The French design house, Hermes, has a tie subscription model. The fashion brand, Ralph Lauren, rents out clothes. Lifestyle brand, Eleven James, has a subscription model for watches.
What is common between the above examples?
All these are luxury brands catering to high-end customers.
The subscription model in luxury eCommerce is catching up across industries—from cars to jewelry to fashion.
And it’s no surprise why.
Studies reveal 25% of global luxury sales are expected from eCommerce by 2025 (Statista). And with subscriptions gathering momentum, luxury brands want a slice of the cake too.
But is running a subscription model in the luxury space the same as in other industries? How does a luxury subscription model work? And how can a luxury eCommerce brand set up a subscription model?
In this blog, we deep-dive into understanding the what, why, and how of luxury subscription services.
Let’s get started!
What is a subscription model?
A subscription business model is where customers sign up/ subscribe to receive products and services on a recurring basis at pre-defined periods. Subscription models can have a subscription fee or can be free.
There are different formats of the subscription model, for example, subscription box, replenishment model, bargain subscription model, fixed price model, etc. Each of these types have specific benefits depending on the different industries.
For example, for grocery subscriptions, free deliveries would make a considerable difference to customers as the deliveries would be more frequent, and they can save on delivery charges.
However, for luxury subscriptions, a discount or a surprise product might be more valuable and enticing for customers. And so the benefits and perks of luxury subscriptions might be different.
So, what is a luxury subscription box? And how different is it from regular subscriptions? Let’s find out.
What are luxury subscription boxes?
Luxury subscription boxes are a curated set of luxe, designer, high-end goods. The contents of each luxury subscription box may differ based on the brand, type of products/services, and other factors.
In the luxury subscription business the curated box and bargain model are quite common. Apart from these, brands set up their unique subscription formats, too. Let’s understand a bit more about some of the common luxury subscription models.
Curated box subscription
A curated box subscription works on the element of surprise. Here, customers do not know exactly what product they’d receive. The products are put together to match customers’ preferences and tastes.
This type of subscription format works particularly well for the luxury eCommerce market because subscribers want to try out new and latest products. Moreover, most luxury items are related to lifestyle, fashion, and trends, which aren’t necessities but more to do with desire.
Bargain or access subscription model
Since luxury products have a significantly higher price, brands often use discounting strategies to attract customers. This discount strategy is applied via the subscribe and save subscription model.
In this type of subscription model customers subscribe to receive a special discount and a bargain deal on products. This makes it easy for luxury shoppers to sift through luxury products available at discounted prices. So, they can pay less for their luxury items and services.
The bargain subscription type works on the element of exclusivity. Customers feel good when they have access to exclusive products at discounted prices.
Luxury customers aren’t all in a position to afford expensive luxury boxes. Similarly, brands that launch luxury subscription services, too, try to first experiment to test the waters. That’s where the pay-as-you-go subscription model comes in.
Here, customers pay only for the amount of products or services they use. They can choose which and how many luxury products/services they want in every delivery. This way, they do not have to pay extra.
Let’s peek into some of the best luxury subscription boxes to understand more.
Examples of the best luxury subscription boxes
Ipsy Glam Bag X
Ipsy Glam Bag X is a glamorous makeup subscription. Subscribers receive five products, and exclusive access to discounts, among other benefits. Subscribers can upgrade their subscription to the Icon Box, which includes eight products.
Hermes Tie Society
Another brand offering top-notch luxury subscription services is Hermes. Customers can subscribe to the Hermes Tie Society to receive a new tie every month, quarter, or two months. Subscribers get benefits such as free delivery, professional laundering, tie reshaping, repairs and access to in-person events at the Hermes store.
The Opulent Box
Another brand that has adopted the subscription model in luxury eCommerce is jewelry brand, Opulent. The Opulent Box subscription gives customers custom designer jewelry boxes delivered four times a year. Subscriptions start with a survey to understand customer preferences to provide tailored experiences and luxury surprises.
Cigar By Vices
Cigar By Vices is a cigar subscription that delivers an assorted collection of cigars every quarter. The subscription box also includes cigar accessories, a booklet about stories of cigar makers and other tools that complement the experience.
How is the luxury subscription model different from the non-luxury?
Apart from the products and prices, too, there are many ways in which luxury subscriptions differ from the non-luxury subscription market. Here are some factors that differentiate the two.
1. Niche customer base, lower sign-ups
Subscription models in industries such as food and beverage, publications, online streaming services, etc. cater to mass consumers because these products and services are a necessity for all.
But that’s not the case in the luxury subscription model. Luxury items are not needs; they are wants. And because luxury products are expensive, they cater to a small consumer segment.
A niche customer base means lower sign ups compared to other sectors such as consumer goods, online publications, etc.
2. Higher levels of personalization
Compared to subscription models in non-luxury markets, luxury subscriptions offer a higher level of personalization.
How? First, the number of customers in this segment are lesser, and hence, brands can pay more attention to each individual or every small group of customers within their client list.
And second, customers pay significant amounts for products and services and hence, they’re more demanding. They expect nothing less than VIP treatment and individual attention.
3. Higher virality
Most consumers sign up for luxury subscriptions because they want to be seen associated with the brand. Luxury subscription customers feel proud of the subscription products they use or carry. And hence, they readily spread the word amongst their social circles.
Brands can use this opportunity to motivate them to share reviews or talk about the subscriptions in return of incentives. When subscribers are impressed with their luxury subscriptions, they easily share the sentiment with more consumers.
4. Higher churn
Since the price tags attached to luxury subscription services are high, customers often expect VIP treatment and leave no room for errors. Even a small bad experience could result in the cancellation of subscriptions.
According to a study by McKinsey, 15% of consumers sign up for subscriptions. Since subscription brands are niche and cater to one type of products only, most luxury subscribers end up subscribing to more than a few subscription boxes. For example, one each for clothes, shoes, watches, etc.
In such a scenario, they may not want to continue paying for subscription services that do not meet their demands of VIP experiences. And hence, the churn rate in the luxury subscription business space is high.
Consumer psychology plays a vital role in the subscription model in luxury eCommerce. If you’re a luxury brand wondering how to set up a luxury subscription service, you must first get into the psyche of your target audience.
Luxury subscription models and its target audience: the secret sauce
Typically, luxury brands have one type of consumer—those who are willing to shell out a big amount for a significantly high priced product.
But what leads this consumer segment to do so? Here are some of the psychological factors behind luxury subscriptions and subscribers:
1. High-end products increase self-esteem
Many luxury consumers regard luxury brands and products as superior to non-luxury items. So, when they buy expensive, luxury products and services, they feel assured, proud, and confident. Buying premium products helps boost the buyers’ self-worth.
2. Provides subscribers a sense of belonging
Many luxury consumers buy premium goods in an effort to belong to a specific social group. It’s not necessary that all the customers who buy luxury subscription services have the financial capacity to afford it. They may be in debt but still choose to buy luxury subscriptions under peer pressure. Luxury brands use FOMO and urgency as strategies to entice such customers to buy their subscriptions.
3. A belief that high price equals better quality
Some luxury consumers believe that the more expensive products are, the better their quality.
- Many customers buy luxury goods to belong to a specific social group
- Buying luxury products gives customers a sense of accomplishment
- Some customers believe high price equates to better quality
- Luxury products provide a sense of uniqueness
Benefits of subscription model in luxury eCommerce
1. Predictable revenue
Revenue can be predictable, thanks to the subscription model. And this is an advantage, especially during phases of uncertainty and market slowdowns. The recurring, predictable revenue can help you plan your company finances better.
2. Better customer engagement
Customers choose subscription models for convenience and better experiences. As they get into an exclusive relationship with your brand, you can create multiple engagement opportunities to strengthen your long-term association.
3. Easy to get customers to try new products
Since customers are in an exclusive association with your brand, you can promote your newly launched products to them with greater success. For example, offer them a discount to try a new product or add the item as a surprise in the subscription luxury box.
4. Lower retention cost
Subscribers have signed up for regular purchases and hence, you won’t need to spend money on marketing campaigns to bring them back to your eCommerce store frequently. You can utilize your budgets to run loyalty campaigns for your subscribers.
5. Subscription model is more sustainable
In a subscription model, revenue is cyclical—brands lock customers into long-term models. This offers revenue guarantee to brands. Moreover, brands can improve their products and services to match their customers’ changing needs and grow their business in a much thought-through way alongside customers.
6. Stronger customer relationships
Customers choose subscription options as it provides convenience—they can get products that match their preference delivered to their doorstep without having to place orders at regular intervals. In addition, subscriptions ensure personalized experiences. Brands can scale their offerings with evolving trends and customer preferences.
How to set up a subscription model in the luxury space?
In a study, researchers emphasized on the criticality of luxury brands to keep up with the latest technological advances. Online advertising is changing at fast speed. Data utilization offers several opportunities to luxury brands to generate more sales, as well as challenges.
However, to stay ahead in the luxury market, brands need to have to pick an efficient subscription tool that enables them to evolve and scale. And that’s where Appstle Subscription And Loyalty App’s capabilities come in.
Appstle Subscription provides comprehensive features to set up and manage subscription models in luxury eCommerce.