We often encounter companies that want to introduce subscriptions. Usually they see this as a parallel track to their current setup, i.e. they will offer a regular purchase journey, as well as subscriptions. The objectives of introducing subscriptions for these companies are usually to increase CLV as well as to gain a steady revenue stream.
The problem with this is two-fold:
- The approach is not customer centric – most product (offers) are not fit for subscription
- Offering subscriptions adds on a lot of complexity in terms of UX, tech and processes
To help a client determine if they should offer subscriptions, it is useful to investigate:
Is the product (offering) fit for subscription?
Product (offers) which work well in a subscription need to check at least a few of the following points:
Refills/Next Delivery
- Logic is simple to figure out, i.e. it is easy to understand approximately when the customer needs a new delivery.
- Frequencies can be kept to a few options, i.e. each customer won’t need their very own frequency.
Assortment Simplicity
- Products offered all fit well into the subscription model and the strategy is to focus on only these products (as soon as one wants to also sell XYZ, the subscription signup and refill flow risks becoming very complex).
Perceived (added) Value
- The start kit (if applicable) feels pricey and continuing to subscribe to the refills gives the customer a sense of making use of this value (e.g. razor subscriptions).
- By subscribing the customer gets an assortment of products worth more than the cost of the subscription (e.g. makeup boxes).
Convenience
- This product cannot be easily purchased when e.g. out shopping for groceries (e.g. contact lenses).
- This standard cannot be easily purchased when e.g. out shopping for groceries (e.g. Nespresso).
- These are things that the customer regularly runs out of and a steady refill flow makes life simpler (e.g. groceries, contact lenses).
Surprise!
- By subscribing the customer will receive things she or he didn’t expect (e.g. makeup boxes).
If the product (offer) doesn’t check a lot of the above, the risk is that customers will not understand why they should subscribe, or if subscribed, soon realize that they are paying the delivery fees for something that’s not worth it to them. If, however, a subscription model does make sense, it is important to ponder:
Is it worth taking on a lot of extra complexity to be able to offer subscriptions?
Complexity when it comes to subscriptions is related to:
UX, CRO
- If only offering subscriptions this is not an issue, the flow is built and optimized for visitors to subscribe, however, as soon as there is a choice; visitors can subscribe or purchase one-off, it becomes complicated. Even more so if there is no clear strategy as to which of these tracks is most important.
- Worth mentioning is also that having an optimized flow is even more important when it comes to subscriptions, as the threshold to enter payment details for recurring payments is higher than for a one of purchase; i.e. one needs to take care to really have an optimum signup flow.
- In the case of having two tracks, there are two different funnels to optimize, as well as endless variations of combining the two which puts a lot of strain on CRO resources.
- As soon as you want to sell other products, even if they’re related to your subscription product, it will be very hard to have a simple signup flow.
Systems/Logistics
- It is likely that the current E-commerce Platform does not handle subscriptions, or handles them but poorly, a platform exchange might be needed and almost surely, there will regardless be a lot of added complexity and development needs.
- There will be a need to reserve stock for subscribers; this becomes especially complex if lead times are long.
- Purchasing also becomes more complex i there are subscribers and regular customers to consider.
- Not all payment types can handle subscriptions.
Marketing
- The marketing strategy cannot be dependant on Google Shopping Ads as one cannot use them for subscriptions.
- CRM needs to be dealt with very differently as subscribers cannot be contacted as regularly/easily as other customers; with every contact, churn can increase.
Reporting
- Subscriptions come with their own Key Performance Indicators e.g. Monthly Recurring Revenue (MRR), Annual Recurring Revenue (ARR), Average Revenue Per User (ARPU), Payback Period (PBP) and reporting will become more complex as the need to follow different business types is introduced.
- You will not be able to see all data in Google Analytics.
The above complexity can of course be handled, but it is important to factor it in before going down the subscription route; can the current organization handle the above, and if not, are we willing to make the needed investments and adaptations; how much do we believe in the potential of a subscription business?
Conclusion – Only offer subscriptions if:
- Your product (offer) is fit for it – especially from a customer point of view, and
- You can handle the complexity of dealing with “regular sales” and subscriptions, and
- You believe that the profit of the subscription part of the business will be substantial, or:
- You only plan to offer subscriptions and will focus solely on this.
Are you considering adding a subscription model for your e-commerce business? Feel free to get in touch and learn from the sharp minds of Omniarch, senior consultants that cater to every need in developing and growing e-commerce – letstalk@omniarch.se
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