Last updated - April 9, 2021
Proliferating with an average growth rate of over 100% per year, the subscription economy is dynamically changing consumer preferences and their associated behaviors. It has made its way into the eCommerce industry and its true potential has been orchestrated by global eCommerce giants like Alibaba and Amazon. Daily utility items like cereal boxes, toiletries and cosmetics are sold on Amazon on a monthly subscription basis and continue to experience a spike in the sales charts due to their limited availability and reasonably discounted prices.
According to Forbes, in the years 2014-2017, there was an 800% increase in the number of subscription product companies. As per the Subscription Economy Index (SEI) of Zuora, the organization that coined the term “subscription economy”, the sales growth of subscription product companies in North America, Europe and the Asia Pacific increased by 300% in the past seven years. To connote, the subscription industry witnessed a CAGR rate of 18% in the period 2013-2020. However, what caused this immense growth? And do those reasons still apply? We have analyzed the most common ones below:
1. Technological Advancements
According to the world recognized CRM developer, Zendesk, people are enticed by technology without even realizing its presence. Similar is the case with subscription models, which are widely promoted on the internet. Thus, it is safe to conclude that the increase in smartphone and internet usage gradually oriented the consumers’ mind in favor of subscription packages.
Subscription packages offer convenience to consumers. They only need to subscribe once instead of making tiring visits to the supermarts for everyday items. The subscription provider also maintains his/her stock levels to mitigate the scarcity of goods for the subscribed members.
Along with convenience, subscription programs offer control to consumers. They can select when to renew or cancel their eCommerce subscriptions, or skip the ones that disfavor their interests. In the end, the consumers pay a discounted price for their desired products with little to no obligations.
4. Element of Surprise
Some types of subscription packages, like curation models (read below in “Types of Subscription” Models) offer an element of surprise to the consumers. Cosmetic brands like BirchBox and BeautyFIX use this element of surprise very well, where they provide random but categorized make up items in their monthly subscription boxes.
Classification of Subscription Models
The aggregate consumer demands and the benefits of subscribing over recurring one-time purchases guided the eCommerce industry to adapt and synchronize with the following subscription model categories:
Product subscriptions that automate the buying routines of consumers, such as monthly grocery shopping, fall under replenishment subscription models. These subscriptions are most suited for businesses that sell daily commodities such as food spices, pet food and toiletries. They eliminate the need to visit supermarkets and local physical outlets.
Examples of Replenishment Subscription Models
- The Dollar Shave Club (DSC): DSC provides a limited number of razors, blades and other shaving equipment to its subscribers on a monthly basis. The company was launched in 2013 and reached 3.9 million subscribers in the period of 6 years.
- Stitch Fix: Stitch Fix provides its subscribers with custom styling products that are delivered on a selected shipping frequency. Stitch Fix was launched in the year 2011 and had a turnover of over $1 billion in 2018.
Subscription packages that fall under this category use the element of surprise to increase novelty. They are less focused on providing convenience and are more concentrated on engaging and exciting customers. These subscription models work well for businesses that sell apparels, cosmetics and food products and can offer expensive non-essential items at good discount.
Examples of Curation Subscription Models
BirchBox: Birchbox provides its subscribers with four to five selected makeup items and beauty product samples. It was launched in the year 2010 and raised up to $9 million funding in 2018.
BlueApron: BlueApron delivers appetizing meal kits to its subscribers that they can cook at their homes. The delivery frequency of BlueApron is 2 to 4 kits per week. The company was started in the year 2012 and has served over 350,000 subscribers till the fourth quarter of 2019.
Premium Access Models
Premium access subscription models have been the most successful for businesses selling digital products such as eBooks, music, movies and software solutions. These models provide paid access to premium features such as add-free streaming and first access to newly launched products.
Examples of Premium Access Models
Spotify: Spotify is a Swedish music streaming platform that provides add-free experiences and other features like class-platform experience, high-quality audio and shuffle play on premium membership. The company started in 2008 and now has over 144 million paying subscribers.
Netflix: The global movie and TV streaming service Netflix provides multi-tier premium access subscriptions to consumers. After the end of its free trial, consumers are required to pay for streaming any content on its platform.
Most Popular Illustrations of Subscription Business Models in eCommerce
To help you identify and explore the subscription model that best suits your business, we have further diversified these categories into 5 subscription model types that you can check below:
1. Paid Community Subscriptions
Communities assist people in resolving each other’s problems. Examples of such communities are Stackoverflow and AbsolutePunk. Both are online question-answer forums, the former for software programmers and the latter for musicians. However, on both these websites, users can access the information for free of cost.
What paid online communities do is ask their users to sign up for a paid membership in order to access the information and media that people upload on the platform. A website that is using this type of subscription model is eCommerceFuel.
eCommerceFuel is a private community for enterprise level eCommerce businesses where its founder, Andrew Youderian educates business owners on how they can expand, grow and take their eCommerce business to new heights. For his knowledge and community discussions, users are required to sign up for a paid subscription that costs $49 per month.
Soon after its inception in 2012, eCommerceFuel gained success due to its strong value proposition. Not only does the community assist business owners in increasing their revenue, but also connects them with a global network of dedicated business owners, who frequently share their stories of how they resolved complex business problems. Today, eCommerceFuel has more than 1,000 entrepreneurs earning a 6 to 7 figure income.
2. eLearning Subscriptions
To monetize knowledge sharing, it’s not necessary to create an entire community and supervise their discussions. A simpler and more straightforward approach for eLearning businesses is to adopt the eLearning subscription model, which is specifically tailored to serve that purpose with advanced features like video calling, cloud storage and word processor. Modern online tutoring solutions also support real-time face to face teaching, which is in high demand by parents in various regions all over the world.
Skillshare is a popular eLearning platform that sells different vocational eLearning courses. To build novelty and long-standing, customer relations, it gives unlimited access to all its courses on a monthly or annually paid subscription basis. Along with the access, the subscription membership of Skillshare also comes with various other benefits like the feature to download content, ad free learning experience and discounts on software like Adobe Creative Suite and todoist.
Launched in November 2010, Skillshare had a slow start and could only manage to offer 15 self-paced courses till 2012. Two years later, it had over 250 courses and launched its own School of Design. Currently, the platform has 27,000+ paid classes and an estimated revenue of $15 million.
3. Best Value Subscriptions
Sometimes brands spend a lot of resources on curating a single piece of content. Other times, even the cheapest created content tends to be the most lucrative. The same can be said for digital products and value propositions like software integrations and same-day delivery respectively. In the best value subscriptions, a company keeps its entire service or products free except the best ones. This helps the company recover its exhausted resources and utilize the maximum revenue-generating assets to their fullest potential.
An example of such a subscription model is Grammarly Premium. Grammarly is a writing-assistance software that comes with several features like grammar suggestions, spellings, punctuation and readability reports. All these basic features are free to use but the best ones come at a cost.
Grammarly Premium is charged on a monthly, quarterly and annually basis and is inclusive of their top features like plagiarism check, tone detection, word choice, and fluency.
4. Seasonal Product Subscriptions
It is essential for seasonal businesses (like Halloween costume stores) to sell out their maximum stock within a month or two of activity. Once the season is over, sales decline and their seasonal business hardly brings them any profit. To gain resilience against the irregular flow of income, seasonal business owners only get two choices, which are to either run their seasonal business as a secondary income source or earn enough profit during activity to keep the business afloat throughout the year with two months’ profit. Seasonal subscription model is the one that facilitates the latter.
With seasonal product subscriptions, a business can retain customers year after year. All that people need to do is subscribe and receive products yearly or half annually for years with no extra effort. This helps seasonal businesses in building loyalty as consumers often don’t mind switching suppliers with seasonal items.
Take example of Essbe, an online jewelry business that sells sophisticated jewelry products on a subscription basis. As jewelry isn’t something that consumers buy regularly, Essbe decided that it is better to sell it on a subscription basis. Essbe products are delivered quarterly, before the start of every new season and billing is done on the 5th of every month.
5. On-Demand Content Subscription
Sometimes there are no visible patterns in demand for certain content. Consumers can want it anytime. Netflix is one such platform where most of the video content is streamed out of the blue. For such on-demand content, subscriptions are a tested and proven business model.
It is not necessary for your business to sell video content. Your product can be anything, like eBooks, blogs, music, live yoga sessions, etc. You can charge your subscribers on a monthly, quarterly or yearly basis and provide them full access to all your content so that they can use it any time.
Daily Burn is a fitness training website that has thousands of workout videos on its platform. Not only is Daily Burn delivering those videos successfully to its audience via subscriptions, but also providing add-on services like one-on-one training sessions.
People can repeat the same workout video everyday or switch to another category. In brief, you can relate their website to a virtual gym membership subscription.
6. Rental Subscriptions
The rental economy, which provides consumers with highly-demanded products at a small percentage of their original costs, is also growing with the subscription model. Modern consumers are aware of the benefits of renting branded products, chiefly the increase in product variety.
Rent the Runway is a popular fashion rental website that is making the best out of its rental subscription model. On this platform, consumers can rent out 4, 8 or 16 designer dresses every month. Purchasing a subscription automates the delivery and swapping of dresses and the comfortable rental fees increases the wardrobe options for the customer.
If a customer likes a dress, she can also purchase it. So, while, renting remains the primary mode of revenue generation, Rent the Runway also earns through intermittent sales.
Rental eCommerce solutions like Yo!Rent also make it easier for business owners to launch a rental subscription business.
Due to the increasing internet population and maturing interests of millennials and Gen Z into technology and a minimalist lifestyle, the subscription economy is certain to grow in 2020-2030. However, to earn a name in the industry, it is vital to first build an eCommerce website in the budding years of the economy. If significant emphasis is laid on branding and a well-planned marketing strategy is employed, there are chances for your subscription business to establish a strong online presence within the first few years of the decade. The technology you select to power your website and the quality of customer support are other two factors that will determine the success of your business in the subscription economy.