Should Your Online Retail Company Use A Subscription Based Model?

Image credit:  PublicDomainPictures

Image credit: PublicDomainPictures

Unless you’ve been living under a rock with no mobile data signal for the last decade, you’ll have noticed the astounding rise in subscription-based business models. Led by streaming services such as Netflix and premium retail services such as Amazon Prime, this alternative approach soon found a place in the conventional retail world.

Today, it can easily feel like there’s a subscription service for anything you can imagine — whether you want weekly dog treats or monthly toy boxes, there’s a seller for you. And with so many companies trying it, you might assume that it’s a profitable route.

If you’re running an online retail business, then, it seems reasonable to wonder whether you’d be well-served moving from the conventional system of sporadic orders to a fresh subscription-based paradigm (lack of innovation is a major retail problem). Is it a good choice for you, or should you stick with your current system? Let’s run through it:

How a subscription retail model works

It’s easy to understand how the subscription model works for a service-based business: you provide access to your service (or services) for set periods — weeks, months, or even years. When someone cancels their subscription, they stop paying, and you stop providing. It’s a simple arrangement that perfectly suits SaaS companies in particular.

Many SaaS businesses profit through offering free basic use, then tempting users to subscribe to premium accounts to gain access to more features, remove ads, and yield various other benefits. This is also known as the freemium model, and it’s used (to wildly-varying levels of success) by big companies such as Dropbox and Spotify. 

Others offer fully-functional free tiers with no functional restrictions, and find ways to make money through associated processes: for instance, some service providers earn their money through transaction fees, and top up with premium support services.

The retail model, though, makes money in the same way as traditional retail — it just moves the charge from individual orders to bulk buys with compelling perks. There are typically still tiers, except each tier involves the delivery (or collection, in some circumstances) of a product or set of products. Loot Crate was one of the first subscription box services to hit the mainstream, seeing subscribers pay monthly to receive boxes of assorted items. 

There are two reasons why someone might choose to use a subscription-based retail service:

●      Buying in bulk saves them money, and they know they’re going to need something on a consistent basis. For instance, an office might need milk every week, or every day. Essentially, this type of subscription is a more configurable standing order.

●      They want to be surprised. The core appeal of many subscription boxes is that they contain mystery items of unknown value. When you receive a package, you get the fun of opening it and discovering what exactly you’ve been sent.

Why you should consider using it

Moving to a subscription-based model might be a good idea for your business if you meet any of the following conditions:

●      You struggle to offload many of your products. One of the core advantages of including a degree of uncertainty in the contents of your subscription products is that you can evenly dole out items regardless of specific demand. This is great for clearing out your inventory without having to hugely reduce prices.

●      You often have customers placing priority orders late. If your customers tend to want your products on a consistent basis, they may benefit from a subscription option — and it would make you more money in the process.

●      You want to provide a more personalized service. You can only get so creative with sending out individual products. When you offer a subscription box, you can throw in little extras and establish the kind of personalization that engenders customer loyalty. Think about your brand positioning: the more you can tailor your service, the more easily you can “stick” in the public consciousness.

●      You’re willing to listen to feedback. By moving to a subscription service, you limit the options available to your customers, so it’s essential that you not only carefully monitor your analytics but also listen closely to customer feedback.

When you should stick with what you have

Conversely, you might be better off sticking with a conventional retail setup if you meet any of these conditions:

●      You don’t want to put all your eggs in one basket. Subscription retail services necessarily restrict the available options, which is great in some ways but is also dangerous: if something happens to reduce the appeal of your main product, you won’t be able to fall back on sales of your other products, because you won’t have any.

●      Your niche is already saturated. The average shopper might buy from several different grocery stories, but if they’re going to subscribe to a grocery service, they’re unlikely to want to subscribe to a second. If you can’t compete for the top spot, don’t try it.

●      Volume is extremely hard to predict. When you limit your product range, inventory forecasting becomes tricky. In any given month, you’re likely to have too much or too little stock — and depending on how expensive your main product is, that can be costly.

Should you try subscription retail?

On balance, then, should you attempt the subscription-based retail model? Well, if you think it could be a fit for your product range, then you should definitely try it for one overriding reason: you don’t need to commit to it entirely.

You can have a subscription box and a regular product range. You can even have a mystery box item that doesn’t require a subscription if you want to test the waters. If the model works really well for you, you can make it your primary (or exclusive) focus. It doesn’t meet your expectations, you can discontinue the idea. What do you have to lose?