Lesson 2 of eCommerce subscription business masterclass by AppstleSM.
Subscription models are on the rise – across industries, businesses, and product categories. Through subscriptions, customers receive products on a regular interval. Instead of paying separately for each product or delivery, here, the customer gets billed on a recurring schedule that makes it simpler for them to get access to what they deem a recurring essential.
While statistics definitely show the rise of eCommerce subscriptions and the endless benefits it brings to both businesses and consumers, setting up a subscription model is easier said than done!
The key to getting the subscription business model right is to offer the right products/services. And that’s a significant challenge for the majority of eCommerce businesses today.
According to online media trade magazine DigiDay, ‘figuring out a product that people will (continuously) pay for’ is hard. In this lesson, we’re going to take you through factors surrounding the products/ services you choose for your subscription model.
What is a subscription product?
A subscription product is when customers pay to buy products/services as a subscription, meaning, they get billed for the products/services on a recurring schedule. Subscription products are gaining popularity in every industry and over time, more customers will choose subscriptions over one-time, standalone purchases.
What kind of products can you offer?
We are seeing different types of ecommerce businesses experiment with subscriptions today. But some of the most popular type of products for subscriptions include:
- Products that get consumed (consumable products), such as eatables, cosmetics, grooming, and self care, and hence need to be refilled.
- Products that consumers use on a regular basis and need replenishment, for example, medicine, health supplements, fire extinguisher gas, etc.
- Products that get recycled after use, for example, fashion, books, toys.
- Services to maintain expensive products such as electronics, furniture, and automobiles – one time product + recurring service subscriptions.
How to identify subscription products?
Every business follows a different approach to setting up their subscription model, including choosing the products/ services they want to include in it. But here are a few things we recommend to our customers
Analyze the need for recurring use of your product/service
Subscription models are picking up in the ecommerce industry. All kinds of businesses – software, food & beverage, clothing, streaming services – are offering subscriptions. But that doesn’t mean this model is right for every business.
First, consider if a subscription model is relevant for your products/services. Is your product such that it has a recurring need? If not, the subscription model might not be the right fit.
Answer these questions to figure if your product/service warrants a subscription:
- Is there a recurring need for your product?
- Will your subscription provide more value to customers, compared to a standalone purchase?
- Will your subscription offer something that customers can’t easily find elsewhere?
If your answers to any of these questions are negative, you might want to rethink offering subscriptions.
Conversely, if you do have products that customers want on a regular basis, you’re in a good position to begin with!
- In the beginning, restrict the subscription model to just one or two products, to test if the model works for you, and to see customers’ response.
- If you have a lot of products and want to offer all of them on subscription, start with the product that would be the most convincing for your target audience, to buy on a recurring basis.
- Once your subscription model gets rolled out, slowly expand it to other products that you offer.
Key takeaway: Subscription product management is not as easy as it may seem and should be carefully thought through.
Start with your target customer profiles
If you’ve gone through Lesson 1 in this series, ‘How to identify the right customers for your subscription model’, you’d know how to identify your customers for a subscription model. Moreover, you’ll know there are different segments and categories of customers within your customer base.
It’s critical to have a clear understanding of what your customers want, or who your new customers will be, and what kind of problems you can solve for them through subscriptions.
Key takeaway: When you know your customers, you know what they’re looking for, and can fulfill their requirements.
Pick products from your store that have a recurring need
The most important aspect to consider while offering subscriptions, is to have products that have recurring purchase potential. All products in your store might not be suitable for a recurring purchase.
For example, certain food, medical, health care and wellness products naturally work well for subscription models. But something like furniture will not. Once you identify these products, you can create subscriptions for them.
Here’s how to identify such products:
- Conduct customer surveys. Ask customers which products they buy or would buy on a recurring basis from your site.
- Analyze your current data. Which products are sold on a repeat basis, and how many?
- Look at your competitors. Are your competitors offering subscriptions? What are the products they’re offering?
Once you assess the adoption rate for the subscriptions of the most obvious recurring need products in your store, you can focus on expanding your subscription to other products. Bundling them to meet a larger need of your customers (e.g. bundling diapers with diaper creams) is also a tactical and strategic play that a few stores adopt, to ensure the sales of products that aren’t fast-selling.
Key takeaway: Always start with the safest, most popular products on your site that tend to see repeat purchases.
Create subscriptions for less obvious products
While it might be the easiest, it is not necessary that subscriptions can work only for items that are purchased on a recurring basis. There might be some products in your store that are purchased just once or twice a year. You can think creatively, and still offer subscriptions for these not-so-obvious products. Most products can be smartly converted to bring in recurring revenue, from cars to cycles to headphones.
How, you might ask? The answer lies in the additional services that such subscription models offer! Here are some ways you can turn less obvious products into subscriptions:
- Include highly targeted service offerings around the product – For some people getting a product serviced, repaired, or upgraded, is a big task and an expensive affair. In such cases, when you offer the product as well as the services around the product, in the form of a subscription, it can work wonders. It would be more economical and convenient for the end customers.
- Bundle two or more products together as a subscription. For example, if you’re a home furnishings store, you could bundle season themed sheets, comforters, and pillow covers into one quarterly subscription. Ikea actually did this, and found massive results.
- Offer several other benefits with the product. For example:
- Fast shipping
- Free delivery
- Installation services
- Service appointments
- Product replacement during repair windows
- Reward points
- Special access to sales or events
- Premium customer service
With a little creative thinking, you can offer subscriptions for most products that otherwise seem unfriendly to recurring revenue..
An example – car subscription! If BMW, Mercedes, Porsche can do it, so can smaller brands
Key takeaway: Position your product as an outcome and an experience rather than a product with excellent features.
Look for products that can be bundled
Bundling products in a subscription, means putting together different products, and providing complementary value by adding products and services to enhance customer experience.
Some ways you can bundle products/services into subscriptions:
- Allow customers to purchase individual items together, by creating a package sold at a smart discount. This kind of bundling works for all products, as customers get to choose the specific products they want to buy as a bundle.
- Enable customers to buy different but related products or components, which would allow them to combine the items into a new product or experience. For example, bundle coffee, sugar, coffee filter, etc. into one recurring bundle.
- A bundle of assorted items. Mix and match different products from your site or from other sister/partner brands, and create a custom bundle.
An example of bundling: Spotify.
Spotify, the music streaming brand wanted to provide more value to its subscribers and so it added Hulu – on-demand TV and movies – as a complementary product in their subscription
This blog article will give you an in-depth view into build-a-box subscriptions or bundling.
Key takeaway: Your aim through bundling should be to provide more value to the customers; take a look at items they tend to buy together to identify what you should create bundles out of.
Cost-benefits when, products/services are offered as subscriptions
You might have many products and services on your site that you want to offer as subscriptions. But can you afford to?
Look for products that you can offer at a reduced price and still make a profit. If you have products that are already priced such that there is no buffer for reducing its price, you shouldn’t offer them as a subscription. While it is not necessary that subscriptions should always come with a discount, they often come with free or reduced shipping cost, the difference borne by the store and eating into the product’s profit.
Here’s what to do:
- Look for products that you can easily offer at a discount, or with other benefits such as free/lesser shipping.
- Choose the best pricing model – flat-rate, tiered pricing, usage-based pricing, etc.
Key takeaway: Approach pricing as a continuous process that is subject to revisions as your subscription model or business grows or changes.
Analyze the potential for discovery and newness in your subscription product category
Customers buy subscriptions for many reasons – convenience, better cost, unique products, etc. However, there’s more to why customers buy subscriptions. There’s a psychological factor, which is all about the ‘experience’!
With fierce competition in the subscription economy, brands use personalization as a key marketing tactic to retain subscribers. With the help of customer data, they offer highly targeted products as subscriptions. These could be new products or products from other brands added in the subscription (Spotify example!), to generate excitement and keep customers happy.
When choosing products or product categories from your site to turn into subscriptions, make sure you choose those that have a potential for discovery and newness.
Some ways to include the newness aspect:
- Allow subscribers to swap products for a different product or product category.
- Add new products that subscribers can use for a short period.
- Offer flexibility. This can help you charge a premium subscription amount.
Key takeaway: Make sure subscribers experience the value your subscriptions bring to them.
Getting your subscription product right will require a lot of thinking. To avoid analysis paralysis, start with the above methods to identify products from your site. Keep in mind, starting is more important. Then, experimentation is key. Learn from your first few subscribers.
Stay agile. Be Flexible. Adapt.
At Appstle, we have built a solution that enables you to set up an ecommerce subscription model in no time. With the Appstle Subscriptions app, you can not just experiment with different business models, but also the products you want to include in the subscriptions you offer, keeping a close eye on how they impact the overall growth of your brand.
Now that you know how to choose the products for your subscription model, the next step is to identify how you want to package them.
In our next lesson, we will take you through understanding the different types of subscription models for ecommerce stores. Subscribe to our blog to be notified and not miss out on the insights!
Looking to get started with ecommerce subscriptions? Click the links below: