Subscription-based E-commerce Models: Building Customer Loyalty and Recurring Revenue

Subscription e-commerce models—the recurring purchase of products or services online—are transforming online retail, as proven by companies like Dollar Shave Club and Blue Apron. Imagine getting razors or meal kits delivered regularly without lifting a finger—-that's the magic these models offer. However, they're not just making lives easier for customers; they're also enabling businesses to generate higher, more stable revenue.

Curious to learn more? Read on as in this article, we'll explore:

• Different types of subscription models

• How these models keep customers coming back for more

• The financial perks for businesses

• Tips for creating successful subscription services

Whether you're a business owner looking to adapt or a consumer curious about this trend, this guide will help you navigate the subscription e-commerce landscape.

Types of subscription-based e-commerce models

Subscription services come in all shapes and sizes, but they generally fall into three main categories. Let's take a closer look at each one.

Replenishment subscriptions

Ever run out of coffee just when you need it most? Replenishment subscriptions have got you covered. These services automatically send you everyday items before you run out. 

Atlas Coffee Club is a perfect example. They ship freshly roasted, single-origin coffee to subscribers monthly, so you're always stocked with your morning brew. You can adjust delivery frequency based on your consumption, ensuring you never face a caffeine-less morning again.

Curation subscriptions

If you love surprises, curation subscriptions are right up your alley. These services send you a carefully chosen selection of products based on your preferences. Take Birchbox, for instance. They deliver a monthly box of personalized beauty samples, letting you discover new products without committing to full-sized versions.

Access Subscriptions

Access subscriptions in e-commerce are all about exclusive perks and products. FabFitFun is a prime example, offering subscribers a seasonal box of full-size beauty, fitness, and lifestyle products at a fraction of their retail cost. Members also get access to exclusive sales and a community platform. 

How they build customer loyalty

Ever wonder why subscription businesses seem to have such die-hard fans? Let's dive into how these models turn one-time buyers into loyal subscribers.

Convenience and personalization

First off, subscriptions make life easier. For instance, instead of remembering to buy dog food every month, Chewy.com can automatically ship it to your door. This set-it-and-forget-it approach saves time and mental energy, ensuring you never run out of essentials. Additionally, many services use your past choices to personalize future deliveries, creating a tailored experience that improves over time. 

For instance, Trendy Butler, a men's clothing subscription service, uses AI to learn from your style preferences and past feedback. Each month, they send a curated box of clothing items tailored to your taste. As you provide feedback on each delivery, the selections become more refined, increasing the likelihood that you'll love what you receive. This combination of convenience and personalization not only saves customers time but also increases satisfaction, turning casual shoppers into loyal subscribers.

Exclusive benefits and community building

Subscribers often get special treatment. For instance, Loot Crate members receive exclusive collectibles and gear from popular franchises, often before they're available to the general public. This feeling of being part of an "insider" group can be powerful. 

Some subscriptions, like Hunt A Killer (a murder mystery box), go a step further by creating communities where members can connect, share theories, and solve complex puzzles together. These VIP perks and shared experiences foster a sense of belonging, turning customers into brand advocates.

Creating habits around the service

When you use a service regularly, it becomes part of your routine. Take HelloFresh, the meal kit delivery service. By providing weekly recipes and ingredients, they've made cooking at home a habit for many subscribers. Before you know it, you're looking forward to your HelloFresh night every week.

In other words, subscription models foster loyalty by seamlessly integrating into customers' lives and routines. 

Generating recurring revenue

As mentioned earlier, subscription models aren't just great for customers; they're a goldmine for businesses too. Let's see why.

Predictable income streams and increased customer lifetime value

Imagine knowing exactly how much money your business will make next month. That's the beauty of subscriptions. For instance, if you have 1,000 subscribers paying $10 a month, you're guaranteed $10,000 monthly. 

Plus, since customers stick around longer, their lifetime value—the total amount a customer spends with a company over their entire relationship—increases. Adobe's shift to a subscription model for its Creative Suite shows how this approach can significantly boost a company's profits—its revenue from subscriptions began to surpass that from previous licensing models by 2016.

Reduced customer acquisition costs

Getting new customers can be expensive—around $70 in the e-commerce industry. But with subscriptions, you don't need to constantly hunt for new buyers. Once someone subscribes to a service, for instance, they're likely to stay for months or even years. This means the company can spend less on advertising and more on improving its product.

Opportunities for upselling and cross-selling

Subscription models make it easier to sell additional products or services to existing customers. Let’s use Amazon Prime to show this effectively:

Upselling: This involves encouraging customers to buy a more expensive version of what they're already purchasing.  Since they're already Prime members, Amazon can easily offer upgrades like Amazon Fresh (grocery delivery) for an extra monthly fee.

Cross-selling: This is suggesting related or complementary products to what a customer is buying. When Prime members buy TVs, for instance, Amazon recommends Fire TV Sticks. As members are already logged in and have their payment details saved, making additional purchases is seamless.

These strategies leverage the existing relationship with subscribers, encouraging them to spend more and increasing Amazon's revenue per customer beyond just the basic subscription fee.

Implementing successful subscription models

Sold on the idea of subscriptions? Here’s how to make it work for your business.

Identifying suitable products/services and pricing strategies

Not everything works as a subscription. You need to offer something people need regularly or something that provides ongoing value. Pricing is crucial too. Quip's tiered pricing model for their electric toothbrush subscriptions, with options for different brush head materials and replacement frequencies, caters to various oral care preferences and budgets. This approach allows customers to choose a plan that best fits their needs, increasing the likelihood of long-term subscription retention.

Leveraging data for personalization and improvement

The key to keeping subscribers happy is understanding them. Use data to personalize the experience. BarkBox, a monthly subscription service for dog owners, is a great example. It analyzes your dog's size, breed, and preferences (based on past reactions to toys and treats) to customize each monthly box. This personalized approach helps keep subscribers engaged and their dogs happy, increasing the likelihood of long-term customer retention.

Addressing challenges

Running a subscription service isn't all smooth sailing. You'll face several challenges such as:

• Subscriber churn: This is when people cancel their subscriptions. It's a major issue for subscription businesses.

• Maintaining value: Consistently delivering value over time can be difficult, especially as customer needs and preferences change.

• Competition: As the subscription market grows, standing out becomes harder.

To combat these challenges, focus on continuously providing value and improving your service. Let’s look at how MeUndies, a subscription underwear service, addresses these:

• Combating churn: They offer a loyalty program with increasing discounts for long-term subscribers and the ability to skip or pause deliveries.

• Maintaining value: MeUndies regularly introduces new designs, limited edition prints, and collaborations with brands or artists to keep their offerings fresh and exciting.

• Staying competitive: They've expanded their product line to include loungewear, for instance, creating a more comprehensive comfort-wear experience.

By constantly evolving its service based on customer feedback and market trends, MeUndies works to keep subscribers engaged and loyal in the competitive apparel subscription market.

Conclusion

Subscription-based e-commerce is transforming online retail, cultivating loyal customers and providing businesses with predictable revenue streams. For consumers, it offers personalized convenience. For businesses, it's a pathway to sustainable growth. 

The only question now, is this: how will you leverage its potential?