The global e-commerce subscription economy is booming – growing at over 65% year-over-year to reach a market size of US$904.28 billion by 20261. For your business, subscription marketing is a golden opportunity to secure regular revenue and build a loyal customer base. Here are the models to consider, and how to get started.
What is subscription marketing?
Subscription marketing is a strategy designed to help businesses acquire new customers and retain existing customers in the long-term. The most common way is via a subscription business model which involves customers paying a recurring fee to access a product or service.
How a subscription model works
A customer will sign up to be charged on a recurring basis for a product or service. They can choose how often they receive the offer – for example, weekly or monthly. When the contract is up, the customer can either renew or cancel the subscription. Some businesses give their customers the flexibility to cancel it at any time.
Types of subscription marketing
Chances are, you have several active subscriptions yourself. There are the obvious ones, of course, (hello Netflix), but lockdown encouraged people to explore niche services, too.
Broadly speaking, within e-commerce, there are three types of subscription business models:
Replenishment subscriptions. This is when a customer pays for a replacement of an essential item on a regular basis. The driver for this is usually convenience – the customer doesn’t have to remember to buy necessities like milk, dog food or deodorant; they’ll be delivered straight to their doorstep.
Curation subscriptions. A key example is subscription boxes which have grown in popularity in recent years. A business will choose several of their products they think the customer will like based on their previous buying history and send it out to them in a box each month. Customers enjoy the “surprise” element, whilst the personalization aspect fosters strong engagement with the brand. One such example is beauty brand Glossybox, which ships cosmetics samples to customers all over the world with DHL.
Access subscriptions. With this, customers pay for exclusive access to member-only perks such as discounts or early access to sales. The driver for customers to sign up is the exclusivity element, whilst brands can leverage the model to make customers feel really valued which in turn increases their loyalty.
Benefits of subscription marketing to your business
The sales model is growing in popularity: existing subscription brands grew their overall customer base by 31% in 2021 alone2. Time for your business to join in? These are the main benefits which might just tempt you to commit:
Steady revenue
For e-commerce businesses, forecasting sales can be unpredictable. But with subscribers, you’ll have a more accurate idea of how much money will be coming into your business each month, which will help you make better financial decisions.
Cost effective
Acquiring new customers is expensive. In fact, it’s five times cheaper to retain an existing customer than acquire a new one3. With a subscription service, you can foster long-term, loyal customers – providing you give them a great service, of course (more on that, later).
Improved demand forecasting
When you know how many subscribers you have, you can better plan your inventory needs. This will reduce excess inventory, which will save your business storage costs.
Less losses to competitors
E-commerce is highly competitive; your rivals are always just a couple of clicks away to customers. Yet, subscribers to your business will be less tempted to stray to other brands if they’re already signed up to your service.
Increased customer satisfaction
Personalization is a huge influence on consumers’ buying decisions – in fact, 80% are more likely to purchase when businesses provide a personalized experience4. With a curated subscription service – like a monthly box – you can send your customers a carefully-selected bundle of products based on their specific likes and dislikes.
Upselling and cross-selling opportunities
Once you have established trust amongst your customers through a personalized subscription service, they’ll be more receptive to upsells and cross-sells that you promote to them – which means more sales for your business.
Challenges of subscription marketing
Churn rate
One study of B2C subscription companies over a 19-month period found the churn rate – how many customers cancelled their subscriptions – was, on average, 8.11%5. Many customers cancel their subscriptions after the initial excitement and sign-up freebies dry up. That’s why it’s important for businesses to have a long-term strategy in place for their subscription models if they are to increase their customer lifetime values.
Budget-conscious consumers
With global inflation and the cost-of-living crisis upon us, it’s no surprise that “reducing overall expenses” was the leading reason consumers cited for cancelling retail subscriptions in a recent survey6. If your business falls into the “luxury” rather than “essentials” category, you will need to put extra effort into creating a valuable offering.
How to create an effective subscription marketing strategy
It’s one thing getting a subscriber on board for a trial period, but how can you retain them in the long term?
Offer enticing discounts
Your customers will be looking for great value – they need to feel they’re getting a significant deal on your products by subscribing, otherwise they’ll look elsewhere.
Give perks
Beyond price reductions, there are plenty of other benefits you can offer to keep subscribers signed up. Examples include member-only wholesale pricing, priority service, and a special discount code on their birthday. Get creative to make the experience extra special. Look at what your competitors are offering, too.
Make it easy to join
Signing up to a subscription with your business should be a quick and seamless process for new users. If they are an existing customer of yours, let them use the details they have already registered with your business (shipping address, card details etc.) to create a subscriber account.
Consider a freemium subscription model
Freemium pricing is an acquisition tool whereby you give new customers limited access to selected subscription features, for free, in the hope they will eventually sign up for the paid-for model. If you are unsure whether it is right for your business, you could trial it for a short period of time to see if the number of conversions it prompts makes it a worthwhile investment.
Use a tiered subscription model
A one-size-fits-all price is not the best approach for subscription models. Your customers are all different, so you should offer a range of subscription pricing tiers which they can choose from depending on their individual needs. Remember, choice equals sales!
Have a transparent cancellation policy
Many consumers are deterred by subscription packages by the worry of being locked into a long-term contract. So, the more flexibility you can offer in your cancellation policy, the better. If you allow subscribers to cancel immediately at any point (and with no fee), you’ll be on to a winner.
Adapt and tweak
Over time, you can use your customer data to improve your subscription service. Things to look out for include at what point in the subscription cycle most cancellations are happening. What is occurring at this point and how can you address it? Remember to invite customer feedback, too.
Use an automatic billing system
Choose a payment provider that offers a no-fuss recurring billing system so that you can process payments from your subscribers with ease. Keep the billing process simple for your customers, too.
Offer free shipping
In a global survey of consumers’ most desired subscription features, “free shipping” came out on top7. If you can afford to offer this, then do so – and be sure to shout about it on the subscription sign-up page.
Choose a reliable logistics carrier
Once you’ve curated the perfect subscription model, bursting with personalization and perks, it’s time to think about delivery. And for that, there’s no better logistics partner than DHL.
With DHL Express, you can offer your customers fast, reliable shipping, with full tracking and shipment status notifications. So, you can be sure they receive their subscriptions on time, every time.
