Subscription commerce is continuing to expand in our daily lives. Consumers now place more emphasis on having easy access to a service/ product and on the quality of the experience, as opposed to owning something outright.
While the benefits to consumers seem obvious (freedom to cancel, budget management…), the benefits that companies can derive in relation to both cash management (predictability and recurring revenue) and increase in turnover (loyalty and increased lifetime value client) also reinforce the viability of this business model.
Beyond the benefits of subscription and the observed shift in consumption habits, can this boom in subscription also be considered as a natural evolution of e-commerce, made possible by the continuing wave of unprecedented technological innovation?
The intensity of the phenomenon made possible by technological innovations?
New technologies play a key role in the development of this new mode of consumption. Thanks to the cloud and the SaaS model, merchants are able to market digital services, in addition to new and flexible offers, while setting up a personalised customer relationship.
The payment market has had to adapt to subscription or pay as you go billing. New players proposing solutions that respond to the need for agility and mobility have emerged and offer companies the possibility of automatic online payments. Thus, if the subscription as such is not new, the abundance of the offer enabled by the possibility of subscribing online, helps to explain the intensity of the phenomenon that we are currently experiencing.
Subscription commerce and e-commerce culture
Ecommerce in Europe was expected to generate 509.9 billion euros in 2016, this equates to a 12% increase on the previous year. Furthermore, in 2015 65% of Internet users made a purchase online. These statistics demonstrate the popularity of ecommerce. Furthermore, our recent study in collaboration with Elabe, found that 62.3% of consumers with a high level of subscriptions make also the most purchases online in general (at least once per week). A bridge between e-commerce and subscriptions seems to be emerging.
The Challenge for Merchants: Establish the best way to monetize these services
After the initial challenges of selling online (creating website and e-shop, optimising delivery, …), merchants must now complete the challenge of creating a subscription offer and defining the best way to monetize it. Three parameters should be taken into account: pricing, packaging and payment. In a subscription context, the payment will be multiple (each month or each use). As explained by pricing specialist Simon-Kuchner & Partners, it is no longer just the price of the product that is important (cost of raw materials, cost of production, transport, margin), but the value associated with the benefits (perceived by the customer). Therefore, in the case of subscription to a tangible product, a beauty box for example, packaging is of paramount importance since receiving the box and discovering the contents are an important part of the customer experience. Particular attention must therefore be paid to the modalities of design and production.
This leads us to the question: what is the most appropriate payment method for recurring payments, in order to make the payment step as fluid and flexible as possible? Merchants should ensure that they propose frictionless payment methods for the customers, which enable them to automate the payment process and also optimise their customer lifetime value (and turnover as a consequence).
Subscription economy is well and truly here! At present it is developing mainly online, although players such as Amazon are bringing down the barriers between the virtual and real world. The ecommerce giant recently launched Amazon Go, which combines a physical sales point and a recurring online payment via an application. New players offer new services and companies are having to reinvent themselves and redefine their business models, the success of which undoubtedly resides in the combination of a quality consumer experience and a renovated payment stage.
Read more on How to create a successful subscription business.
