changes this new business model demands. Creating a successful subscription commerce business extends far beyond merely introducing a new pricing structure. Below are the six critical readiness factors to consider as you make the transition:

Subscription-Ready Products and Services
  • Assessment: Begin with an honest evaluation of your company’s market opportunities to determine which current and future products or services could successfully adopt a subscription model.
  • Market Expansion: Explore the largest opportunities for growth within your existing customer base and consider what's needed to create new markets and revenue streams.
  • Strategic Innovation: Be prepared to potentially cannibalise your existing offerings to stay ahead; if you don’t, another brand might.
Pricing
  • Complexity: While it might seem straightforward, setting the right price is crucial and requires thorough analysis to avoid harming your profit margins.
  • Pricing Models: Choose from various pricing strategies, such as tiered or usage-based, and decide if billing will be annual or monthly. Consider which metrics will guide usage-based pricing and which models promise the best long-term benefits.
Customer Experience and Relationship Management
  • Comprehensive Platform: A robust subscription commerce platform is essential, integrating capabilities like onboarding, marketplace commerce, and billing to provide a seamless customer journey.
  • Operational Shifts: Subscription billing and relationship management demand different approaches compared to one-time transactions, affecting many business operations.
Customer Service and Support
  • Service Strategy: Strong customer support is crucial; assess whether to develop an in-house team or partner with third-party providers.
  • Support Scaling: Ensure your support capabilities are aligned with the subscription model, focusing on maintaining high customer satisfaction to sustain recurring revenue.
Sales Strategy and Compensation
  • Sales Transition: Moving to subscription sales requires a significant shift in strategy and incentives for your sales team.
  • Incentive Structures: Rethink compensation schemes to align with subscription metrics like onboarding rates and average revenue per account, considering the frequency and structure of incentives.
Ecosystem
  • Partnerships: Developing an ecosystem of complementary, third-party products can significantly enhance the value of your offering.
  • Strategic Alliances: Identify which capabilities should remain in-house and which can be fulfilled by partners to expand your product's reach and functionality.

By addressing these areas, your business can effectively transition to and thrive within the subscription commerce model, ensuring a competitive edge in today’s rapidly changing market.

 

3 Tips for Your Subscription Commerce

To ensure your subscription commerce thrives, here are three crucial tips to help you retain customers and maximise their engagement with your service.

  1. Honour Delivery Commitments

Never disappoint your customers with late deliveries or unavailable stock. From the customer’s perspective, they’ve committed to your service in advance, expecting regular and timely deliveries. Failing to meet these expectations due to insufficient inventory planning can severely damage trust. Always monitor subscription demands closely and ensure your inventory is well-prepared in advance. Remember, it’s generally more frustrating for a customer to find their subscribed product unavailable compared to discovering an out-of-stock item in a store.

  1. Offer Flexibility in Subscription Options

Flexibility is key to retaining subscribers. Before customers commit, they might worry about whether their needs will consistently match your supply. It’s crucial to offer adaptable subscription options such as the ability to skip shipments, change delivery dates, or modify the delivery address. Make these options clear at the point of subscription and be ready to remind customers when they inquire later. This adaptability helps prevent customer cancellations, especially if their circumstances change, such as needing fewer products during a holiday.

  1. Maintain the Wow Factor

In subscription commerce, you're not just aiming for a one-time transaction but nurturing a long-term relationship that focuses on the customer’s lifetime value. To keep this relationship fresh and engaging, continually introduce elements of surprise that exceed expectations. Simple gestures like an unexpected free sample or a personalised email can make a significant impact, reducing customer churn and simultaneously introducing them to additional products. For instance, a subscriber to coffee beans might receive a sample pack of butter cookies in a new flavour with their delivery, enhancing their experience and potentially leading to more purchases.

 

How Langia Supports Subscription Commerce with SAP Commerce Cloud Expertise

Langia leverages its proficiency in SAP Commerce Cloud to enhance subscription commerce offerings. Here’s how we can help:

  1. Custom Subscription Management: Langia tailors SAP Commerce Cloud's subscription functions to fit your specific business needs, supporting various subscription models smoothly.
  2. Bespoke E-commerce Solutions: Langia excels in creating customised e-commerce solutions within SAP Commerce Cloud, adding unique features that enhance user experience and cater to specific business requirements.
  3. Scalable Integrations: Langia ensures that your subscription system is scalable and well-integrated, capable of adapting to growing business demands without compromising on performance.

Our methods bring results. One of Langia’s largest customers, a B2B brand that was looking to implement consumable subscription, achieved 44% higher average consumption already in the pilot launch. Not only that, the implemented service also got very good feedback from both new and legacy customers. Langia can help you build a subscription commerce platform that is robust, flexible, and tailored to drive growth and customer satisfaction. For more details on how we can help your business thrive in subscription commerce, please contact us.

 

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