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Merchant Acquiring Specialists

Subscriptions Offer Strategy for eCommerce Success

subscriptions resizedFrom music to movies, skincare to software, subscription payment models have experienced a global boom. While some ecommerce pundits are predicting saturation and shrinkage of the market, there’s no doubt that consumers continue to sign-up for monthly payments of both services and products. How can your business capitalise? Read on for BillPro’s tips and insights into creating a successful subscription strategy.

In the June quarter this year, Microsoft reported 23 million subscribers for its Office 365 software, up 52% for the same period last year. Market disruptor Dollar Shave Club achieved sales of $150 million in its fourth year of operation. More than 2,000 subscription box services are on offer in the US and visits to subscription box websites have grown by over 3,000% in the last three years – case in point: Fortune reports that Barkbox grew subscribers from 1,500 to 55,000 between 2012 and 2013. Even with predicted softening as the market begins to saturate, consumer demand remains strong. And more and more merchants are structuring their business to cash in on the trend.

The Benefits

Cashflow predictability

Recurring payments allow the merchant – and consumer – to forecast cashflow with a greater degree of accuracy. For higher-end items, instalment plans offer an accessible and flexible payment solution for customers while increasing sales revenue for the merchant. Additionally, maintaining stock levels and ordering can be fine-tuned to minimise wastage.

Lower retention spend

Customer acquisition costs reduce because in essence, you already have the customer. Subscribers have greater interaction with your brand than those that purchase infrequently, creating trust, loyalty and top-of-mind awareness. Subscription models create “sticky” customer relationships – those that are long-lasting and effectively “lock in” the customer, minimizing the need for re-marketing and promotional campaigns to attract new audiences.

Engagement

Customer engagement is the lifeblood of all merchants – creating an emotional pull to your product or brand. Subscriptions create literal “touch-points” for brands – a beauty box arriving each month, or tapping your app to access a favourite playlist on their phone helps to create ownership of your brand for your customers. Each user experience provides an opportunity to engage, request feedback, improve services or reward customers for their longevity in a way that one-off or irregular purchases cannot match.

Customer data

With volume comes greater opportunity for data mining and insight. Subscription services enable more customers to purchase more regularly, creating greater opportunities for behavioural profiling. And while rich data collation might be too time-consuming for a one-off purchase, subscription services offer multiple opportunities over the life of the membership to add to the initial registration data collation, such as purchase preferences, seasonality, promotional triggers and communication preferences. This enables marketing optimisation across the company, with customer insight influencing everything from product selection to advertising channels and pricing strategy.

The Downside

Commitment

Making a subscription commitment is a gamble for the customer – will this service continue to offer value? How hard will it be to cancel? On the flipside, merchants need to manage the risk that customers may cancel before they have covered the acquisition cost. Offering an aggressively discounted introductory package to attract new customers on the basis that costs will be recouped over the life of the subscription can become problematic if the customer cancels in the second or third month. Successful merchants make cancellation straight-forward and efficient while providing terms that limit their own financial risk.

Vulnerability to stock delays and shipping

Subscribers across the country (or countries) all expect to receive their boxes at the same time. Fulfillment and shipping can become an issue, as can inventory and warehousing, when merchants may process a million orders one week, and a fraction of that the next. Selecting the right freight partner becomes crucial, as does contingency planning should a product not arrive on time.

Subscription fatigue

With so many subscription services on offer, the onus is on the merchant to differentiate their product and ensure relevance – Birchbox is just one example of a subscription service that failed to deliver on its promise, sending multiples of product to the same consumers and failing to match customer profiles with products. It is critical to stand out from the crowd to attract initial interest from subscribers – and continue to do so, throughout the life of their subscription.

Maintaining perceived value

The best subscription payments don’t even register on the customer’s radar – the service or product is such a part of their lifestyle that they don’t question the monthly fee (think Apple Music, Netflix or Dollar Shave Club’s pre-scheduled delivery of razor blades with no need to reorder). For more discretionary items such as beauty boxes or wine delivery, maintaining perceived value through exclusive offers, access to limited editions, social referral and positive reviews are key.

Ready to add a subscription payment model to your business artillery? Consider these Top Five Takeaways when planning your offer:

1. No hidden surprises –  rigid terms that don’t allow upgrades, downgrades or brief pauses in subscriptions (for holidays or illness, for example) will result in outright cancellation. Make it easy for your customers to switch plans, add products or update details to ensure they stay with you for the long-haul.
2. Offer a free trial – once customers have experienced your service, they are more likely to sign-up.
3. Upgrade technology – ensure your systems accommodate advanced fulfilment solutions, order tracking and inventory management.
4. Payment processing – consider how you will manage regular payment terms, cancellations, upgrades and additional purchases, and how financial reporting will capture subscription revenue.
5. Data management – capture only the minimum customer data at registration to minimise friction, with a planned strategy to obtain richer data for behavioural profiling throughout the life of the subscription.

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