by Krish Subramanian, co-founder and CEO of Chargebee
The past two years have marked a tipping point in modern commerce. Suddenly, retail businesses have found themselves struggling to keep up with a dramatic spike in demand as ecommerce sales skyrocketed.
Subscription Ecommerce: Not a Passing Fad
But is the rush to buy online just a temporary side effect of the pandemic? UBS financial services firm predicts that this “subscription economy” will grow to $1.5 trillion by 2025, more than doubling its current $650 billion estimate.
To capitalize on and sustain this growth trend, many ecommerce businesses are adding subscriptions to their offerings. To be successful though, they need to keep several factors in mind.
Issues to Consider
There are many issues to consider when developing a subscription model. For example:
- Acquisition: How do you convince customers to sign up for an ongoing subscription?
- CX: How do you build a delightful end-to-end customer experience that retains customers?
- Payment Options: How do you decide on the best payment gateways?
- Growth: How will you expand into new markets and geographies?
- Pricing: How do you optimize your subscription pricing and packaging?
- Inventory: How will you deal with demand volatility and ensure sufficient supply?
- Compliance: How do you ensure inter-state and international sales are tax compliant?
Three Ways Subscriptions Can Future-Proof Your Business
Despite these questions, building a successful subscription ecommerce business is worth the effort. Continued growth in this area is on the horizon —in part because subscriptions provide merchants more ways to diversify revenue, enhance customer relationships, and extend customer lifetime value (LTV).
There are three primary reasons why subscriptions should be part of your consumer offering, and why you should consider them as a way to future-proof your business.
1. Manage Volatile Supply and Demand.
Ecommerce businesses need to be able to estimate consumer demand and respond to ups and downs. Demand forecasting and readiness will continue to be crucial in the foreseeable future.
Subscriptions can add a level of predictability. For replenishable goods that consumers buy repeatedly, Amazon incorporates subscriptions into its ecommerce offerings with the ‘Subscribe and Save’ option. In addition to infusing its businesses with a steady stream of recurring revenue, this model also helps them predict future demand.
2. Quickly Test and Optimize.
As the old saying goes, practice makes perfect. And as the new saying goes: you can always improve on perfection. To continually thrive in the face of dynamic consumer behavior, ecommerce businesses need the ability to adapt quickly and continuously to make proactive changes to their value proposition, pricing, and packaging.
A subscription model allows companies to offer consumers various pricing and packaging options including monthly and annual memberships, curated and set boxes, Subscribe & Save, and more. Ecommerce companies can choose to run A/B tests to learn what works best for each customer segment.
3. Foster Long-Term Relationships.
Nurturing long-lasting relationships with customers is more rewarding for brands than one-off interactions. Subscriptions can cultivate customer loyalty and improve retention.
The subscription offering itself can also scale with customers. Once they have subscribed, a self-serve subscription model can provide consumers with a wide variety of choices over their consumption decisions, providing them the ability to alter their preferences, pause or skip shipments, seamlessly switch between subscription and ȧ la carte offerings — all can encourage long-term customer loyalty.
For subscription boxes, customization enables businesses to satisfy consumer needs on their own terms and also adds an element of surprise within each box — keeping customers hooked.
How Technology Powers Subscription Strategy and Consumer Experience
Exceptional customer relationships have always been the best currency in business. That’s even more true in the subscription economy. To provide the best end-to-end consumer experience, automating workflows at scale is now more important than ever because it enables you to save time by eliminating workflows and processes with manual touchpoints.
Pricing and packaging testing also involves time-sensitive decisions. Ecommerce companies need the flexibility to experiment, and the insights to learn fast and iterate. Homegrown systems struggle with rapid testing and sophisticated data analysis. These complexities only increase with scale. That’s where automated subscription management and billing can help
To keep their business focus and maintain growth without having to expend resources, ecommerce businesses should consider vendors that make automating complex subscription billing processes their sole mission. They also need a reliable, frictionless payment partner.
For front-end operations to run smoothly, your billing system has to be robust and scalable. That’s rarely the case with homegrown subscription management and recurring billing systems. They are seldom built to scale, and they are expensive and time-consuming to maintain. Every time you need to add more product categories or expand into new geographies, you need to tack on extra code to stay sales tax compliant and change your operations. As you expand globally, it can be an obstacle to rapid growth and flexibility.
Krish Subramanian is the co-founder and CEO of Chargebee, a subscription billing and revenue management solution for scaling businesses. He is based in Amsterdam and leads a global team of professionals to serve customers in 53 countries to drive Chargebee’s growth year over year. Krish is an engineer by profession and a problem solver at heart with over 20 years of experience in the software field.