Subscription-based business models are booming over the last few years all around the e-commerce landscape. Whether it’s about content, services, or products, we can easily say that a large majority of internet users and buyers have at least one running subscription or had one. Yes, your Netflix or Spotify accounts count!
In this blog, we will focus on subscription-based products and the steps you need to take when it comes to logistics and fulfillment of such goods. Main reasons, challenges, and expert tips, we cover it all.
As an online retailer or a D2C brand, you may have considered selling subscription-based products as a marketing strategy or to improve your sales. But what are those exactly? Let’s start with the business model behind that.
Do you know when and what was the first form of subscription business model in history? Well, it’s from the 17th century when authors were selling books, stories, or newspapers to people. We are far from the modern picture we have now of a person listening to their favorite podcast on Spotify while drinking their multivitamin powder shaker and about to go to work on an e-scooter (bird not byrd)!
A subscription-based business model charges customers a recurring fee on a scheduled time basis (weekly, monthly, yearly, etc.) to access a product or service. What is interesting with this kind of business model is the revenue growth. Each new customer (or subscriber) influences directly and positively your revenue and your business.
In the end, the main goal for a successful subscription-based company is to acquire new subscribers faster than lose them → acquisition over churn.
Source: Price Intelligently
Side note: What is Churn?
In business and customer relationship fields, churn is when a customer decides to stop using the company’s services or products.
What kind of businesses is using subscription-based models? Theoretically, a subscription-based model can fit any kind of business. However, especially in the e-commerce sphere, it’s generally best suited for 3 types of business:
This is probably the best example of a subscription-based business. We are talking here about brands that are offering access to content in exchange for a subscription fee. Content like: video, music, audio, books, etc.
Main examples: Netflix, Spotify, Amazon, Sky
Back in the days, we all remember having to buy on a yearly basis the new Microsoft Office license in order to use Word or Excel, for example. Those more traditional one-time software sales have been replaced by subscription-based models allowing brands to retain customers, facilitate changes and improvements of the services, and improve the customer experience. Nowadays, SaaS, utilities, insurance, leasing, and many other companies sell their services through subscription.
Main examples: Shopify, Office 365, Adobe Creative
The last main subscription type is the subscription to products. More and more merchants offer their products in exchange for a subscription fee (most of the time on a monthly basis). By doing this, they deliver more convenience to their customers with products that need to be replenished, but also a better customer experience with boxes with a selection of products.
Main examples: Cosmetics, vitamins and supplements, convenience goods
Subscription-based models are benefiting both customer’s side and the merchant’s side. On the one hand, customers have access to an appealing and convenient offer for a relatively low perceived price. On the other hand, online retailers and merchants can grow their business with confidence and work on building a close relationship with their customers.
Let’s dig a little deeper into the main reasons why online merchants should sell subscription-based products.
As we said previously, subscription-based business models allow retailers to ensure recurring revenues that grow over time. Scheduled basis and smaller payments make subscriptions more affordable and attractive to customers, especially compared to traditional one-time purchases. You keep your customers longer while growing their value.
There are also different leverages that retailers can use, such as the payment frequency (daily, weekly, monthly, etc.) or making the subscription contractually bound or not. In any case, it’s important to keep as much flexibility as possible by offering those different possibilities for instance. By doing that, you’ll attract more customers and grow your sales over time.
Cross-selling and upselling are very powerful sales/marketing activities to grow and expand your business. It may be easier to generate more revenue from existing and loyal customers with less effort. Since they are already paying for a subscription, any additional revenue could be considered a bonus.
In practical terms, for cross-selling, you can offer value to your subscriptions with complementary products/services and even add-ons. For example, if you have a subscription for vitamins and supplements, you could offer a nice bottle or a box to store the products.
For upselling, the idea is to evaluate your customers’ value, usage rate, and willingness to pay more for a better offer. The main idea is to create different subscriptions with different prices, and offer those to your loyal customers, as an upgrade.
If your customers are satisfied with their subscription, then why not try to offer them new products or even upgrade their subscription. All in all, it’s good for your business and it will improve the customer experience and satisfaction.
Retaining customers and avoiding churn is every company's daily battle. With subscription-based models, it’s even more important because your model relies on the fact that your customers are staying. The more customers you gain, the more profitable your business is.
In order to do that, you need to provide a satisfying experience: the purchase experience but also the post-purchase experience, such as the fulfillment process - which we will talk about later. With a good customer experience, you ensure satisfaction and loyalty, and so retention, which in the end increases the value of your customer.
To sum it up, there’s a thin balance to find between acquiring new customers (to grow your sales) and retaining existing ones (to grow their value).
From a very strategic point of view, selling subscription-based products seems to be a great business model. Recurring and growing revenue over time, cross-selling and upselling opportunities, all in all, to improve and build a solid customer relationship. However, and like most of the time, selling online comes with many challenges in terms of logistics and fulfillment. Here is what you need to know!
Keeping track of inventory is crucial for any e-commerce business wishing to optimize its inventory turnover rates and tied-up capital. Whether you have batches, bundles, or subscription boxes, it’s essential to keep track of each product inventory, in addition to tracking the whole fulfillment process of the order.
The same goes for products with an expiry date. This is especially relevant if your subscription-based products are food and beverages for example, which is a really fast-growing e-commerce business at the moment.
In the case of subscription-based products, the key advantage is that you know an order is coming, you know when and you know what. The process seems easy, right? Well, you still need a scalable and smooth logistics process to fulfill the right products, at the right time, to the right customer:
As we said before, with subscription-based products, customer experience is key. Online retailers have fewer touchpoints than physical retailers. The advantage of the efficiency of online shopping can go at the expense of the tactile, hands-on experience with a product before purchase. That's why it's important to pay attention to the touchpoints you have at your disposal to create an unforgettable brand experience for customers and differentiate from the competition.
In the case of subscription-based products, since your customer will frequently receive parcels from you, the experience must be unforgettable every time and is even more important. That is why you should think of how you can brand your packaging and what you can add to your parcel to enhance the experience. Here are some examples:
Ideas are endless, the challenge here is to have everything you use from improving the customer’s experience available every time. You have to make sure you have sufficient stock. This is why working with logistics experts with an all-in-one tool is highly recommended to have the best logistics process possible.
The final main challenge is related to delivery times. Because of Amazon & Co, customers expect to be delivered within the next 1-2 days after buying online.
The whole point of subscription-based products is the frequency and the recurrence. Most of the time, the delivery is planned and a date is fixed. This is why your logistics setup must be automated to
Additionally, due to the aim of a subscription-based business model, the number of customers will increase and so will the number of orders, and potentially the targeted regions and countries. By decentralizing your inventory and opting for different locations for your fulfillment centers, you make sure that you can deliver to every customer in time.
Subscription-based products represent a solid business opportunity, especially with the growth of online sales. But the logistics and fulfillment of this type of product come with many challenges, especially, if you are not a logistics expert. With the help of a 3PL provider like byrd, you scale up your subscription-based products fulfillment and keep track of everything with our all-in-one logistics software.
Not convinced yet? Check out YourSuper success story, one of our customers that excels in selling subscription-based products!