The Opportunities, And Some Obstacles To Overcome For Rolling Out A Successful Subscription Product.
Amazon’s Subscribe & Save for everyday products, Craft Coffee subscriptions, Dollar Shave Club, and BarkBox – these are all subscription models that deliver products to your home periodically. From supplying a cache of exotic teas every 3 months to a monthly subscription box of luxury skincare products, the possibilities are innumerable.
With advancements in software technology and the availability of ready-made e-commerce solutions, it does not take very long for an idea to become a reality and fetch a multi-million dollar evaluation. Yet, some companies following this business model have accumulated debts as well.
In the e-commerce industry, spending time on the research to draft a well-thought-out course of action is one thing, following through that is another. Many entrepreneurs visualize the operational components and steps to accomplish a plan but overlook the people process – the core of business prosperity and a salient parameter to master any endeavor in the sphere of e-commerce.
However, calculated knowledge of the benefits, as well as the drawbacks, is a pivotal part of a strategic blueprint to run a successful subscription model. Thus, the following Pros and Cons would help you to take advantage of the gains and overcome some potential challenges that are observed in this domain:
1. Swift Customer Acquisition & Scope Of Up-selling
People often prefer affordable subscriptions than paying a higher amount upfront. For a lot of us, spending $15 a month is feasible than paying $180 beforehand to buy the same product in bulk. Think about the entry barrier that a large sum of money creates for an average person.
Once your business settles down with a sturdy foundation of satisfied customers, there is a good chance of success in capitalizing through upgrade offers, upselling and cross-selling campaigns. With user data, you would also have a good insight into consumer behavior for marketing another by-product to the right audience. With regular cash inflow, you can always work on refining your product and serve the existing customers even better.
2. Recurring Revenue, & Higher Returns On Customer Acquisition Costs
Consistent revenue through active subscribers not only safeguards your business but also unravels unforeseen opportunities to explore different growth prospects. With an exemplary product, you won’t have to spend your marketing budget again and again to make the customers return as the budget for customer retention is considered low for a subscription model.
Additionally, revenue forecasts tend to be reliable for an established base of subscribers because understanding customer lifetime value for a recurring product becomes predictable with time.
3. Less Competition With An Eccentric Idea
Although a niche market idea like Ipsy’s inexpensive beauty products membership is not one of a kind (Birchbox started it first), it does not attract endless competition in the long run. With niche strategy and an authentic brand story, happy customers do not tend to deviate away from a subscription, provided the product quality stays the best.
4. Product Distribution Is Straightforward
Effective product distribution is a hurdle many businesses face as the management of several obligations like timely delivery, shipping costs, local compliance, etc. comes into effect. However, a streamlined subscription model becomes uncomplicated to handle over time and it diminishes common delivery issues with the experience.
5. Ease Of Application Development And Maintenance With Plenty Of Affordable Solutions
Open-source platforms like Spree Commerce (based on Ruby on Rails) can build large scale and secure e-commerce applications in less time. All you have to do is to find a reliable team of developers to do the job. Alternatively, there are plug-n-play solutions in the market, such as Shopify, BigCommerce, WooCommerce, etc. that provide the option of choosing from a number of pre-built templates to launch an e-commerce website.
And Now, The Cons Of Starting An E-commerce Subscription Model
1. The Challenge Of Retention
The customers can drift away very easily after paying a small amount each month.
Due to loss of interest in a repeated product, people are always eager to explore new things. You NEED to constantly improve your product/service in order to sustain in the game. If you don’t, others would try their best to win your customers. Therefore, you would be required to spend a lot of time and resources on product standards and the underlying research to stay ahead from your competitors.
As an example, Graze adds variations to their ‘healthy snack by mail’ business every month to keep the consumers surprised and engaged.
2. Customer Services Expenses
Setting up a customer service department is a necessity for most of the subscription box providers, especially to answer payment related queries, i.e., charges on the card, cancel requests, returns, etc. Hence, it is going to be an inescapable cost unit for retaining customers.
3. Capital Recovery Can Be Slow
Launching a subscription model involves risk, product research, marketing, and investment. With the accumulation of only small amounts from a fragile base of subscribers, meeting the break-even point and posting profits thereafter could test your patience.
4. Impact Of Disruptions
Unexpected problems like a defective lot received from the offshore manufacturer can and will make your subscribers unhappy. Moreover, not meeting consumer expectations or drifting away from the promised quality may cause ripple effects.