Everything Ecommerce Companies Need to Know About Subscription Commerce

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As CEO ofOrdergroove, I often hear the following frustration from subscription commerce companies who approach my team for guidance: A third of my customers churned after the second shipment because it didn’t arrive as scheduled. My warehouse wasn’t able to inform my customers of the delay in a timely manner.”

Subscriptions are growing in popularity, but many brands who rushed to capitalize on this trend realized too late that it’s often not enough to “set it and forget it.”

Statista tells us that by 2023, subscription ecommerce revenue will top $38 billion, more than double the revenue it generated in 2019.

In my decade of working withecommerce subscriptions, I’ve learned that to win subscribers’ loyalty, brands must offer a frictionless end-to-end customer experience.

In this article, we’ll cover how to do that — along with a few subscription commerce basics.

What is subscription commerce?

Subscription commerce is a business model used to sell products on a recurring basis to maintain customer loyalty and a consistent cash flow.

Its business model requires the right technology, processes, and systems to ensure that subscriptions are being fulfilled and delivered on time.

Subscription commerce isn’t the right model for ever product, but it is ideal for items that are replenished often, such as razors, multivitamins, and even food items like energy bars and coffee.

A brief history of subscription commerce

The rise of subscription commerce goes hand in hand with the explosion of ecommerce.

Amazon revolutionized ecommerce in the 1990s, paving the way forDollar Shave Club andBirchbox to introduce the subscription commerce model in the 2010s.

To phrase how revolutionary subscriptions were when first introduced, Dollar Shave Club and Birchbox did for personal care items what emerging technologies allowedNetflix to do for the entertainment industry.

The first subscription commerce companies made it to the mainstream by mastering technological, marketing, andlogistics demands. Now, even mega-retailers such as Walmart have introduced beauty subscription boxes.

Wider adoption of ecommerce

Of course, the COVID-19 pandemic accelerated the adoption of ecommerce and subscription orders by businesses and consumers alike.

This growth created as many challenges for businesses as it did opportunities. Consumers’ social media feeds and mobile ads became saturated with offers, making it more difficult for brands to stand out.

Businesses fortunate enough to acquire customers had to make sure their online customer experiences were frictionless.Zendesk reports that a single bad experience is enough to lose 50% of a brand’s customers.

Subscribers rely on items being delivered on time based on their chosen frequency, so merchants who repeatedly audit their subscription services will see more retention.

3 different subscription models in ecommerce

Every subscription ecommerce merchant charges their customers on a recurring basis, but the way sellers offer their products varies from business to business.

Here are the most common subscription models used in ecommerce.

‘Subscribe and Save’

With a “subscribe and save” model, the same products are shipped on a recurring basis to subscribers.

This model offers convenience and savings for the customer, while the business benefits from a more consistent and predictable sales forecast.

Frequently consumed products, such as pet food or personal care items, are good fits for this model. 

Curation

With a curation model, brands offer access to different subscription products. McKinsey estimates that 55% of available ecommerce subscriptions follow this model.

Brands like Blue Apron and Stitch Fix offer customers the choice of selecting the items they want or send out a subscription box with pre-selected products that aim to surprise and delight.

Membership

With a membership model, members pay a fee for exclusive discounts, products, content, or services.

In the world of brick-and-mortar retail, Costco has set the bar for the membership model and ecommerce businesses are taking note from physical membership stores.

Opportunities and challenges of subscription commerce

You may run a solid ecommerce business, but that doesn’t guarantee that a subscription model will work for your company.

Before you invest in building a subscription commerce business, be sure to weigh the opportunities and common challenges to decide if a subscription service makes sense for your business.

Opportunity #1: More predictable revenue and inventory

If you have 150 customers subscribed to receive coffee on a monthly basis, you can reliably forecast inventory and and more accurately predict revenue thanks to a consistent cash flow.

If you know your average monthly rate of subscriber churn, you can also predict revenue more precisely.

Opportunity #2: Better customer data

Because subscribers purchase from you so often, you have the opportunity to collect rich data on their behavior and preferences.

You can use this data to drive more personalized shopping experiences, which then drives customer loyalty.

For example, if a health and beauty subscriber routinely buys the same shade of lipstick, offer them a surprise discount on that shade when a shipment coincides with their birthday month.

Challenge #1: High churn rate

Subscription commerce is a competitive space. Unless you stay ahead of your customers’ evolving needs, you’ll likely see high rates of churn.

Replenishment subscribers tend to hang on longer, according toMcKinsey, with 45% of them maintaining enrollment for at least one year. Only 35% of curation or access subscribers last that long.

Challenge #2: Complicated operational logistics

Like ecommerce, successful subscription commerce requires integration with third-party solutions, including inventory management, fulfillment, accounting, returns management, and more. 

Before launching a subscription service, it’s important to think through your supply chain technology stack first.

For example, if you’re looking for a 3PL to partner with, make sure they offer customization and other subscription capabilities. The fulfillment provider should also offer integrations with leading subscription solutions to establish an end-to-end, seamless solution.

“We also use noissue for our eco-friendly mailers that are 100% compostable, and ShipBob ships orders out for us in our custom branded packaging. Our subscription option has become popular among customers, where they subscribe and save money. We rely on a great post-purchase experience for this.”

Manuel de la Cruz, CEO at Boie

Tips for starting a subscription commerce business

If subscription commerce makes sense for your business, it’s time to lay the groundwork for your subscription launch.

1. Find your niche

If you already have an established ecommerce business, you probably have a product niche.

If you’re starting from scratch, you’ll want to find a category where there’s sufficient demand for your consumable product. There also needs to be enough room in the niche for your chosen subscription model.

Be careful not to rush the process of finding your niche. According to Gartner, up to 75% of ecommerce brands will offer subscriptions by 2023, so you must remain competitive within your niche but also be open to expand your product catalog if necessary.

2. Define your value proposition

You’ll have competition in your niche, so what will set your subscription apart? Is your plan to keep your subscribers engaged by simply offering the best pricing?

That might work in the short term, but a competitor might find a way to undercut you. Consider alternatives, such as supplementing a discount with exclusive educational content or offering a loyalty program.

Always be asking how you can provide more value for your subscribers so they stay engaged. 

3. Source high-quality products

If your products are inferior, a brilliant value proposition won’t save your subscription. Take time to source high-quality products.

Product sourcing starts with online research, attending trade shows, and requesting product samples.

If you can find only one supplier for your product, you may need to rethink your subscription. Multiple suppliers means you have more chances to test products and negotiate pricing, plus it can help you build a more resilient supply chain in case of a manufacturing disruption.

4. Focus on retention and the customer experience

Your marketing strategy must touch the entire subscription experience, including the time prior to signing up and even moments of churn.

Here are some ways to stand out:

  • Make it easy for customers to adjust their recurring orders. They might need to pause orders, change delivery frequencies, and swap out products to combat “flavor fatigue.” 
  • Never hesitate to show gratitude to your subscribers. Perhaps include a surprise gift in a subscription box with a personalized handwritten note of thanks.
  • If a customer wants to churn, make it easy for them to do so, and send them away with kindness. Offer a special discount or incentive in the confirmation email if they return within three months.
  • Personalization is an expectation at each stage. If you want to best the competition, you must personalize better.

5. Anticipate the need to scale

You might be able to fulfill all subscription orders in-house when you launch — but as you grow, consider outsourcing to complete the following tasks:

  • Distribute your products across multiple warehouses so you can better serve subscribers in multiple parts of the country.
  • Since curated boxes can be more complex to assemble, see if your warehouse partner can assemble them for you. You may have to bundle products before sending the bundles to the warehouses.

Scaling your subscription business doesn’t have to be difficult.

Third-party logistics (3PL) companies like ShipBob are becoming increasingly capable of handling complex subscription commerce needs. (Note: Some 3PLs can’t handle all your required tasks, so vet them carefully.)

“Each time that bundle was fulfilled by ShipBob, we could see the individual components that were physically picked, and we would know that the order went out as expected.

ShipBob also allowed us to make changes to bundles on the fly with complete control and visibility, which is important in monthly subscription boxes, holiday bundles, and many more scenarios.”

Gerard Ecker, Founder & CEO of Ocean & Co.

Personalization drives subscription commerce and loyalty

Subscribers buy more regularly, but they also expect more.

A subscription commerce solution like Ordergroove helps you deliver the personalized shopping experience they expect, while 3PL providers like ShipBob make sure the shipment arrives on schedule.

Click here to see how Ordergroove can unlock recurring revenue and great customer lifetime value for your business.

How ShipBob helps companies dominate subscription commerce

Subscription commerce is a complex business model involving many different providers and processes. The subscription ecommerce business model is also one that can be improved by letting a 3PL (like ShipBob) take care of all logistics. ShipBob can manage recurring order fulfillment, inventory management, shipping, and returns at scale with a global network of fulfillment centers and best-in-class technology.

Subscription ecommerce fulfillment encompasses the storage of inventory, packing of orders, and shipping of products to a customer on a regular, predetermined basis. ShipBob offers direct, pre-built integrations with top ecommerce platforms including Shopify, BigCommerce, Squarespace, WooCommerce, and more. Hear from some customers below.

“ShipBob has an easy integration with Shopify. It’s been very simple for us to manage subscription orders, which have become a big part of our business.

We’ve made a huge push toward incorporating Ample Foods into people’s daily diets and routine. Thankfully, ShipBob partners with a lot of the tools we use like ReCharge.”

Pablo Gabatto, Business Operations Manager at Ample Foods

Merchants of all sizes can easily connect their online store to ShipBob’s technology and leverage subscription ecommerce apps or utilize the Developer API to have ShipBob fulfill subscription orders automatically and reliably.

“Our business is almost all subscriptions, and ShipBob helps us offer reliable, affordable shipping that shows up at the same time each month. We offer a free one-month supply as part of our initial three-month personalized acne treatment kit from our app.

Other 3PL companies only had simple technology like a very basic Shopify integration. We provide a personalized product that requires unique configurations, so we couldn’t rely on an out-of-the-box solution like Shopify and what other 3PLs offered.

ShipBob’s API lets us build custom logic since we ship personalized products with lots of variations in the kits we send. We can write a few lines of code instead of creating a manual kit for each possible order combination as we’d have to do in a tool like Shopify.”

Oded Harth, CEO & Co-Founder of MDacne

To see if ShipBob is the right fit for your business, fill out this form.

What is the subscription model in ecommerce?

The subscription model in ecommerce refers to online businesses taking recurring payments for products that ship at regular intervals, or for access to particular products in general.

Do customers prefer subscriptions?

Yes, and convenience is one of the main reasons. In a 2020 global survey of 8,000 consumers,Paysafe found that 53% of respondents consider subscriptions a more convenient payment method for goods or services than what they ordinarily use.

Why do subscription models work?

They work because they give the customer a more convenient and personalized shopping experience. They also give the customer access to special incentives unavailable to non-subscribers.

Are subscription boxes still popular?

Yes, and they growing in popularity. Research firmIMARC Group predicts the global subscription box market to grow at a compound annual growth rate of 20.1% between 2021-2026. Boxes are not the only type of subscription, however. ‘Subscribe and Save’ is also a popular model. 

Written By:

Greg Alvo is the CEO and founder of Ordergroove, responsible for setting the overall strategic direction for the company and overseeing day-to-day operations. Greg founded Ordergroove from his apartment in 2010 with the vision of making consumers’ lives easier via innovative commerce experiences (before anyone knew what a subscription service was: “huh, like magazines?”). While in school and shortly thereafter, Greg held a variety of enterprise sales roles at Liquidation.com, an eCommerce startup that went public in 2006. Greg graduated from George Washington University, where he created his own Major with a degree in Entrepreneurship/Small Business Management. Prior to attending GWU, Greg founded Voteq, a computer hardware firm which he grew to over 100 clients nationwide. Originally from Miami, Florida, Greg now lives in Brooklyn with his much better half, Caroline, and three daughters Adriana, Daniella and Bleecker (dog included here). In any free time, Greg most enjoys reading, exercising and getting back on the tennis court.

Read all posts written by Greg Alvo