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.
Online subscription services, popularized by startups such as Dollar Shave Club, Blue Apron, and Stitch Fix, are growing fast. These brands are generating enormous revenue and even deposing many longstanding leaders in their respective markets.
They stand out from traditional retailers by providing curated products in a box delivered on a schedule, often monthly or weekly. They may replenish consumable products at regular intervals and offer customers exclusive access to products and experiences. And consumers are loving it.
Look at it this way: Dollar Shave Club was acquired by Unilever for $1 billion in revenue in 2016, meal kits from Blue Apron saw $460 million in revenue in 2020, and Stitch Fix’s personal styling generated $1.7 billion in 2020.
Research from the Subscription Trade Association found that online subscription services grew 17% in the last five years. Gartner predicts three-quarters of direct-to-consumer brands will offer subscriptions by 2023.
Online subscription services benefits and challenges
This new e-commerce norm benefits both consumers and brands. By subscribing, consumers eliminate the chore of reordering, and save money by getting discounts because of their long-term commitment.
In return, brands get reliable recurring revenue that simplifies inventory and financial forecasting. However, it can be difficult for companies offering online subscription services to acquire and then retain customers, as mentioned in this McKinsey report.
So, how do you maximize the stick rate and minimize churn?
Here are three tips to win and retain customers with online subscription services:
- Keep delivery promises: Don’t be late with deliveries or out of stock on items
- Provide flexibility: Make it simple for customers to choose what’s best for them
- Keep customers interested and excited: The “wow” factor still goes a long way
Don’t be late or out of stock
When your customers buys an online subscription service, they expect to receive products on a regular basis and on time. Think of it from the customers’ perspective: They subscribed months in advance. How could you not know how much inventory you need?
While you know it isn’t that simple, your customers will never consider all that goes into supply chain logistics and your other business challenges. All that matters to them is that you failed to meet their expectations. So, always keep an eye on subscription demand and get the inventory ready as soon as possible.For customers, it’s often more disappointing and inconvenient when you can’t fulfill their subscription than it is for them to walk into a store and see that the item they want is out of stock. Customers have high expectations for online subscription services, so don’t let them down.
Options spell online subscription success
Before a customer joins an online subscription service, they may have concerns about whether the supply and their demand can be matched, which means it’s not always easy for them to sign up for a subscription.
Also, customers are much more likely to cancel when products pile up or they can’t customize order volumes to match their actual requirements. For example, they may need to change delivery frequency if they’re going on vacation or need less product in a given week or month.
So it’s important to let customers know what options you provide as part of your subscription program. Can they skip one shipment, change the delivery date for the next shipment, or switch to another shipping address?Make this clear when customers sign up and also when they inevitably return later with these questions.
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Keep up the wow factor
Unlike retail, which focuses on single transactions and average order value, an online subscription services business model revolves around cultivating long-term customer relationships with a focus on lifetime value. It functions more like an ongoing conversation than a series of siloed customer journeys.
You must keep the “warm and fuzzy feelings” alive well after the honeymoon phase, those first few months after customers first subscribe to your service. No matter how long they’ve been your customer, their relationship with your brand should never feel mundane, repetitive, or unexciting.To get a customer engaged and excited, you have to offer something they don’t expect. By intervening with a simple surprise — such as a relevant e-mail, a free delivery, or a free sample — you can significantly reduce churn while introducing them to other product lines at the same time.
For example, a customer buying coffee beans on subscription could receive a sample pack of butter cookies with a new flavor in a delivery. This may reduce the chance that the customer will cancel the program, and increases the likelihood that they’ll purchase cookies on subscription as well.
The peak-end rule in psychology tells us that people judge an experience largely based on how they felt at its peak (its most intense point) and at its end. So, use it to create more excitement in the whole conversation to keep your customers delighted and ultimately, loyal to your brand.
