Gone are the days of consumers having to realise that they need to buy something, and having to go out and get it themselves. All hail the age of the subscription economy.
The subscription economy describes a new business landscape where companies focus on subscription-based business models rather than the more traditional pay-per-product (or service) business model.
In April of this year, subscription business websites had roughly 37 million visitors – an 800% growth since the year 2014. In 2016, YouGov reported that, in the UK, 58 million adults (89% of the population) were subscribing to at least one product or service.
Plus, the latest research from Zuora shows that subscription-based organisations are growing their revenue nearly 9x faster than the companies of the Standard & Poor’s 500 (according to the Subscription Economy Index). So, it’s no wonder that we are seeing this change.
Now, I’m not trying to suggest that subscription models are necessarily something new or innovative. People have had newspaper and milk subscriptions for several decades, but improvements in technology and changes in retail tastes have acted as real catalysts for the growth of the subscription business.
It’s no longer enough to just give consumers what they want, because sure as sure can be they will likely find what they want at a cheaper price, in a more convenient location – probably Amazon.
To really excite consumers and create a longer-lasting relationship, businesses have to offer something that consumers don’t expect – and subscription services are the perfect recipe for surprise.
Types of subscription model
Whilst there are many different permutations of subscription model, these can typically be simplified down into four categories:
- Replenishment Model
This is the type of subscription model that I see being reinvented most frequently. It’s one in which the consumer selects one or more products that they know will be used or consumed within a particular timeframe (sometimes specified by the customer, other times calculated by the business), and the subscription automatically replenishes the products in time so that the customer never runs out.
Thus far this model is most prevalent in the consumer goods sector, with companies like Dollar Shave Club (purchased by Unilever in 2016 for $1 billion) and Harry’s (a favourite of mine) leading the way in male grooming subscriptions.
New York-based Quip offers different options for toothbrush heads and toothpaste replenishment, and even bigger brands like HP are working to ensure you never have to think about buying printer ink ever again (even going so far as to monitor ink usage in real-time to really deliver at the right time).
- Inspiration Model
Where the replenishment model is one which combines convenience with consistency, the inspiration model combines convenience with variety. It’s for consumers who are time-poor, but who don’t want to quite succumb to the on-the-way-home-from-work-trip-to-the-convenience-store-to-pick-up-a-ready-meal – in other words, they still expect quality.
Great examples of inspiration subscription businesses are Hello Fresh and Blue Apron, both of which offer recipe boxes of fresh ingredients that allow the consumer to discover new foods and recipes without having to think about how much they need of a particular ingredient or having to deal with buying something they might only use once.
With the right data, this type of model can become particularly powerful in engaging customers and in creating a longer-term relationship with the brand – personalisation is key.
- Discovery Model
The discovery model allows customers to experience new brands and their products in a very low-maintenance, non-committal way.
Usually framed around a particular product type such as beauty and cosmetics or snack foods, discovery subscriptions can be a fantastic way for smaller, less well-known brands to get their name out into the wild, and their products into the hands of the end consumer.
In the beauty world, Birchbox has been leading the way for both men and women to try out samples of a variety of products (based on their personal profile) through their monthly subscription boxes.
The general concept lends itself so well for brand advocates on social media, and the phenomenon that is monthly unboxing videos.
Snack food companies like Graze and SourcedBox sell themselves as a healthy snack alternative – and if they’re delivered to your door each week or month, you’ll be less likely to add those chocolate bars to your shopping basket.
- Service Model
Typically framed around delivery, the service model is quite simply one that offers a service in return for a monthly payment. Particularly prevalent within the grocery sector, Tesco Delivery Saver, SainsburySaver, Asda Delivery Pass, Ocado Smart Pass and Amazon Fresh all offer customers virtually the same thing – free, unlimited delivery for groceries (sometimes with the added benefit of one-hour hour delivery slots, and priority access to delivery slots).
This is probably the model which is relevant and useful to the most consumers. The replenishment and inspiration models are more suited to younger, early-adopters but the service model is one that works well for families who have busy lifestyles, and want to make the process of doing the weekly shop that little bit easier and cheaper.
Amazon has gone a step further and has combined the replenishment model with the service model in the form of their Amazon Dash Buttons, providing a convenient way to re-order your most-used items before they run out, with unlimited free delivery.
The new business model
The subscription economy offers businesses a continuing relationship with consumers – no longer does the relationship between the business and the customer end with the swipe of a debit or credit card. It also provides businesses with the opportunity to reach new customers that they might not otherwise have done through their traditional models. However, this comes with some added risk.
Subscription-based businesses must get the consumer to want what they’re offering. In order to get customers to start a subscription, they have to make it very low risk for the consumer, often offering a 30-day free trial, free returns or no final commitment to buy – and this comes at a cost. The hope is that either the customer is so wowed by the experience that they want to continue regular payments, or they forget or find it too complicated to cancel the subscription.
That said, subscription is quickly becoming the default business model for businesses that are looking to accelerate growth, maximise revenue, and increase its value.
Given that people who participate in a subscription service of some sort are about four times more likely to subscribe to several boxes in different types of product than other consumers, it’ll be no surprise when we see more brands offering this as part of their wider customer proposition.