How the subscription commerce model is driving a DTC retail boom
DTC retail is booming thanks to the subscription commerce model. Learn the benefits of these models and which model is best for your business.
After spending the last six months working on subscription models innovation and new subscription functionality for hybris software’s Commerce Suite, I was sure I had a good handle on what businesses are offering as subscription products.
Yet I continue to come across new ways that various enterprises are using subscriptions to advance their businesses.
Subscription models innovation: Taking businesses to new heights
For example, United Airlines has launched subscription options that offer customers access to Economy Plus seating, or allow them to sign up for an annual subscription for pre-paid checked baggage charges. From The Huffington Post:
“The Economy Plus and checked baggage subscriptions offer our customers more of the comfort and convenience they value year round,”statedScott Wilson, United’s vice president of merchandising and e-commerce, in a recent press release. “We are pleased that, as we launch these services, we are able to provide new options for customers to tailor their travel experiences.”
Examples of subscription models innovation
Subscriptions are common when selling access to products or services. Some examples of subscription models innovation:
- Different types of media, like news, music, Software as a Service (SaaS), or software upgrades for downloadable packages.
- Telcos subscribe customers to a variety of service plans, bundling them with subsidized smartphones.
- Newspapers are following suit by offering a subscription to online editions bundled with an e-reader device like the iPad mini or Kindle.
- In B2B commerce, warranties and service plans are also often offered as subscriptions.
Don’t think of subscriptions simply as recurring billing. It’s better to see them as a way to maintain an ongoing relationship with your customers. Multiple events, not all of them transactional, happen in the course of that relationship.
They vary from customer registration to providing payment details to charging initial or recurring fees, or charging a fee based on usage. As with any successful relationship, it goes both ways. Businesses may offer additional incentives to access service, like a free trial, a reduced price on the first few purchases, or free credits for referring new customers.
Subscription business models: Start small, plan big, reap rewards
70% of organizations are deploying subscription business models to sell directly to consumers – thereby creating recurring revenue and customer loyalty.
Benefits of subscription models
Closer customer relationships give businesses numerous opportunities to learn how customers interact with enterprise products, and they help businesses reach customers through multiple touchpoints with relevant offerings of additional products and services.
The attractiveness of the subscription business model also lays in its multidimensional flexibility. When selling a regular product, the only dimension in a merchant’s arsenal is the price. There are of course multiple ways to offer a discount, but in the end, it all comes down to how much a product costs when it is added to the shopping basket.
Subscriptions provide multiple benefits and degrees of flexibility when defining a merchant offer.
- In addition to recurring and one-time charges, non-monetary parameters come into play – for example, subscription duration, cancelation terms, how often billing occurs (including billing dates), and entitlements that determine what’s included in an offering vs. usage charges.
- With so many degrees of flexibility, there are no limits to creativity and experimentation.
- You can choose a registration fee and a recurring monthly charge.
- You can use a free trial with automatic conversion.
- You can charge a flat fee with unlimited usage.
- Or you can apply per usage charges only.
United Airlines created separate subscription plans for North American and international travelers, added charges for the second extra bag, and a one-time initiation fee (which is currently waived). In addition to the entitlement of extra luggage, United offers more leg room. Who wouldn’t like that?
With so many ways to modify its subscriptions, I’m sure that with time United Airlines will find a combination that appeals to the whole of its customer base.
Businesses should look to subscription models innovation and adoption for flexible commerce tools to define attractive plans and manage subscriptions, to implement a billing system with recurring and per usage charges, and experiment with different offerings until they find one that clicks with their customer base.
