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Blog/Subscriptionmodelsaredead,longlivesubscriptionmodels

calendarJune 20th, 2024
personBex Young
clock6 minute read

Subscription models are dead, long live subscription models

Subscription models have redefined business to consumer (B2C) ecommerce, providing a seamless way for loyal customers to receive regular deliveries of their favourite products. One in five people (17%) now receive subscription boxes for everything from toilet paper to dog food, with studies showing that the average Brit spends nearly £500 every year on subscriptions.

Perhaps you’re thinking about implementing subscriptions but you’re wondering if their time has passed? Let’s get into their benefits first, and then we’ll take a look at some of the risks attached to this model.

Why do subscription models remain popular?

Customers keep subscriptions going for the ease of automated deliveries, the personalised service they receive, and the cost savings. There’s clear benefits to a recurring revenue model for brands, too:

  1. a) There’s compelling financial reasons to operate a recurring revenue model

According to research by financial experts Consero Global, introducing a recurring revenue model can increase a company’s valuation by up to eight times. For brands looking to raise capital, this is clearly a huge bonus. 

There’s more tangible financial benefits, too. We all know that it’s easier to retain a customer than acquire a new one. Subscription models often lead to higher profit margins per customer, meaning that brands can ‘safely’ invest less in intensive retention marketing efforts over time and pivot more to investment in new customer acquisition. 

  1. b) Knowledge is power for brand acceleration

Recurring revenue models provide valuable customer insights across the entire purchase cycle. Brands are able to use consistent customer ratings and feedback loops to iterate and improve on their tailored product offerings, all whilst building long-standing customer relationships. It’s a win – win for both sides.

Thanks to predictable demand patterns, businesses can also streamline their logistics more easily, knowing exactly when and where to deliver products. For example – at Zedify, we’ve been able to maximise efficiency in the last mile for our subscription brand clients, largely thanks to pattern recognition tools. By taking advantage of optimised route planning and by simply getting to know our doorstep recipients’ preferences, we’re able to reduce time wasted with common doorstep issues (like reattempts and safe places). 

When 53% of delivery cost is held in the last mile, having relevant data to hand makes a real difference to the bottom line, and can help pip your competitors to the post.

So why do brands lose subscribers?

According to Phillip Watson of Paddle, a digital subscription service, “poor pricing and product strategies, inadequate billing methods and no longer delivering value for the customer” are to blame for subscription model failures generally. 

So what can be done?

  • Brands need to evolve their offerings

Customer churn in a recurring revenue model is a real risk. Whilst it can be easy to get new customers in the door with offers and brand hype, businesses need to give them compelling reasons to stay. Part of the subscription model’s appeal to consumers is that, if an offering fails to meet evolving needs, they can simply hit ‘cancel’. If brands may not generate profits on a customer’s purchases until, say, the fourth or fifth recurring order hits a customer’s doorstep, this is a major concern.

Once pricing expectations are met, it’s flexibility and personalisation that will retain subscribers. Businesses that can tailor their offerings to meet individual preferences are more likely to succeed. This requires leveraging data analytics to understand customer behaviour and preferences better. 

For example, a subscription box service might use purchase history and feedback to curate products that match the subscriber’s tastes. Personalisation creates a sense of anticipation and excitement, enhancing the customer experience and reducing churn. We’ve all seen the ‘We think you’d like…’ messages or pop-ups on subscription sites – getting these right creates a sense of ‘knowing’ for the customer, which can aid in continued brand loyalty. 

  • Combatting subscription fatigue is a top priority

Despite keeping things exciting with innovative deliveries, ‘subscription fatigue’ remains a growing issue in the industry. As more businesses adopt the subscription model, consumers are inundated with choices, leading to a sense of overload. This can result in customers unsubscribing from services they view as less essential. To combat this, businesses need to focus on delivering consistent value and exceptional customer experiences – such as branded doorstep deliveries – to keep their brand engaging and fresh. 

Brands that have continued to grow are those that have branched out with other offerings; for example, Freddie’s Flowers’ introduction of a one-off gifting package alongside their core subscription model, which gives consumers ‘one-off’ purchasing options.

  • Genuine value for money

As already alluded to, economic pressures further complicate the subscription landscape. Businesses that continuously demonstrate the value of their subscriptions through exclusive discounts, superior product quality, and added perks, make their service indispensable. Inflation and fluctuating consumer spending habits can affect subscription renewals – but they can also have the reverse effect of leading people to sign up. This is especially true for household goods and food subscriptions, where long-term subscription costs often work out cheaper overall versus ever-rising prices in supermarkets.

  • Customers value sustainability: match their expectations

Consumers are rapidly demanding – or even expecting – environmentally responsible practices, and businesses that are winning in the subscription space are those proving it’s possible to adapt to meet these expectations without increasing costs. Brands like smol and Freddie’s Flowers have responded to their consumers’ concerns by using recyclable packaging and eco-friendly materials – something that buyers say heavily influences their purchasing decisions

Some brands have gone further still, utilising cargo bikes for their deliveries which can save 82% on carbon compared to even electric vans. At the doorstep, these branded cargo bike deliveries quickly become ‘an extension of the brand’ and add significant value in signalling sustainable practices to customers. 

Whilst e-commerce subscription models are still flourishing, and remain a fairly safe investment, they’re not exempt from their challenges.

Managing logistical efficiency, addressing environmental concerns, combating subscription fatigue, and responding to economic pressures are all critical for sustaining growth.

Thanks for your interest in using Zedify. At the moment, we‘re just for businesses and can’t deliver one-off parcels for individuals. Sorry about that.

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